According to a report released by real estate database Zillow at the end of December, Boston-area renters paid the eighth largest cumulative rental rate of the nation’s top 25 metropolitan area. In all, Boston renters paid $9.8 billion throughout the year of 2014, representing a 6.9 percent increase from the $9.2 billion that they paid out in 2013. On average, Boston renters paid $58 more per month in 2014 than they did in 2013. At the national level, renters paid a total of $441 billion in 2014, which is up by nearly 5 percent from the $420.4 billion they paid in 2013.
Of course, Boston isn’t the only are where rental prices are on the rise. Nationally speaking, the number of renters as well as the price of rental has increased across the country. In fact, rental costs have grown at twice the rate of income over the past 14 years, largely due to the growing demand for rental properties, an insufficient supply of rental housing and slow income growth.
While increased demand for rental properties and soaring rental costs present a great opportunity for rental housing owners and other real estate investors, it makes it far more difficult for renters to pay for housing and other living expenses. This is particularly true for those who are living off of an entry-level salary. As a result, many would-be buyers are struggling to save the money that is necessary to put a down payment on a home. In turn, this has resulted in a slow-down of housing purchases among first-time buyers and Millennials.
Despite the growing rental rates, many would-be first-time home buyers are still unlikely to make a purchase in many markets in 2015. In fact, research has shown that an increasing number of adults are choosing to simply find a roommate to help share the cost of rent. According to Census Bureau data, 26 percent of adults had a roommate in 2000. This figure jumped to 32 percent in 2012, while anecdotal data indicates that this figure is even higher today. While some adults simply enjoy the lifestyle that renting with a roommate provides, others are choosing to have a roommate out of sheer necessity. Although some may prefer to own a home, strict lending guidelines coupled with ongoing difficulty with saving for a down payment has made homeownership impossible for many who would like to make a purchase.
Unfortunately, there does not appear to be a break coming in these trends any time in the near future. In fact, most experts expect rental prices to continue to grow faster than home prices throughout 2015, which will only further compound problems with saving for a down payment.
Other metro areas with soaring rental prices that are outpacing Boston include:
New York and northern New Jersey – renters paid $50 billion in 2014
- Los Angeles – renters paid $34.2 billion in 2014
- San Francisco – renters paid $14.6 billion in 2014
San Francisco also experienced the largest year-over-year jump in rental cost of all of the top 25 metro areas, with rent increasing by 13.5 percent from $12.8 billion paid in 2013.