The pandemic rental market – just like home sales – is on fire and hurting those with low incomes and people of color, a new study finds.
The demand for rental housing not only reduced vacancy rates to historic lows but also drove up rents, according to America’s Rental Housing 2022, a new report released Thursday by the Harvard Joint Center for Housing Studies.
The overall rental vacancy rate dropped to just 5.8% – its lowest reading since the mid-1980s.
Strong demand also caused rents to increase with asking rents for all professionally managed apartments spiking in the third quarter last year, led by a 14% jump for units in higher-quality buildings.
The prices of apartment properties also are on the rise, at a record high of 17% in October 2021. The spike has especially affected people of color, with a growing number falling behind in their rent and those with low or moderate incomes.
The lack of inventory in the for-sale market, which has kept many higher-income renters from buying homes, is one of the primary factors for the hot rental market, according to the report.
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“After a bit of a dip in the first year in the pandemic, things just really came roaring back in 2021,” says Whitney Airgood-Obrycki, the lead author of the new report. "Households are being shut out of homeownership and there’s also the pent-up demand from the first year of the pandemic when people were kind of staying home and not forming new households.”
Airgood-Obrycki says although federal rental assistance helped many tenants stay current on their payments during the pandemic, lower-income renters of color were especially hard-hit with job losses and were struggling to cover their rents.
Black and Hispanic renters hard hit
Nearly one-quarter of Black renters were behind on rent in the third quarter of 2021, as well as 19% of Hispanic renters. The share of Asian renter households in arrears was slightly lower at 18%, while the share of white renter households was half that, at 9%.
“This disparity reflects long-term discrimination in labor markets that has consigned many households of color to low-wage jobs in the service industry,” says Chris Herbert, managing director of the Joint Center for Housing Studies. “And this sector suffered the most drastic employment cuts over the past two years, which has only compounded existing inequalities.”
While most tenants managed to keep up to date on rent throughout the pandemic, some 15% of renter households were in arrears in the third quarter of 2021. A full 23% of households with incomes below $25,000, along with 15% of those with incomes between $25,000 and $50,000, were behind on their payments in the third quarter of 2021. By comparison, just 5% of households making more than $75,000 owed back rent.
Higher-income households have increasingly turned to renting, driving nearly 70% of total renter household growth between 2009 and 2019, according to the report. The number of renters making at least $75,000 jumped by 48% over the decade, to 11.3 million. With this increase, the share of renter households in this income group rose from 20% to 26%.
Skyrocketing home prices and low for-sale inventories have put homeownership out of reach for many would-be buyers with typical home values climbing 19% year-over-year in September 2021, up from 6% the year before.
The report also found that high-end apartments continue to dominate rental construction while the country’s stock of low-cost rentals is shrinking.
Apart from restrictive zoning, which curbs construction of apartments in many municipalities, developers have had to contend with added material and labor costs, which more than doubled from 2001 to 2019, and were up 9% year-over-year in July 2021, according to the report.
As a consequence, the median asking rent for newly completed apartments jumped from $1,604 in the first quarter of 2020 to $1,715 a year later, putting newly built units out of reach for many moderate- and lower-income households. At the same time, the number of units renting for less than $600 fell by 3.9 million between 2011 and 2019, reducing their share of the rental stock from 32% to just 22%.
"In the coming months, we are going to study whether affordability problems worsen for people who already experience unaffordability," says Airgood-Obrycki says. "Or if we're going to see more unaffordability in general, among households that otherwise might have been more stable."
Swapna Venugopal Ramaswamy is the housing and economy reporter for USA TODAY. Follow her on Twitter @SwapnaVenugopal
This article originally appeared on USA TODAY: Rental market defined by high rent prices, low apartment vacancy rates