When Sarah Da Costa had to find a new apartment in Chicago this year — with her husband, baby and dog — the whole process felt awkward. First, there were open houses, something she thought was just for buying houses. In one of them, “literally, there was no room for people in the house, and we got there just as it started”.
So, she says, the listing agent told her to “submit your best and final!” Her real estate agent said yes, that meant above the asking rent. Da Costa had already lost once, so they agreed to offer more.
“In this place that was really smaller than the place we lived in before, and that was more expensive, we offered $150 more per month rent,” she says. “And we still don’t understand.”
This happened again and again. And it’s not just in big cities.
Brandon Schwedes, of Port Orange, Fla., had no plans to move this year, and the 40-year-old single father – a logistics account executive – didn’t have the money set aside to do so. But the landlord said he wanted to sell the place, so Schwedes started looking. That’s when he got another shock.
“I found the house I lived in posted for rent for $2,000,” he says. “And I was paying $1,400.”
The owner said he knew it was out of his reach. Schwedes’ rent was already nearly half of his take-home pay. Still, he applied for another place listed at $1,750 and was told he had a lock. But the next day, the agent apologized, someone else had just offered another $200, without seeing it.
Schwedes eventually found a place in his old rental, a much smaller house with no yard or garage and farther from his children’s school. He says the whole process has shaken his long-held hope that at some point he would be able to buy a house. He wants to build equity and have something to pass on to his children. He also longs for a place he can decorate, where the family can always gather for the holidays and future grandchildren can visit, “the things you think are normal, that you see in movies as a kid”.
Now he feels that cornerstone of the American dream will never happen for him.
“I’ve lived in the same area for 20 years. I know why these houses were renting and why they were selling,” he says. “But what’s happened in the last two years is like a boom… Destruction.”
Historically low vacancies have driven rents to record highs
Many forces have combined to create a rental market that is breaking records for shortages and high costs. A major problem is the historic shortage of housing.
Jessica Lautz of the National Association of Realtors says the United States “has been under-produced in both rental units and homes for more than a decade” since the last housing crisis. The deficit is in the millions and is especially acute for single-family start-up homes. The amount of new construction started has finally arrived, although supply chain delays mean it is taking longer to complete houses and apartments.
Meanwhile, rising mortgage rates are making it more expensive to buy a home, forcing many to stay in the rental market. And on top of that, the huge cohort of millennials who hit their 20s and 30s are eager to go out on their own.
“And so, as we see, this demand really puts pressure on this huge wave of young adults starting families,” says Lautz. “There is no quick fix.”
In the first quarter of this year, when the rental market tends to cool down, apartment occupancy reached another all-time high – an extraordinary 97.6%. Rent requests for new leases rose 15.2% nationally, and much more in many places.
“There is a severe shortage of rental properties in every price bracket and in virtually every city across the country,” wrote Jay Parsons, RealPage’s head of economics and industry directors. He attributes much of the demand to unprecedented wage growth.
It’s a seller’s market, but homeowners are also struggling with higher costs.
Bashir Nuruddin and his wife own nine rental units in Chicago, one of which has recently opened. “I got so many calls that I stopped answering,” he says. “More than 100 people, between emails and phone calls, contacted me about that apartment.”
He’s had bidding wars, but he says they make him feel sycophantic, so he doesn’t allow them anymore. In fact, it prides itself on offering a below-market rate. But he says the last two years have been difficult.
A tenant failed to pay for almost a year but was unable to evict her because of the pandemic moratorium. When she left, he discovered extensive damage to the site. “On her apartment alone, between lost rents and repairs, I spent over $25,000,” he says.
Also, “I really can’t remember how many appliances we replaced in the last year.” He thinks so much work at home has affected refrigerators, washers and air conditioners. And he saw bids for repairs rise by 20% to 30% as inflation rose.
In light of all this, when the three-bedroom unit, which cost $1,200 a month, opened, Nuruddin put it up for sale for $1,785.
“I increased the rent by a drastic amount, not because that’s what I normally would,” he says, “but because I have to recoup all these losses I’ve had in the last year.”
He figures that in today’s market, he could probably have gotten $1,800 to $2,000 for it. In fact, all three people he showed it to offered more, but he rejected the highest bids.
Nuruddin says he’s also feeling the flip side of the housing market. Renting out apartments is his retirement plan, and he needs to buy more buildings to earn enough income in the long run. He’s been saving up for a down payment, but inflation is eating away at that, and now higher mortgage rates will make his next purchase that much more expensive.
While real estate is his retirement plan, Nuruddin thinks housing should be considered a human right. He would like to see more rent control and greater investment in public housing. And while building more to address the historic shortage is good, he says it should be “the kind of housing that will really solve the problem, not just more McMansions or quick moves that start to fall apart after five or 10 years.”
Some low-income tenants are being excluded altogether
The tight market and skyrocketing rents are making it even more difficult for those who have always struggled to find housing.
“Just the act of applying for apartments is incredibly inaccessible to low-income tenants,” says Lindsey Siegel of the Atlanta Legal Aid Society. “After you pay that application fee once, twice, or three times, you don’t have the money to pay the first month’s rent or the security deposit. And then you’re stuck.”
Dana Johnson received an eviction notice after losing her job as a real estate leasing agent last year. The 54-year-old lives northeast of Atlanta and was determined to stay in her one-bedroom apartment so she wouldn’t have to pay hundreds more in rent on the open market.
She got emergency rent aid to pay what is overdue. But the owner has decided that Johnson needs to move anyway.
“I’m going to have to look for as many jobs as I can because I have to pay astronomical rent right now,” she says.
To help, Johnson has already opened his own company to sell dog clothes.
She has no family in Georgia and says relatives in New York City are already in crowded living conditions. If she can’t earn enough income, Johnson says, she’ll likely look for someone else who’s also struggling and needs a roommate.