After a thankfully short-lived rocky period for rental housing early in the pandemic, 2021 turned out to be a rebound year for the rental market, according to America’s Rental Housing 2022, a new report from the Joint Center for Housing Studies of Harvard University. Demand for rental housing, including both multifamily buildings and single-family homes, surged during the second year of the pandemic, driving up rents and reducing vacancy rates. Higher-income households are a big part of this rebound, in part because of the extreme lack of inventory in the for-sale market keeping would-be buyers renting. Construction in the rental market is also strong, but demand continues to exceed supply.
At the same time, many lower-income households, particularly lower-income households of color, are overburdened by their housing costs and struggle to pay the rent. The pandemic was disproportionately hard on lower-income households who were more likely to experience a job loss. The report points to the unprecedented level of financial support from government sources and the continued need for a safety net.
Key findings from America’s Rental Housing 2022 report
Some of the most compelling data from the report include:
- The number of renter households climbed by more than 870,000 between the first quarter of 2020 and the third quarter of 2021 to a total of 44 million.
- Renters with a household income of $75,000 or more accounted for 70% of the growth in renter households between 2009 and 2019.
- Renters didn’t move as much as people thought during the pandemic: The share of renter households that moved declined from 19.8% in 2019 to 18.0% in 2020 to a record low of 16.8% in 2021. [By comparison the mobility rate for renter households in 2001 was 29.5%.]
- Vacancy rates plunged to historic lows even in prime urban markets.
- Record-high growth in occupied apartments from the third quarter of 2020 to the third quarter of 2021 outpaced new rental completions by nearly 250,000 units.
- Rents increased across the board in 2021, especially for higher quality apartments. Double-digit rent growth occurred in 77 metros during the third quarter of 2021. On an annual basis, Zillow reported that rents were rising at 11 percent nationwide in September.
Large multifamily construction dominates rental construction
While single-family homes built specifically for renters have recently increased, that construction has not offset conversions of rentals to owner-occupied homes. The number of single-family rentals fell between 2014 and 2019 by 770,000 units to 15.3 million.
In contrast, multifamily construction increased the number of rentals in buildings with at least 20 apartments by 1.7 million between 2014 and 2019 to 11 million units. Through November 2021, multifamily starts hit a three-decade high of 466,000 units at a seasonally adjusted rate, far exceeding the average pace of 350,000 units per year from 2014 to 2020.
Apartment price appreciation rose 16.8% annually by October 2021, the fastest pace since the early 2000s and outpacing increases for retail (14.1%) and office buildings (13.7%).
Challenges for the rental market
The rental market is particularly strong for professionally managed buildings, said Chris Herbert, managing director of the JCHS, in a presentation of the report’s findings on January 21.
“Developers are finding lots of strength in the market, but 15% of renters are still behind on their rent and their landlords are feeling the pinch,” said Herbert. “Renters are seeing striking rent increases across the board, which of course is most challenging for lower-income households and people of color.”
In a panel discussion reacting to the report, Peggy Bailey, senior advisor for rental assistance in the office of the secretary at HUD, emphasized the need for more funding for housing policies such as the LIHTC program to increase the supply of affordable rental housing. along with rent subsidies.
Calvin Gladney, president and CEO of Smart Growth America, commented that 49% of the rental housing stock is at risk of natural disasters due to climate change. He recommended changes in zoning and other regulations to stop construction of housing in areas prone to natural disasters.
A positive change for multifamily developers, said Herbert, is the increasing number of mandates that allow for multifamily homes to be built in areas previously restricted to single-family homes. However, Herbert cautioned that other challenges to building affordable housing need to be overcome, such as high land and building costs. He suggested that leaning in to modular, panelized and automated construction methods, along with efficient designs that meet needs for more diverse housing options are all part of the solution to the affordability crisis.
For the full report with charts and data, click here.