Renters paid $441 billion for apartments and houses this year, a $20.6 billion increase, as fewer Americans owned their homes and landlords with tight inventories raised leasing charges, Zillow Inc. said today.
The number of rental households grew by 2%, or 770,000, nationally during 2014, according to the Seattle-based real estate information service. In the New York metropolitan area, the largest U.S. housing market, the number of rental residences expanded by 63,000 to 3.4 million, with tenants spending a total of $50 billion for shelter.
Demand for rentals has grown after owners of more than 5 million U.S. homes went through foreclosure since 2007, mortgage lending tightened and younger families postponed buying because they cant afford or prefer not to own property. That may change slowly as rents rise and the economy improves, said Skylar Olsen, senior economist at Zillow.
“Spending a lot for rent means it’s hard to save for retirement or a down payment and makes it more difficult to move from being a renter to being a homeowner,” Olsen said in a telephone interview. “At the same time, it gives greater incentives to start seeking out an opportunity to be a homeowner.”
Zillow projects rents will increase 3.5% in 2015, compared with a gain in home values of more than 2.5%. The U.S. inflation rate was 1.3% in the 12 months through November.
Home prices will rise more slowly than rents because fewer investors are competing to buy a smaller supply of discount-priced foreclosures, while the inventory of nondistressed properties is growing as prospective home sellers gain equity with appreciating prices, Olsen said.
The U.S. homeownership rate fell to 64.4% in the third quarter, an almost 20-year low, according to the Census Bureau. Renter-occupied residences grew by 1.2 million, while owner-occupied households fell about 657,000 in the 12 months through September. The rental vacancy rate dropped to 7.4% in the quarter, creating a shortage of about 350,000 homes by historic standards and giving landlords leverage to raise rents.
Rents rose an average 3% this year, according to the Zillow report. The steepest increases were in areas where technology job growth and limited new development drove up housing costs. Rents in San Jose, Calif., already the nation’s highest in 2013, jumped 12% to an average of $1,807 a month. San Francisco’s leasing costs climbed 11% to $1,598, and Denver’s increased 8.7% to $1,066.
Builders of multifamily homes broke ground at an annual pace of 340,000 in November, compared with an average 266,000 since 1994, according to Commerce Department data. Nationally, most of the new apartments being built are higher-cost units, which is limiting landlords’ ability to raise rents at the high end of the market while doing little to ease prices for tenants at the low end, Olsen said.
Rents in the New York area increased 1.7% from 2013, to a monthly average of $1,228, according to Zillow. They climbed more slowly than the U.S. average as some tenants, even in pricey Manhattan, became buyers or balked at paying landlords more.
A report this month by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate showed the median monthly apartment rent in Manhattan was $3,225 in November, up 2.6% from a year earlier. Rents in Brooklyn climbed 5.3% to a median of $2,948, while in Queens, they fell 8.2% to a median of $2,525, the firms said.