US property rents are rising at the fastest pace in almost two years as the shortage of available housing starts to bite.
The critical housing shortage is now taking its toll on renters. Potential buyers are having an increasingly difficult time finding a home they can afford, so they are renting longer.
This has had the effect of pushing rental demand higher in the US and property rents are rising along with it.
The median property rent in the United State rose 2.8 per cent over the past year to $1,445, the fastest pace of appreciation since May 2016, according to property company Zillow.
Property rent is rising fastest in some of the most expected property markets with nine of the top ten situated in California, but also in less expected places such as Minneapolis and Atlanta.
Senior economist at Zillow, Aaron Terrazas said: ‘For-sale inventory is tight, and with home prices continuing their rapid climb, it’s becoming more and more difficult for renters to become owners, forcing them to rent longer than they otherwise would have.’
He added: ‘Searching for the ‘right’ home has become a drawn-out affair and rising prices require more savings for a down payment.’
Rising mortgage rates in the US have exacerbated the problem because they decrease affordability for potential buyers as well.
New households are forming at the fastest pace in two years, but current renters are not moving to ownership at even close to a normal pace, and that is keeping occupancies high.
This has led to opportunities for overseas property investors to take advantage of a very strong rental demand.
National apartment occupancy was 95 per cent at the end of last year, and that could move even higher in coming months. Construction of new apartments has been slowing, and new single-family home construction is nowhere near where it needs to be, given red-hot demand.
Most of the strong pace of apartment construction in the last five years has been in luxury buildings causing luxury rents to fall slightly, but rents in the rest of the market, where supply is leaner, are doing just the opposite.
Overseas property investors looking for a particularly strong rental market should look across the Atlantic, where they can be almost guaranteed strong property rents.