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Housing Perspectives

Research, trends, and perspective from the Harvard Joint Center for Housing Studies

Rental Markets One Year After Our America’s Rental Housing Report

Last year when we released America’s Rental Housing 2022, the rental market was rebounding rapidly. Rents had soared to record highs as vacancy rates dropped to historic lows. Multifamily construction had hit a level that hadn’t been seen in nearly 35 years. With new units targeted at higher-income renters who were driving long-term demand, lower- and middle-income households were facing pervasive affordability challenges. A robust policy response was helping stave off some of the economic impacts of the pandemic, but the deep need for further supports was evident.

A year later, rental markets are at an inflection point, though many of the same challenges remain. In a recent research seminar, I discussed five trends in the rental market over the last year:

1. Demand slowed with a drop in higher-income households

According to data from RealPage, rental demand hit an all-time high of nearly 700,000 net new leases in the first quarter of 2022 before declining rapidly to a loss of just over 100,000 occupied units in the last quarter. Notably, this was the first net drop in occupied units since 2009.

New data from the American Community Survey also point to the changing composition of demand during the pandemic. Before the pandemic, households with incomes over $75,000 were driving increases in overall demand. From 2011–2019, the number of higher-income renter households steadily rose by 3.9 million. The pandemic was the first reversal of this trend in a decade with a decrease of nearly 279,000 higher-income households from 2019–2021.

2. Rents rose, but at a slower pace

Asking rents climbed to a peak of 11.3 percent year-over-year growth in the first quarter of 2022, according to data from CoStar. As the year progressed, rent growth slowed to a more typical pace of 3.4 percent. In the highest-quality apartments, where rents had decreased modestly in the first year of the pandemic, rent growth topped 13 percent at the end of 2021 before falling quickly to a 2.8 percent rate by the end of 2022. Meanwhile, rents have continued to steadily grow in the lowest-quality sector, with growth accelerating to just over 6 percent at the beginning of 2022 and falling only slightly to 4.3 percent by the end of the year.

3. Vacancy rates were up as new supply came online

With cooling demand, vacancy rates were at 6.4 percent in the last quarter of 2022. While this was a marked increase from the historic low of 4.7 percent from mid-2021, it was back on par with the long-run average. At the end of last year, 79 percent of the 150 markets RealPage tracks saw vacancy rates rise by at least 1.5 percentage points year over year with 17 percent rising by at least 3 percentage points. Just 2 percent of markets had decreasing vacancy, a significant change from the year prior when vacancy rates were decreasing in nearly every market.

Rising vacancy rates were in part a function of robust multifamily construction coming online. More than 370,000 multifamily units were completed by the end of 2022. An additional 545,000 units were started last year, and a whopping 936,000 units were under construction, a more than 40-year high. The number of units under construction should provide a significant number of completions in coming years, but cooling market conditions will likely lead to a slowdown in starts.

4. Affordability challenges worsened

The number of cost-burdened renters who pay more than 30 percent of their incomes on rent hit a 20-year high of 21.6 million households in 2021. This was a 1.2 million household increase over the 2019 pre-pandemic level and included a record 11.6 million households who were paying more than 50 percent of their incomes on housing. Cost burden rates also ticked up more than 2 percentage points to 49 percent, only slightly below the all-time peak set in 2011.

Large increases in cost burdens coincided with the loss of low-rent units. The number of units with contract rents under $600 in real terms dropped by nearly 1.2 million from 2019-2021, marking one of the largest two-year declines of the last 15 years. The loss of these units puts additional pressure on lower-income households who are the most likely to be cost burdened and behind on rent.

5. Policy bright spots shone through

While affordability challenges persisted, 2022 was a year of policy momentum. The omnibus spending bill increased funding for tenant-based rental assistance, helping an additional 12,000 very low-income households afford housing. The Department of Housing and Urban Development also continued its funding to help prevent evictions, and several state and local governments enacted right to counsel legislation. On the homelessness front, the US Interagency Council on Homelessness issued a strategic plan to reduce homelessness by 25 percent by January 2025, building on the House America initiative launched in 2021 that has already permanently housed 100,000 people in 150 communities.

At the state and local level, the Department of Treasury reports that more than $14 billion of state and local fiscal recovery funds from the American Rescue Plan have been dedicated to addressing short- and long-term housing needs. Voters also approved nearly $2 billion in affordable housing bonds, according to the National Low Income Housing Coalition, and passed ballot measures for new taxes and fees to generate revenues for affordable housing programs.

Going forward, these important policy measures will help make a dent in the affordability and housing insecurity crises, but continued and expanded efforts will be needed to ensure that every renter household has an affordable place to live.

Funding for our America’s Rental Housing research is provided by Wells Fargo.