Why The Housing Inventory is To Blame for the Skyrocketed Rental Prices

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Why The Housing Inventory is To Blame for the Skyrocketed Rental Prices

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Rent prices have been going up all over the country, which isn’t exactly odd. Every landlord will comment on the yearly rent price increase, mostly to do with a yearly cost of living and a 3-5% increase, nothing to shake a stick at. This past year, however, rent prices have gone up far more than that.

The Effect of Supply and Demand in Rental Housing.

Rent prices have been going up all over the country, which isn’t exactly odd. Every landlord will comment on the yearly rent price increase, mostly to do with a yearly cost of living and a 3-5% increase, nothing to shake a stick at. This past year, however, rent prices have gone up far more than that.

The Effect of Supply and Demand in Rental Housing.

Many might say that the reason rent prices have skyrocketed as much as 21.6% is because the supply is not meeting up with demand. When there’s less supply to meet a particularly high amount of demand, then, the price goes up to meet the value of the said item. You can see this in action with diamonds. Du Beers created their own restriction of diamonds to create a false rarity and therefore drove up the price. Without that, diamonds are intrinsically worthless.

Many might say that the reason rent prices have skyrocketed as much as 21.6% is because the supply is not meeting up with demand. When there’s less supply to meet a particularly high amount of demand, then, the price goes up to meet the value of the said item. You can see this in action with diamonds. Du Beers created their own restriction of diamonds to create a false rarity and therefore drove up the price. Without that, diamonds are intrinsically worthless.

Homes, however, are intrinsically valuable, and the rarity is quite real. While there is growth within the industry, it’s not guaranteed to keep up with demand. There are far more people looking for apartments and homes to rent, and not enough places offering up, as more people than ever in the last “fifty years” are renting. “We never built enough apartments anyway. And now we have the biggest household-formation demographic group in history,” Logan Mohtashami, the “lead analyst at Housing Wire” told Business Insider.

Will Increased Supply Lower the Prices?

Homes, however, are intrinsically valuable, and the rarity is quite real. While there is growth within the industry, it’s not guaranteed to keep up with demand. There are far more people looking for apartments and homes to rent, and not enough places offering up, as more people than ever in the last “fifty years” are renting. “We never built enough apartments anyway. And now we have the biggest household-formation demographic group in history,” Logan Mohtashami, the “lead analyst at Housing Wire” told Business Insider.

Will Increased Supply Lower the Prices?

Quite recently the housing market plummeted by 50% from April 2020 to April 2021, but it does seem to be picking back up. One bedroom rent in Las Vegas increased by 42.1% and it all has to do with how competitive the market is.

Renters are encouraged to “jump” as soon as they see an apartment they might need, and not to “think about it for a couple of days and hope something better will come along in this market.” They may also offer “escalation clauses.”

Quite recently the housing market plummeted by 50% from April 2020 to April 2021, but it does seem to be picking back up. One bedroom rent in Las Vegas increased by 42.1% and it all has to do with how competitive the market is.

Renters are encouraged to “jump” as soon as they see an apartment they might need, and not to “think about it for a couple of days and hope something better will come along in this market.” They may also offer “escalation clauses.”

What that means is that many renters simply cannot afford the places they’re looking at, and are having more family members move in with them. When “the highest bidder” wins the apartment, those in true need are often left by the wayside.

It does mean that, if based on supply and demand, more supply would help solve the problem. With more places to rent, there would be less of a so-called bidding war for renters. While evictions and frequent move outs typically maintain a steady inventory of rentals on the market, the past few years has disrupted an already low housing supply in major cities and has started to affect other areas in the country. Perhaps now, it may begin to pick up again and ease the jump of rent prices as renters feel more comfortable moving, remote work becomes more readily available, and barriers to evictions start lifting. It’s not an outlandish theory, according to Fortune. “Even before mortgage forbearance ends, the market is already starting to cool.”

It may be the best that one can hope for, in order to get more vacancies filled with more affordable rents. Once more people can afford the rent on their own wages without moving back in to mom’s basement, then more landlords will feel the economy begin to stabilize. While the housing supply will likely not be bolstered with new units any time soon, with time, the supply and demand in the rental housing industry will find a new balance.

What that means is that many renters simply cannot afford the places they’re looking at, and are having more family members move in with them. When “the highest bidder” wins the apartment, those in true need are often left by the wayside.

It does mean that, if based on supply and demand, more supply would help solve the problem. With more places to rent, there would be less of a so-called bidding war for renters. While evictions and frequent move outs typically maintain a steady inventory of rentals on the market, the past few years has disrupted an already low housing supply in major cities and has started to affect other areas in the country. Perhaps now, it may begin to pick up again and ease the jump of rent prices as renters feel more comfortable moving, remote work becomes more readily available, and barriers to evictions start lifting. It’s not an outlandish theory, according to Fortune. “Even before mortgage forbearance ends, the market is already starting to cool.”

It may be the best that one can hope for, in order to get more vacancies filled with more affordable rents. Once more people can afford the rent on their own wages without moving back in to mom’s basement, then more landlords will feel the economy begin to stabilize. While the housing supply will likely not be bolstered with new units any time soon, with time, the supply and demand in the rental housing industry will find a new balance.

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©2018 ApplyConnect. All rights reserved

ApplyConnect marks used herein are trademarks or registered trademarks of applyconnect.com. Other product and company names mentioned herein are the property of their respective owners.