Why Rent Will Continue to Increase in 2022

It’s been quite a ride for the housing industry since the start of the COVID-19 pandemic. Between lockdowns, eviction moratoriums, or supply chain snafus, we’ve been confronted with a wide range of challenges in a relatively short period of time. And yet, today, the rental market is not only recovering—it’s roaring back to life. In 2021, rents surged to outpace home price growth, reaching double digits in the month of August. But will this rent surge continue into 2022?

Market indicators suggest more hikes are on their way this year. So what’s contributing to rent inflation? There are a few important factors at play, particularly vacancy rates, housing shortages, and sky-rocketing demand. Let’s take a look.

1. Housing supply dropped to its lowest level ever.

The rate of new home construction has been on the decline for decades and, last year, the number of homes available for sale reached an all-time low. With surging home prices and low mortgage rates, people who already own homes have opted to refinance rather than sell. A lot of would-be homeowners saw themselves priced out of the housing market, keeping them as renters and driving up demand in the rental market. According to research by Redfin, in December 2021, the number of homes for sale was down 22.6% year over year. The number of newly listed homes for sale was down 13.5% year over year, meaning each year fewer homes go on the market.

2. The demand for rental units continues to increase while supply is limited.

In August 2021, rental growth in the 50 largest metro areas reached double digits at 11.5%, while home price growth reached 8.6%! According to iProperty Management, the national rental vacancy rate now hovers at 6.2%, far less than the target vacancy rate of 13%, which means there are far fewer rental properties sitting empty these days. And with housing shortages and more people looking to rent, rental prices are being pushed higher. This is as true in the suburbs, particularly in the South, as it is in larger metropolitan areas like Atlanta and Denver. In the Tampa-St. Petersburg-Clearwater, Florida metropolitan area, for example, rents increased a whopping 30.6% year over year!

3. Supply isn’t keeping pace with demand.

Renters and homebuyers aren’t the only ones stressed about inventory. Property developers and builders are feeling it, too. We’ve all heard about supply chain issues in retail, but all sectors have been affected, including construction. The pandemic saw spiking lumber prices, causing home construction costs to increase along with it. From costly supply chain delays to labor shortages, price increases in the home construction industry are likely to keep inventory low, for the time being, prolonging the development of new housing units.

 Final Thoughts

Inflation, low inventory, and supply shortages are all challenges that will continue to push rent prices higher in the foreseeable future. Only when mortgage rates increase and home price growth slows will we see a slowdown in rental prices. All in all, this convergence of factors bodes well for landlords, as it will likely result in bigger payouts and profit.