The US rental market is among the world's largest and most dynamic, accommodating over 44 million households. It has undergone a rapid transformation in recent years, positively and negatively changing its landscape.
This market has witnessed steep growth in the past decade, primarily due to increased demand for apartments fueled by various factors. For instance, rising mortgage rates, currently at а 16-year high, have led many would-be homebuyers, both individuals and families, to rent instead.
Similarly, Millennials and members of Gen Z are further driving rental housing demand, as many prefer the flexibility of renting. Some want to rent for years before purchasing a home. With many flocking to cities for better employement opportunities, the pressure for more rentals keeps piling up. The urbanization rate in the US is now at over 83 percent of the population residing in urban settings.
Subsequently, the increasing demand for rentals has driven up rent prices, surpassing inflation rates, according to a Pew Research Report. From 2017 and 2022, rent prices in the US surged by 18 percent, burdening 46 percent of renters who allocate а sizable portion of their income to rent payments. The residents of some states, such as California and New York, are particularly impacted by high rent costs.
The COVID-19 pandemic has also affected the rental market, causing widespread economic disruptions and increased tenant delinquencies from people facing financial hardships due to job losses or reduced incomes. Moreover, with the government implementing measures to prevent evicting defaulting tenants, many landlords are experiencing declining rental revenues and struggling to maintain their properties and meet their financial obligations.
When individuals switched to working remotely during the pandemic, it gave them more flexibility. The shift to remote work has changed the rental market since then. The demand for office space decreased, commercial rents fell in response, and downtown areas in particular suffered higher vacancy rates. Conversely, there has been a surge in residential property demand as remote workers seek suitable spaces for their home offices. As a result, landlords have adjusted their investment priorities, focusing on amenities such as high-speed Internet, dedicated workspace areas within units, and workout areas in shared spaces.
Regarding investments, previously, individual landlords held the majority of rental properties. Today, large investment firms, such as private equity firms, have emerged as significant market participants. Not only are these institutional investors acquiring rental properties and purchasing portfolios of properties, they are also concentrating their ownership in specific neighborhoods. This concentration reduces the available rental properties for individuals and small investors and poses affordability challenges for residents, since the control the institutions gain may influence prices, making housing less affordable.
Moreover, technological advances, such as the accessibility of online platforms like Redfin and Zillow, enable investors to browse listings and acquire and oversee rental properties from remote locations. This provision has led to the rise of what is known as “laptop landlords.” Various tech companies have also entered the market, offering services that facilitate property purchases for investors and the remote management of rentals. Landlords also leverage technological tools, such as algorithms, to enhance rental pricing, simplify tenant screening, and automate property maintenance procedures.
Increased regulation and transparency in the rental market are crucial for addressing concerns regarding ownership, rent increases, and affordability. Implementing appropriate regulations allows tenants to understand their rights, knowing landlords cannot impose excessive rent hikes or evictions. Landlords, in turn, also benefit from transparent guidelines that promote fair practices and protect them from legal complications.
