Rental real estate is facing a crisis driven by a severe housing shortage. Fewer available homes and rising prices mean today’s renters have increasingly limited options when seeking affordable accommodation.
As demand continues to outpace supply, the threat of increased homelessness looms, with far-reaching implications for the economy. Understanding the causes and impacts of these issues is the key to navigating them and making informed decisions.
The Current State of the Housing Market
According to a recent analysis by Realtor.com, the U.S. housing market is short 7.2 million homes following years of under-building relative to population growth. The gap between single-family home constructions and household formations has steadily widened in the last decade, exacerbated by the COVID-19 pandemic, rising inflation and volatile interest rates.
That said, it’s important to note that this figure may overstate the housing shortage since it doesn't account for new multi-family homes. This accommodation option caters to both renters and homebuyers, largely impacting availability in the market. When included in the calculation, the gap reduces to 2.5 million homes — still a vast divide.
What’s Behind the Housing Shortage in 2024?
Several factors contribute to the housing imbalance permeating the real estate market. On the supply side, rising material costs, limited land for construction and stringent zoning regulations restrict the number of new homes being built.
Demand-side constraints include a rapidly growing population, climbing urbanization rates and stagnating wages. Around 75% of available housing is inaccessible to middle-income families.
Institutional investor activities also contribute to the issue. Data published by Redfin show large organizations purchased 44,000 residential properties — nearly 20% of all available U.S. homes — in the first quarter of 2024. Perhaps more concerning is these investments represent 26.1% of lower-priced homes available within that period. These purchases effectively price potential homebuyers out of the market, who are then left with little choice but to become renters.
Housing Shortage Implications on Renters and Property Managers
As homeownership becomes less attainable due to dwindling property availability, more people turn to rentals as a viable alternative. The ramifications are plain to see.
Rising Rental Prices
Rent costs have soared considerably, with major cities feeling the worst impact. For instance, at approximately $3,200 monthly, the median rent in Miami is about 50% higher than the national median. This is despite the city’s average rent price decreasing by $247 over the last year, per Zillow’s market report. For landlords and property managers, this trend translates to higher occupancy rates and a stronger chance of steady rental income.
Decrease in Affordable Rental Properties
The housing shortage directly affects the availability of low-priced rental properties. According to the Zillow data, over 5,000 rentals are currently available — the highest ever. While this is attributable to multiple factors, the most plausible reason is people simply can’t afford the rent.
Interstate Migrations
The rise of remote working means renters don’t necessarily need to seek housing in mega-metropolitan areas where competition is often fiercest. Instead, they can flock to outskirt communities or even a different state with better living conditions.
For example, despite tying with Florida as the fastest-growing state, South Carolina boasts a 6% lower cost of living than the national average. This would likely drive an influx of renters and potential homebuyers from neighboring states.
The Short-Term Rentals Effect
The rise of short-term staycations through platforms like Airbnb may indirectly contribute to the housing shortage and, by extension, the rental market crisis. Property managers can reallocate their existing home inventory away from long-term renters to make quick money in the vacation rental space. According to a study conducted in New York, these services increased median rents by $125 in 2021, in addition to a 32% increase in the last decade.
Longer Waiting Lists
In many urban areas, landlords are experiencing longer application lists for available units. This increased demand allows them to be more selective in choosing tenants, potentially leading to better tenant quality and reduced turnover.
However, this dynamic also comes with changes in tenant expectations. For instance, income inequality has increased the demand for flexible lease terms. Consequently, property managers may need to offer shorter leases or month-to-month agreements to accommodate this requirement.
A Collective Effort Is Paramount
Intervention measures like reducing tax obligations and upzoning existing areas to allow higher-density development are showing promise. A study by the Boston Fed shows complete tax abatement would increase new home construction by 40% — nearly 1,900 rental units per project.
At the same time, population growth and rising living costs aren’t waiting for these solutions to mature, so more is necessary. The three main stakeholders — policymakers, developers and community organizations — must collaborate on solutions to expand housing availability while balancing renter and landlord interests.
Navigate the Rental Market Amid Growing Housing Shortage
The ongoing housing shortage presents a complex landscape for the rental market by driving up demand and prices while constraining available inventory. Traversing these uncertainties requires informed decision-making through up-to-date market data and expert guidance.
Evelyn Long is a writer that specializes in housing market trends. She is also the founder of Renovated Magazine, where she writes essential resources for renters and homeowners. She has contributed to several other sites like the National Association of Realtors and Realty Executives.
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