Amid the pandemic, wages for the typical U.S. worker have shown growth, but many Americans are finding that their increased earnings are being consumed by rising rental costs.
Between 2019 and 2023, rents have surged by 30.4% nationwide, outpacing the 20.2% growth in wages during the same period, as per a recent analysis by Zillow and StreetEasy, online real estate brokers. Discrepancies between wage hikes and rent escalations were most glaring in major cities such as Atlanta, Charlotte, Miami, Phoenix, and Tampa. Renters in Baltimore, Cincinnati, Las Vegas, New York, and San Diego are also experiencing significant financial strain due to this trend.
The surge in rental expenses commenced during the pandemic, fueled by a surge in demand as individuals sought more spacious accommodations in suburban and rural areas, away from crowded urban centers and neighbors. While rent prices are still on the rise, housing experts note that the rate of increase has slowed considerably compared to previous years.
Contrary to more populated cities like New York, where rents are steadily climbing, some regions like Austin, Texas, and Portland, Oregon, have witnessed a decline in rental costs over the past year, as highlighted in the analysis. StreetEasy Senior Economist Kenny Lee pointed out that New York is moving in the opposite direction compared to these areas.
"New multifamily buildings coming online have eased competitive pressure in many markets, but in New York City construction just simply can't keep up with demand," Lee said in a statement.
The median U.S. rent rose to $1,987 in March, up nearly 0.8 % from a year ago, according to Rent.com. Rent has increased partially because of persistent strong demand from millennials and Gen Z adults who have been squeezed out of the housing market, Zillow's analysis shows. Despite the increases, Americans continue to opt to rent in large part because it's still cheaper than owning a home in major U.S. cities, according to an April Bankrate study.
Rent outpacing wage growth means that many Americans are using an even larger portion of their paycheck for shelter and most likely sacrificing the purchase of other necessities like child care, groceries or saving for a home down payment, in order to do so.
Rising rent, which has helped fuel homelessness across the nation, has forced millions of Americans into spending more than the recommended 30% of their monthly income on housing. Rent increases have also played a major role in preventing inflation from falling, according to the latest consumer price index data.
Currently, Fed Chair Jerome Powell is facing a significant challenge with the housing market's affordability crisis. Despite this, Powell remains hopeful that rents will eventually decrease.
"I am confident that as long as market rents remain low, this is going to show up in measured inflation, assuming that market rents do remain low," Powell stated during a recent press conference. "What will be the exact timing of it? We now think significantly longer than we thought at the beginning."
