The housing market squeeze pushes renters into bidding wars
When Sarah Da Costa had to find a new apartment in Chicago this year — with her husband, baby and dog — the whole process seemed weird. First, there were open houses, something she thought was just for buying homes. At one of them, "literally, people couldn't even fit in the house, and we got there right when it started."
Then, she says, the listing agent told her to "submit your best and final!" Her real estate agent said yes, that meant above the asking rent. Da Costa had already lost out once, so they agreed to offer more.
"On this place that was actually smaller than the place we were living in before, and that was more expensive, we offered $150 more a month in rent," she says. "And we still didn't get it."
That happened again and again. And it's not only in big cities.
Brandon Schwedes of Port Orange, Fla., did not plan to move this year, and the 40-year-old single dad — a logistics account executive — didn't have money saved up for it. But his landlord said she wanted to sell the place, so Schwedes started looking around. That's when he got another shock.
"I found the house that I was living in posted for rent for $2,000," he says. "And I was paying $1,400."
The landlord said she knew that was out of his range. Schwedes' rent was already nearly half his take-home pay. Still, he applied for another place listed at $1,750 and was told he had a lock on it. But the next day the agent said sorry, someone else had just offered $200 more, sight unseen.
Schwedes eventually found a place at his former rent, a much smaller townhouse with no yard or garage and farther from his kids' school. He says the whole process has shaken his longtime hope that at some point he'd be able to buy a home. He wants to build equity and have something to pass on to his children. He also craves a place he can decorate, where the family could always gather for holidays and future grandkids could visit, "the stuff that you think is normal, that you see in movies growing up."
Now he feels this cornerstone of the American dream will never happen for him.
"I've lived in the same area for 20 years. I know what these houses were renting for, and what they were selling for," he says. "But what's occurred over the last two years, it's just like boom. ... Destruction."
Historically low vacancies have pushed rents to record highs
Many forces have combined to create a rental market that's setting records for a lack of vacancies and high costs. A big one is a historic shortage of housing.
Jessica Lautz of the National Association of Realtors says the United States "has been underproducing both rental units and homes for purchase for more than a decade now," since the last housing crash. The shortfall is in the millions and is especially acute for single-family starter homes. The amount of new construction that's been started is finally up, though supply chain delays mean it's taking longer to complete homes and apartments.
Meanwhile, rising mortgage rates are making it more expensive to buy a home, forcing many to stay in the rental market. And adding to all of this, the massive cohort of millennials hitting their late 20s and early 30s are eager to move out on their own.
"And so as we see this demand really push up against this huge wave of young adults starting household formation," Lautz says. "There's no quick solution."
In the first quarter of this year, a time when the rental market usually cools, apartment occupancy hit another all-time high — an extraordinary 97.6%. Asking rents for new leases were up 15.2% nationally, and far more than that in many places.
"There's a severe shortage of rental housing at all price points and in essentially every city across the country," wrote Jay Parsons, the head of economics and industry principals for RealPage. He attributes much of the demand to unprecedented wage growth.
It's a seller's market, but landlords are also struggling with higher costs
Bashir Nuruddin and his wife own nine rental units in Chicago and one came open recently. "I had so many phone calls that I just stopped answering calls," he says. "Over 100 people, between emails and phone calls, contacted me about that apartment."
He's had bidding wars, but he says they make him feel smarmy so he no longer allows them. In fact, he prides himself on offering just-under market rate. But he says the past two years have been rough.
One tenant stopped paying for most of a year, yet he couldn't evict her because of the pandemic moratorium. When she did leave, he discovered major damage to the place. "Just her apartment alone, between lost rents and in repairs, I spent over $25,000," he says.
In addition, "I really can't remember how many appliances we replaced in the last year." He figures so much working from home took a toll on refrigerators, washers and air conditioners. And he has seen bids for repair work go up 20%-30% as inflation has increased.
Given all that, when the $1,200-a-month, three-bedroom unit came open, Nuruddin listed it for $1,785.
"I raised the rent by this drastic amount, not because that's what I would typically do," he says, "but because I have to recoup all these losses that I've had over the last year."
He calculates that in the current market, he probably could have gotten $1,800-$2,000 for it. In fact, all three people he showed it to offered more, but he rejected the higher bids.
Nuruddin says he's also feeling the flip side of the housing market. Renting apartments is his retirement plan, and he needs to buy more buildings to have enough income long term. 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 far more expensive.
Even though real estate is his retirement plan, Nuruddin thinks housing should be considered a human right. He'd like to see more rent control and a bigger investment in public housing. And while building more to address the historic shortage is good, he says it should be "the kind of housing that's actually going to solve the problem, not just more McMansions or quick flips that start falling apart after five or 10 years."
Some low-income renters are being shut out completely
The tight market and skyrocketing rents are making it even tougher for those who have always struggled to find housing.
"Just the act of applying for apartments is incredibly unaffordable for low income tenants," says Lindsey Siegel of Atlanta Legal Aid Society. "Once you pay that application fee once or twice or three times, you don't have any money left to pay that first month's rent or the security deposit. And then you're stuck."
Dana Johnson was given an eviction notice after losing her job as a property leasing agent last year. The 54-year-old lives northeast of Atlanta and was determined to stay in her one-bedroom apartment so she wouldn't have to pay hundreds more in rent on the open market.
She managed to get emergency rental aid to pay what is back due. But the landlord decided Johnson needs to move out anyway.
"I am just going to have to look for as many jobs as I can get, because I have to pay rent that is astronomical right now," she says.
To help out, Johnson has already started her own company to sell dog apparel.
She has no family in Georgia and says relatives in New York City are already in a crowded living condition. If she can't patch together enough income, Johnson says, she'll probably look for someone else who's also struggling and needs a roommate.
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