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From January through July, U.S. residential rental rates shot up 13 percent, more than double the rate of inflation and the greatest jump in five years, according to Yardi Matrix, which collects and analyzes real estate data.
Rents have been pushed up, in no small measure, because investors ranging from private individuals to private equity firms such as Blackstone have bought $87 billion worth of rental houses during the first half of this year, The Wall Street Journal reported.
We have documented this trend in our stories such as “Invitation Homes to Buy $1 Billion Worth of Houses This Year” (1 Jun 2021) and “Private Equity Partners Target $5 Billion in Rental Houses” (27 Jul 2021).
This year’s massive property grab includes 68,000 single-family rental houses in the second quarter alone, real estate firm Redfin noted, when one in six homes sold was taken by an investor.
In addition, single-family homes built specifically to be rented instead of sold to families accounted for 12 percent of all single-family residential construction from January through June, Yardi found.
Blackstone, Goldman Sachs, and Invesco have collectively committed another $11 billion to the sector since June, the WSJ said.
Low mortgage rates and families’ desire to flee dense, costly cities for roomier, less expensive homes farther away from urban centers have driven home prices to record levels, leaving fewer families able to afford to buy.
Now, thanks to investors targeting rental housing as a new profit opportunity, rents also are rising to, or in some cases past, the limits of affordability for an increasing number of households.
In July, the publicly-traded Tricon Residential reported rent increases of 21 percent, a record for the company, although current tenants renewing leases saw an average increase of only 5 percent. Often, leases limit the amount that rent can increase from one year to the next.
Still, increases for renewing tenants could have been as much as 10 percent if the company didn’t choose to “hold back,” CEO Gary Berman said in an August earnings call with analysts reported by the WSJ.
Tricon opened a $5-billion fund over the summer to buy another 18,000 existing houses; through a separate venture, Tricon continues to commission construction of houses built to rent.
Householders looking to apartments will find no relief there.
In 87 of the country’s 100 largest cities, rents have returned to pre-COVID levels, according to the website ApartmentList.com.
Demand for flats is up because young people who moved in with friends or parents during the COVID War are now venturing back out on their own, the website reported.
Also, the cost of buying a house remains prohibitive for most people, despite continued low mortgage interest rates, and there are not enough rental units to meet demand, especially for households with moderate incomes, ApartmentList noted.
This year “will go down as a year when housing affordability went from bad to really bad, especially in mid-sized markets,” Rob Warnock, senior researcher at ApartmentList, told Business Insider.
“Recent data suggest home prices are starting to cool a bit, but they’re still up 20 percent since January 2020,” he said. “This keeps more households renting for longer.”
TRENDPOST: As we noted in “Blackstone Pays $5.1 Billion for Rent-Controlled Apartments” (20 Jul 2021), with investment companies grabbing the most desirable houses in the most competitive markets, tens of thousands of houses will be off the market for years to come that otherwise would be available to individuals and families as wealth-building investments in the American Dream
That lack will limit wealth creation among younger generations, which already are burdened by student debt and a precarious job market.
These limitations will foment political unrest and amplify calls for debt relief, guaranteed incomes, and other progressive social ideas.