As the US economy got better, people have more money to spend. And where there is more money, well, prices tend to go up. Such it is that renting an apartment or a new office building got more expensive lately, and experts estimate the trend will continue.
A recent market study pointed out that renting costs have increased at a faster pace than the inflation or other household expenses. Over the past five years, the average price of a rent in the United States rose 14 percent to $1,124. Analysts from Reis Inc. indicated that the figure is twice as big as the average price increase in other commodities across the US since 2010, and it is considerably larger than the inflation rate increase, which stands at about 10 percent.
While the idea of more expensive rents fits within the estimates most market experts made for this period, they also hoped that once real estate investments resurge and apartment construction resumes, things will get back to normal. But despite the fact that more apartment blocks are getting built, economists believe the rent price will still go up.
“The only relief in sight is rents in the hottest markets are going to go up at a slower pace, but they’re still going to go up,” explained Hessam Nadji, strategy officer for a real estate services firm called Marcus & Millichap. It is expected that rent prices will average at about $1,161, marking another 3.3 percent increase.
The reason why landlords can afford to ask for more money from their tenants is because there are a lot of young people out there currently looking to get their own apartment. Most of the young people who used to live with their parents in the last couple of years managed to get a job in the meantime that pays well enough so they can afford their own place.
Coupled with the fact that young people have virtually no savings and the cost of buying a new home is way beyond their financial possibilities, renting an apartment seems to be the obvious choice for them. And while there are a lot of new apartments getting built each year, they are either too few or too pricey for the young tenants, or for those who moved in with a relative or a friend after losing their job in the last recession.
About 80 percent of the 238,000 apartments added last year are premium projects, and the average rent for such a luxury is $1,721. Mr. Nadji suggested there is little real competition between affordable apartments owners and “that’s why there’s so much pressure on rents and very little choice for the average renter.” And as the rents go up or new apartments are too expensive, tenants tend to stick to where they live. In turn, this drives competition down, as there are fewer renting options available on the market.
Another interesting fact is that there are less Americans actually owning a home. Last year, less than two-thirds of people living in the United States owned the house they were living in, which is the lowest figure in the past two decades.
But not being tied to a place offers a tenant more flexibility. As most tenants are between 18 and 34 years old, it is expected they change their workplace often, and it is far easier to rent a new apartment than sell the old house and buy another.
Image Source: Reuters
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