After two years of uncertainty and instability, the idea of a new year brings both anticipation and apprehension. What will the rental market look like in 2022? Here are several predictions about what landlords can expect to see.
Rent Prices Will Increase
At the start of the pandemic, many areas saw significant declines in rent prices, but there’s evidence that prices are slowly returning to pre-pandemic levels—and may climb even higher in 2022. A new study from Zumper found rent prices increased by an average of 11.6% for one-bedroom rentals this year, while two-bedroom units increased by 13.6%. The biggest rebounds in rental rates were found in major tech cities, like Austin, Seattle, Denver, San Jose, and San Francisco.
However, tech cities aren’t the only ones that have seen significant increases in rent prices. According to Realtor.com, the national rent increased by 13.6% year over year; this increase shows signs of faster growth than what we saw right before the pandemic. Florida has some of the highest increases, with the Tampa/St. Petersburg/Clearwater metro area increasing 33.3% year over year. Economists predict that we’ll see an average of 7.1% growth in national rental rates within the next 12 months, in addition to an increasingly competitive market.
Increasing Demand for Rentals
Along with rental rates, home prices and mortgages are expected to rise in 2022. As competition increases for homebuyers, those who can’t compete will likely continue to rent. Some economists also predict that as the U.S. continues to deal with ongoing supply chain issues, new home construction (including construction for multifamily units) will be hampered—leading to fewer new homes on the market. Both of these factors are expected to increase the demand for rental units.
Another factor that could lead to an increased demand for rentals is the number of existing homes that will be up for sale, which is currently at record lows. Realtor.com economists predict that we’ll likely only see a 0.3% increase in 2022. In addition, those who moved in with family members during the pandemic may be getting ready to resume renting, adding even more demand for rental properties.
Homebuying May Become the More Affordable Option
The increase in rental rates is predicted to outpace the growth in home sale prices in 2022, which may make renting the less affordable option in some markets. Data from Realtor.com also supports this: in July 2021, they found first-time home buying was more affordable than renting in nearly half of the largest markets in the nation. If rent prices continue to increase, we could see a similar trend in 2022. However, as noted above, there will likely still be plenty of demand for rentals, especially given the competitive homebuying market.
Larger Rental Units Will Be in Greater Demand
The demand for larger living spaces has increased across both rental and homebuyer’s markets, spurred in part by the rising number of remote workers looking for places that function as both a home and office. Even though many renters have returned to the workplace, the demand for larger rentals has remained. According to Realtor.com, larger rental units have seen the largest demand during 2021.
RentCafe also reported that out of the 96 cities they analyzed for new apartment construction, 36% of floorplans are larger than what’s typically been built over the past 5 years. Specifically, they found that the floorplans have increased by nearly 50 sq. feet on average. In addition, 1-3 bedroom apartments have expanded in size in almost half the cities analyzed.
Although the demand for larger units may be partially driven by those who have the financial means to pay for larger units, there are also many renters who are moving into larger spaces with roommates to save money as the economy recovers from the pandemic.
Finding Ways to Recoup Lost Rental Income
The pandemic has brought endless challenges for landlords, particularly because of the limited options available to help offset missed rent payments. Even though rental assistance has been available for tenants, many of these programs have failed both landlords and renters.
One of the biggest barriers for Emergency Rental Assistance has been the unclear eligibility requirements. One report by Avail found that as of December 2021, 56.9% of landlords and 62.8% of tenants are still unsure whether they’re eligible for ERA programs, including many who are in dire need of that assistance. This means that lost rent will have to be recouped in another way—likely by raising rent rates, eviction, or selling off rental properties.
According to Avail, 23% of landlords surveyed in September were considering pursuing eviction, while over half of the landlords surveyed said they would pursue eviction if their tenants missed one or two months’ worth of rent in the future.
The Bottom Line
Although there’s no way to know for certain what 2022 will bring to the rental housing market, the trends we’ve seen over the last year—and predictions from economists—are promising overall for landlords. While there may still be some unexpected twists and turns as the pandemic winds down, it appears that there’s a good chance the market is getting back on track.
Landlords Property Managers Contact TSCI