The Biden administration released its promised game plan to “protect renters and promote rental affordability.” The accompanying White House Blueprint for a Renters Bill of Rights sounds good but doesn’t have any actual force of law behind it, as the long legal disclaimer at the beginning makes clear.
According to government figures, 44 million households rent their homes. Most see the pressure they are under. People who own a home, if they bought before the fall of 2021 probably have a relatively low interest rate on their mortgage, likely have a long-term loan that makes that aspect of ownership stable and predictable in cost.
Renters have no such promise. One of the financial principles for those who invest in real estate is to raise rents over time, because that increases their annual income and also the ultimate value of the property. (By the way, while large corporations own about 45% of apartment units as of 2018, according to Pew Research, individuals and non-profits own the rest.)
Those rents keep going up, even if there is rent control which typically moderates the increases. But during the pandemic, they began to rise as if powered by a rocket. To get a sense of how things have changed, below is a graph of data from the Bureau of Labor Statistics as assembled by the Federal Reserve Bank of St. Louis.
Growth of rent increases over time
Although there was a slight downturn in part of the Great Recession, it has been an inexorable climb that sped up during the pandemic, as the increased steepness of the line shows. Also, it’s important to remember that every increase is on top of the previous high mark of rents. They get bigger and bigger.
Also getting larger every single year is the cost of living. Shelter costs are about a third of the Consumer Price Index, otherwise known as inflation, as the Brookings Institution, among others, notes. Rent has become a giant lever of pain for millions of people who often are in the worst position to bear up under it.
Rents have started to come down some, but nowhere near enough. The Biden administration’s program directs that the Federal Trade Commission and Consumer Financial Protection Bureau will “collect information to identify practices that unfairly prevent applicants and tenants from accessing or staying in housing in order to inform enforcement and policy actions under each agency’s jurisdiction.”
The Federal Housing Finance Agency is to “launch a new public process to examine proposed actions promoting renter protections and limits on egregious rent increases for future investments” and “increase affordability in the multifamily rental market by establishing requirements that encourage the financing of multifamily loans that guarantee affordable housing.”
The Department of Justice will “inform potential guidance updates around anti-competitive information sharing, including in rental markets.” And the Department of Housing and Urban Development will “inform potential guidance updates around anti-competitive information sharing, including in rental markets.”
It all sounds noble, but none of this is going to help what is most needed in any sort of timely manner. The reason for the skyrocketing rents isn’t a simplistic cause of corporate ownership. According to Pew, as of 2018, corporates owned about 45% of apartment units, but individuals and non-profit organizations owned the rest. And while zoning is an issue in areas already with heavy development, it’s also not the big problem.
Instead, here are some of the multiple complex reasons why rents are high and are likely to remain so, even if they recede a bit:
- The US chronically underbuilt houses and apartment units for years after the 2008 crash, for various reasons, mostly having to do with a lack of available financing and many in the development business who lost their shirts, weren’t able to get loans from a then fearful financial industry, and who found other ways to make a living.
- A lot more apartment buildings have been built recently, and many more in the pipeline, but the cost of final product delivered private industry construction jumped about 35% between November 2019 and November 2022, so much of that has been for wealthier individuals, who can pay enough in rent to ensure the developers make a profit. It may not sound right, but building new housing depends heavily on private financing and someone making money.
- There was the impact of long-low interest rates and then the flood of liquidity that the Fed pumped into the financial system when the pandemic crash happened. Lots of investors had a huge amount of capital in total to invest, apartment buildings were one of the types of real estate that were top choices for investment. Lots of money trying to get properties meant prices skyrocketed, which then demanded higher rents going forward to justify the investment and get the types of return investors wanted.
- Most people don’t realize that a lot of landlords, typically the smaller ones who own most of the units, lost money during the pandemic with the eviction moratoriums and the funds that were supposed to help people stay in place but that often didn’t get to the landlords, so they started increasing rents to make up what they had lost.
- Finally, demographics have been shifting for years, from older cities to the south and west where businesses went because of lower wages and regulation. The promise was jobs, but the number of rental units couldn’t keep up.
Things will eventually catch up, at least that’s the hope. There are a lot of apartment buildings of various sizes under construction. More supply, if there’s enough affordable units, should give people options, which will drive down prices. But that depends on whether the new units are ultimately in the right places.
Simply demanding major changes in the way everything works in housing is a rough equivalent of hopes and prayers after a mass shooting. No one’s best wishes or posturing matters, because it won’t change a thing.