Renting an apartment can be a challenge for new college graduates who are facing the hottest U.S. rental market in a decade, along with some unexpected competition from millennials — people aged 24 to 40 — and even baby boomers — the over-57 club.
“You have aging millennials who are creating families who should be moving from rental situations into ownership but, because of the lack of housing supply, that has been stopped in a lot of instances. And so, what you see is the aging millennial population continues to rent,” says Doug Ressler, manager of business intelligence at Yardi-Matrix, a commercial real estate data and research firm.
“It's not just about millennials, it's not just about [Gen] Z [people under 24], we also see that boomers are making a transition, he added. “Their percentage of moving into rental properties is growing in the last five years.”
There are a variety of reasons older people are opting for rentals, according to Ressler.
“They've lived in a home for so long and they want to be able to reduce their expenses on a fixed income,” he says. “They want to live in a social cohort, like a retirement community, and things like that where it's much more socially amenable to them.”
The asking price of apartment rentals was up 10.7% in September 2021 compared to last year at the same time, according to the National Association of Realtors (NAR).
“It's a hot market. We have never seen this market so hot in the last decade,” says Gay Cororaton, NAR’s senior economist and director of housing and commercial research. “The average rent growth, year-over-year, is about 3-to-5%. We're seeing 11% rent growth now, so, clearly, way above trends we’ve had in the past.”
Renters are feeling the squeeze because the COVID-19 pandemic caused supply chain issues, slowing down home building in the United States. Instead of the usual 5-to-6 month supply of available single-family homes, supply dropped below two months in January 2021. The lack of housing supply means millennials are having a harder time buying a single-family home, which has been the traditional trajectory in the past.
“The whole building industry was beset by supply chain issues," Cororaton says. “Shipments couldn't come in, the price of lumber was rising, manufacturing slowed, workers could not come in [to work], so you have shortages of frames, appliances. So, essentially, just a short supply.”
The housing supply got even tighter during the pandemic as more investors put their money into housing, according to Cororaton, while existing homeowners looked for second homes.
“With the pandemic, there was also a big demand for second homes, for vacation homes. Typically, vacation homes accounted for just about 5% [of the market],” she says. “Early this summer they rose to about 8%. So again, strong demand and strong imbalance of demand and supply caused home prices to rise, made them less affordable.”
The hottest rental markets right now are in the West and South. More renters are moving to Dallas and Houston in Texas, followed by Atlanta, Georgia; New York; Los Angeles; Austin, Texas; Phoenix, Arizona; and Washington, D.C., according to NAR.
Cororaton expects the coming year to be a little better but says the housing shortage is likely to continue for the next few years.
“You know, the old adage of moving from rentals into homeownership, that whole polemic may be changing,” says Ressler. “The sweet spot was always the millennials, and now the millennials are being replaced by the [Gen] Z’s, but the millennials are staying longer and the Z’s are coming on board, and now you've got the demographic of the boomers … What it means is a very profitable and dynamic [rental] market that's going to continue to grow.”