RENT PRICES VS. INFLATION AND INCOME GROWTH

With exponential rent growth during the pandemic, shelter is the currently the main contributing factor to inflation. And while rent price growth is slowing nationwide, rent prices have historically grown faster than inflation and income since 1985. 

An eye opening statistic from Real Estate Witch says rent prices have surged by 208% since 1985—from $378 a month to $1,163. 

RENT PRICES VS. INFLATION AND INCOME GROWTH

According to its new research, Real Estate Witch found that the increase in rent prices since 1985 has outpaced inflation by 40% and income by 7%. 

If rent prices had grown at the same rate of inflation since the mid-eighties (149% instead of 208%), median U.S. rent prices would be $939 a month instead of $1,163.

In addition, while Americans’ annual income has outpaced inflation, increasing 194% since 1985, it still remains 7% behind rent growth.

MOST AND LEAST AFFORDABLE METROS FOR RENTERS

With rent prices outpacing income growth for renters in 46 of the 50 most populous U.S. metros, it is becoming increasingly difficult to find affordable rentals. Not to mention the challenge of trying to save for a down payment when living paycheck to paycheck in order to cover rent. 

According to its analysis, rent price growth has exceeded income growth by more than 50% in seven U.S. metros:

1. Denver, Colorado (71%)

2. Las Vegas, Nevada (57%)

3. Charlotte, North Carolina (56%)

4. Seattle, Washington (55%)

5. Atlanta, Georgia (53%)

6. Portland, Oregon (51%)

7. Nashville, Tennessee (51%)

In addition, from 2009 to 2021, rent prices increased by a whopping 60% or more in seven U.S. cities:

1. San Jose, California (85%)

2. Denver, Colorado (82%)

3. Seattle, Washington (81%)

4. Portland, Oregon (72%)

5. San Francisco, California (71%)

6. Nashville, Tennessee (62%)

7. Austin, Texas (60%)

While the above cities are seeing factors that contribute to less affordable renting options, not every metro is facing the same challenges. As of 2009, four cities—Providence, Buffalo, Cleveland, and Pittsburgh—have seen income growth surpass rent increases which causes a decline in the rent-to-income ratio.

The most affordable cities for renters based on the current rent-to-income ratio are:

1. Cincinnati, Ohio (15.5%)

2. Pittsburgh, Pennsylvania (16.2%)

3. St. Louis, Missouri (16.4%)

4. Minneapolis, Minnesota (16.6%)

5. Buffalo, New York (16.8%)\

6. Milwaukee, Wisconsin (17.1%)

7. Providence, Rhode Island (17.2%)

8. Cleveland, Ohio (17.2%)

9. Kansas City, Missouri (17.4%)

10. Louisville, Kentucky (17.5%)

The least affordable cities for renters based on the current rent-to-income ratio are:

1. Miami, Florida (28.5%)

2. Los Angeles, California (25.5%)

3. Orlando, Florida (25.1%)

4. San Diego, California (25.0%)

5. Riverside, California (24.2%)

6. Tampa, Florida (24.1%)

7. Las Vegas, Nevada (23.5%)

8. San Francisco, California (21.8%)

9. New York, New York (21.8%)

10. San Francisco, California (21.8%)

For more information, read the full report from Real Estate Witch here. 

As the construction of more rental units nears completion, leading to an increase in availability this year, many markets are projected to witness a decline in rent growth. However, historical trends from the past four decades indicate that rent prices have consistently outpaced both inflation and income growth. As a real estate agent, it’s crucial to be proactive in assisting renters when helping them develop a plan for homeownership.