Real estate agents play an undeniable and integral role in today’s housing market. Not just as facilitators of sales and rental transactions but also as educators to their current and future clients. Left to their own devices, most people — particularly renters — view the rental segment and the for-sale market as distinctly different and unrelated entities, with the latter one often perceived as being far out of reach. Rightfully so.
Affordability is a real issue in the United States. The median price for an existing single-family home was $410,200 in June 2023, according to the National Association of Realtors (NAR). That’s the second-highest since the association started tracking the data. This average price tag quickly jumps in popular states such as California, where it comes in at $744,280, and in Washington State, where a house costs on average $574,114, according to August data from Zillow.
Mortgage rates — which have been well above 7% and approaching 8% this week — are adding to the unaffordability of much of today’s housing stock.
These market conditions in the for-sale segment have had a real and direct impact on the rental market as both are directly linked. An increasing number of people, especially many of the millions of millennials who are hitting their prime child-rearing years, are priced out of the market and forced to keep renting longer. The average age of first-time homeowners is now 36 with about 35% of the households in U.S. being renter-occupied.
This increasing demand has put further pressure on the rental stock, which has been experiencing severe supply and demand issues. The United States is currently as much as 6.8 million rental units short, with the gap between supply and demand widening every year, according to NAR data. This has driven up prices significantly. Typical asking rents in the U.S. average $2,052, a 3.3% climb as compared with the same time last year, according to Zillow’s data for August. In high-demand metros such as New York, it’s as high as $3,650.
One of the proposed measures to counter these increases and create more affordability for renters is the hotly debated topic of rent control, an idea that first came into existence in the 1920s. The Biden administration has pushed for a potential national-level rent control initiative while cities such as New York are particularly in the spotlight as landlords are pushing the Supreme Court to kill rent stabilization.
As of 2022, seven states — California, New York, New Jersey, Maryland, Maine, Oregon and Minnesota — and the District of Columbia have localities in which some form of residential rent control is in effect.
Rent control benefits some tenants with access to controlled rates, primarily older and long-term residents. But rent control has also shown overall mixed results. While intended to make housing more affordable, it can exacerbate issues by reducing investment and supply. Property owners, getting lower returns due to rent controls, often seek ways to convert their properties to other more profitable uses.
In places like California, laws allow owners to evict tenants for personal occupancy or to sell units as condos. Consequently, as the availability of rental properties decreases, market-wide rents increase due to the lower supply. Actions like these tend to favor higher-income individuals, inadvertently promoting gentrification, as observed in San Francisco, contradicting the original aims of rent control.
Ultimately, to create a better supply-demand balance in the U.S., facilitating new construction might be the best answer to the pressures in the rental segment and the affordability issues in this country. California is trying to do just that by making major affordable housing projects across the state easier to commence by exempting them from potential lawsuits filed under the California Environmental Quality Act, extensive public hearings and other forms of opposition from local governments. Easing restrictive zoning rules that can reduce the supply of land available for new housing would also be additive.
There is some hope for more balance to come. Housing construction reached a 50-year high, with this year alone witnessing the completion of more than 460,000 units. Within the past three years, over a million new dwellings have been erected, marking a historic high. And this increase has had an almost immediate affect on renters who are taking advantage of the added choices. Those staying put and renewing their leases — often out of necessity — dropped to 60.5% during this year’s peak rental season compared with 63.6% last year.
And that is where agents can step in, educate renters on their increased choices, explaining market dynamics and ultimately becoming educators and advocates as they navigate their housing journey.
Michael Lucarelli is the CEO and co-founder of RentSpree.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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Michael Lucarelli at email@example.com
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Sarah Wheeler at Sarah@hwmedia.com