Why are rents rising? Rents are rising in the expensive housing market

Jennifer Fei, 48, has felt the pinch every year. But especially in recent years, the rental market’s stranglehold on their household budgets has tightened.

She moved into a quaint two-bedroom duplex in the Sugar House neighborhood of Salt Lake City about seven years ago. At the time, her monthly rent was $1,300, which she thought seemed like a pretty good deal.

“There’s always been increases over the years — $100 here, $50 there,” Fei told the Deseret News. When she signed her lease for 2020-2021, it went up $150.

Then, for 2022, it skyrocketed by $410, she said.

“In just two years, I saw about a $550 rent increase,” she said. “So it’s pretty significant.”

Now Fei says her rent is just under $2,000 a month.

Meanwhile, their wages have stagnated. According to Fei, she earns around $60,000 a year as a sales representative. During the height of the COVID-19 pandemic, she said she earned less as the pandemic took a toll on her commission, which she earns from selling products to retailers and restaurants.

As a single mother of two teenage children earning what she considers a “decent” income, it’s frustrating that renting a modest two-bedroom home would be so expensive — especially considering wages are nowhere near as good rapid prices have kept pace with growth.

Still, she feels trapped. Looking around the same neighborhood, Fei saw prices skyrocket. The typical two-bedroom apartment in her area “starts at $2,000 a month,” she said. “Most are $2,500 to $3,000 a month, especially in all these new apartments.”

“Who affords that?” she asked.

According to the US Census Bureau, Utah’s median individual income in 2020 was $31,855. For households, it was $74,197.

Why are the rental prices so high?

When real estate prices in Utah and across the country soared to record levels during the pandemic housing frenzy of mid-2020 to early 2022, it had an extraordinary impact on the rental market.

If renters – who were already facing steady annual rent increases before the pandemic accelerated – previously had a tough time, the pressure is only increasing now as the housing market continues to be reeled by mortgage rates in excess of 6%.

Even before the Federal Reserve’s fight against inflation, rents were rising faster in the last two years than in the last 10 years.

Between 2010 and 2020, asking rents increased by 2.6% annually. Fast forward between 2020 and 2022, and rents rose 10.5% annually over that two-year window.

That’s according to a new report released this week by the University of Utah’s Kem C. Gardner Policy Institute and authored by Dejan Eskic, a senior research fellow at the institute and one of Utah’s leading housing experts.

Eskic calculates that by the spring of 2022, about 71% of Utah households had moved out of the Utah home with the median price tag, which surpassed the $500,000 mark in February. That number was even higher in Salt Lake and Utah counties.

With real estate prices and mortgage rates still at record highs since 2008, more and more potential buyers are turning away from the market, which is increasing the pressure on the rental market.

“The narrowing path to home ownership has increased demand for rental housing,” Eskic wrote. “Rental households on the Wasatch frontline experienced as strong rental growth in two years (between 2020 and 2022) as in the previous ten years (between 2010 and 2020).”

As a result, tenants are stuck between rising rents and unreachable real estate prices, vulnerable to annual rate hikes and potential instability if they lose their current real estate prices.

What is the rent in Utah?

Salt Lake County saw the largest change in absolute rental growth of all four Wasatch Front counties, according to the report.

  • In Salt Lake Countythe average asking rent rose from $1,213 in early 2020 to $1,534 in the second quarter of 2022, according to the report. That’s a jump of $321 — an increase of 11% annually, which is an increase of over 26.4% in two years.

“The two-year increase is larger than the $135 increase between 2000 and 2010 and the $213 increase between 2010 and 2020,” Eskic wrote.

  • Davis County follows in terms of absolute rental growth with average rent up $294 from $1,158 in early 2020 to $1,452 in 2022. That’s an annual increase of 10.6%.
  • circle of weavers Ranked third in absolute rental growth, with median rent increasing from $1,091 in early 2020 to $1,380 in 2020, an increase of $289 at an 11% annual rate.
  • Utah County Rents increased from $1,213 in 2020 to $1,475 in 2022, a 9.1% annual rate.

Caught

Fei wonders how long she can hold on to her current home, and at this rate, she may see downsizing as her only option.

“Next year, if my landlord decides to raise the rent, I might have to move to a one-bedroom house. That’s the reality of my finances,” she said. “If I don’t make more money, I can’t afford to stay here.”

She has thought about owning it, but as a single mom, she doesn’t see that as an option due to her age and prices.

“I’m at a point now where I think I’m permanently priced out of the market,” Fei said. “I’m old enough, have teenage kids, don’t have enough savings…if I don’t have real estate at this point, at 48, I won’t. I mean, to be perfectly honest.”

She questioned how anyone saves for a down payment on a home these days, especially given how quickly rent prices have risen.

“I don’t know how you can save when rent is 40-50% of monthly income,” she said. “If I were in a better financial position, yes I would be looking. But at this point with interest rates and monthly payments, you pay as much as rent these days.”

Fei also said her situation could be worse. She said while she faces downsizing, other Utahns and their families throughout the Salt Lake City area could simply be discounted from rental rates. It’s not just the monthly rental costs, but also deposits — the first and last month’s rent — that break the bank.

Fei said driving down the street the other day, she noticed someone who had a dining table and chairs on a trolley, along with a pile of his belongings next to him.

“These homeless people aren’t homeless because they have mental health issues or drug problems,” she said. “They’re homeless because they get to a point where they can’t afford their apartment and have nowhere else to go.”

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