American renters continued to foot the bill for the uneven housing recovery in 2014, as growing rental demand outpaced the available supply of properties.
Rent in the U.S. grew $20.6 billion in 2014 from 2013 – a surge of about 5 percent, according to a report released Tuesday from Zillow. The average renter this year paid an extra $26 a month, or $312 more per year, compared with 2013.
Since the turn of the century, rental prices have risen at twice the pace of income growth, and the trend is especially problematic for younger generations and would-be first-time homeowners, says Skylar Olsen, an economist at Zillow.
“You pair record-high rents with record-high student loan payments and you’ve got a one-two punch there,” Olsen says. “It’ll be hard for many young Americans to save for down payments or retirement. This’ll have implications for many years to come.”
According to Zillow’s assessment of 50 American metropolitan areas, renters in the New York-Northern New Jersey metro area paid more than 10 percent of the country’s total rent in 2014. The most expensive cumulative rents were seen in the New York-Northern New Jersey and Los Angeles metro areas, which paid $50 billion and $34 billion in rent, respectively.
The cheapest cumulative 2014 rents were in Birmingham, Alabama, where renters paid $1 billion; Louisville, Kentucky, where renters paid $1.2 billion; and Buffalo, New York, where they paid $1.2 billion.
Rent in 2014 grew the fastest in the San Jose, California, and San Francisco metropolitan areas, increasing by 14.4 percent and 13.5 percent, respectively.
“These are places that have had very strong job growth [and] that’s led to an influx of the population who start out as renters, whether they move to buy homes later or not,” Olsen says.
Increasing demand pushed prices in 2014 up as more and more Americans are delaying or forgoing homeownership, which according to census data, is at its lowest level since 1995. According to Zillow, the total number of renters is estimated to have grown 1.9 percent in 2014, or by about 770,000 additional renters.
“As rents continue to increase and rental affordability becomes more and more of an issue, that also will send people back to the homebuying market when they can,” Olsen says. “Both rents and housing values … will be seeing a return to normalcy in coming years as everything balances out.”