Affordability and Renter Mobility: Insights on the Rental Market

When 2021 began, U.S. rent prices were in a slump. Many young renters had moved back in with parents and others were uprooting to more affordable homes to work remotely. In some of the most expensive rental markets and neighborhoods, these shifts led to softening rents and even drops.

Fast-forward to the summer, and rent growth nationally rivaled the super-charged housing market, with many metros logging more than 15% year-over-year increases in typical rent.

The rental picture, however, is far from uniform, says Zillow economist Alexandra Lee.

“Some markets are still on the rebound. Some markets never really experienced a slowdown. Some markets are well above their pre-pandemic levels or even more expensive than they were projected to be before the pandemic,” Lee says.

As the year comes to a close, the conversation has shifted to affordability: Can renters keep up or save enough to make the transition from renting to owning that most typically happens around age 36? And could rent growth push renters to spend an even greater share of their income on housing?

“Nationally, the rental market is stronger and more expensive than it was projected to be even before the pandemic,’’ she says, “but a lot of landlords are probably still facing the rebound in the rental market.”

Those rebounding markets include the nation’s most expensive ZIP codes—including California’s San Jose and San Francisco as well as New York City, where prices are still below where they would have been based on pre-pandemic trends, Lee says. Hardest hit in those cities: The most expensive rentals, especially high-rise luxury condos.

Meanwhile, rent increases in smaller metros could turn what had been some of the nation’s more affordable locales into some of the least affordable by year’s end as renters in those markets spend a greater share of their income on rent.

For landlords and property managers, this could create a significant shift in market demand. The combination of growing home values and increasing rents could mean that households will continue to rent for longer than they might have otherwise—and they may be driving demand for larger multifamily and single-family rentals.

“With home value growth in overdrive right now, and rent high as well, we are seeing the most difficult situation on record for prospective home buyers—people who are trying to move from renting to buying,’’ she says.

The Zillow Rental Consumer Housing Trends Report 2021 provides additional insights into the financial stressors facing renters and the challenges facing landlords and property managers as they seek to recoup losses, grow their businesses, and invest. The report also provides insights into what renters want, what they pay, and the growing use of technology in all aspects of the rental process. Download the full report here.

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