When Sarah Da Costa had to find a new apartment in Chicago this year — along with her husband, baby, and dog — the whole process felt weird. First there were open houses, something she thought was just for buying houses. In one, “literally people couldn’t even get into the house, and we got there as soon as it started.”
Then, she says, the listing agent told her to “submit your best and final!” His real estate agent said yes, which is above the asking rent. Da Costa had already lost once, so they agreed to offer more.
“On this place which was actually smaller than where we lived before, and which was more expensive, we offered $150 more per month in rent,” she says. “And we still haven’t figured it out.”
It happened again and again. And it’s not just in big cities.
Brandon Schwedes of Port Orange, Florida, had no plans to move this year, and the 40-year-old single father – a logistics account manager – had no money set aside for it. But her landlord said she wanted to sell the place, so Schwedes started looking. It was then that he had another shock.
“I found the house I was living in posted for rent for $2,000,” he says. “And I was paying $1,400.”
The owner said she knew it was out of her reach. Schwedes’ rent was already almost half of his take home pay. Yet he applied for another spot listed at $1,750 and was told he had a lock on it. But the next day the agent apologized, someone else had just offered $200 more, without seeing him.
Schwedes eventually found a place in his old rent, a much smaller townhouse with no yard or garage and farther from his children’s school. He says the whole process shattered his long-held hope that he might at some point buy a house. He wants to build up capital and have something to pass on to his children. He also longs for a place he can decorate, where the family could still gather for the holidays and where future grandkids could visit, “the things that you think are normal, that you see in movies growing up.” .
Now he feels that this cornerstone of the American dream will never come true for him.
“I’ve lived in the same neighborhood for 20 years. I know what these houses were renting for and what they were selling for,” he says. “But what’s happened in the last two years is like a boom. … Destruction.”
Historically low vacancy rates have pushed rents to record highs
Jessica Lautz of the National Association of Realtors says the United States “has been underproducing both rental housing and homes to buy for over a decade now” since the last housing crash. The shortfall runs into the millions and is particularly acute for single-family start-ups. The number of new builds that have been started is finally on the rise, although supply chain delays mean it is taking longer to complete homes and apartments.
Meanwhile, rising mortgage rates are making it more expensive to buy a home, forcing many people to stay in the rental market. And on top of all that, the massive cohort of millennials reaching their late 20s and early 30s are eager to move on their own.
“And as we see that demand really push against this huge wave of young adults starting household formation,” Lautz says. “There is no quick fix.”
In the first quarter of this year, a period when the rental market usually cools down, the apartment occupancy rate reached a new all-time high – an extraordinary 97.6%. Asking rents for new leases rose 15.2% nationally, and far more than that in many places.
“There is a severe shortage of rental housing at all price points and in virtually every city across the country,” wrote Jay Parsons, head of economics and industry at RealPage. He attributes much of the demand to unprecedented wage growth.
It’s a seller’s market, but homeowners are also grappling with higher costs
Bashir Nuruddin and his wife own nine rental units in Chicago and one recently opened. “I got so many phone calls that I just stopped answering calls,” he says. “Over 100 people, between emails and phone calls, have contacted me about this apartment.”
He’s had bidding wars, but he says they make him feel dishonest, so he doesn’t allow them anymore. In fact, it prides itself on offering a rate just below the market. But he says the past two years have been difficult.
A tenant stopped paying for most of the year, but couldn’t evict her due to the pandemic moratorium. When she left, he discovered extensive damage to the place. “His apartment alone, between lost rent and repairs, I spent over $25,000,” he says.
Also, “I really can’t remember how many devices we’ve replaced in the last year.” He thinks working from home has taken a toll on fridges, washing machines and air conditioners. And he’s seen bids for repair jobs increase by 20-30% as inflation rises.
Given all that, when the $1,200-a-month three-bedroom unit opened, Nuruddin listed it for $1,785.
“I raised the rent by this drastic amount, not because that’s what I would usually do,” he says, “but because I have to recoup all those losses I’ve suffered over the last year.”
He calculates that in today’s market, he probably could have made between $1,800 and $2,000. In fact, the three people he showed it to offered more, but he rejected the higher offers.
Nuruddin says he is also feeling the setback in the housing market. Renting apartments is his retirement plan, and he needs to buy more buildings to have enough long-term income. He’s been saving for a down payment, but inflation is eating away at that, and now higher mortgage rates will make his next purchase much more expensive.
Even though real estate is her retirement plan, Nuruddin believes that housing should be considered a human right. He would like to see more rent control and more investment in social housing. And while building more to address the historic shortage is a good thing, he says it should be “the kind of housing that’s really going to solve the problem, not just more McMansions or quick turnarounds that start to crumble after five or 10 years.
Some low-income tenants are completely excluded
The tight market and skyrocketing rents make it even more difficult for those who have always struggled to find housing.
“Just applying for apartments is incredibly unaffordable for low-income tenants,” says Lindsey Siegel of the Atlanta Legal Aid Society. “Once you’ve paid that application fee once or twice or three times, you’ve run out of money to pay the first month’s rent or the security deposit. And then you’re stuck.”
Dana Johnson has been served an eviction notice after losing her job as a rental agent last year. The 54-year-old lives in northeast Atlanta and was determined to stay in her one-bedroom apartment so she wouldn’t have to pay hundreds more in open market rent.
She managed to get emergency rental assistance to pay the arrears. But the landlord decided that Johnson should move anyway.
“I’m just 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 out, Johnson has already set up her own business to sell dog clothes.
She has no family in Georgia and says relatives in New York are already living in crowded living conditions. If she can’t muster enough income, Johnson says, she’ll likely look for someone else who is also struggling and needs a roommate.