- In March, rents were up 17% from where they were 12 months before, according to Apartment List.
- Gen Zers now make up more than a quarter of rent applications in the U.S., according to RentCafe.
- Sustained increases in housing costs and ongoing inflation means more people will have to reassess their monthly budgets.
One of the least welcome comeback stories of the pandemic has been the return of high rents. After a significant drop in 2020, rent prices across the country roared back in 2021 and have been rising ever since.
As of March, the average rent for a one-bedroom is up more than 17%, from where it was a year ago, according to Apartment List, jumping from about $970 to almost $1,140. That mirrors national rents overall, which, on average, are also up 17% across the board, regardless of the size of the units.
That increase is, at least in part, due to higher demand from people returning to cities. Now, new data sourced and analyzed by RentCafe shows just how much of that demand is being driven by younger renters, likely looking for more job opportunities and bigger social scenes.
The share of rental applications for Gen Zers, people born after the mid-1990s, is up across the board. Gen Z now makes up more than a quarter, 27%, of rental applications in the U.S. in 2021, an increase of 4 percentage points from the year before, according to RentCafe's analysis.
However, some big U.S. cities have seen their share of Gen Z renters increase much more. The share of Gen Z renters in Minneapolis, for example, jumped 11 points, from 25% in 2020 to 36% in 2021. In Seattle, that percentage jumped 10 points from 18% to 28%.
Manhattan and Philadelphia also saw 10-point increases: Gen Z's share of rental applications in those cities each went from from 17% to 27%.
Consumers can do very little about how much they pay as the cost of housing increases, says Peter Palion, a certified financial planner and founder of Master Plan Advisory in East Norwich, New York. Anyone moving back to high-rent areas right now is likely to face some difficult budgeting choices.
"Rent is, unfortunately, not as easy to control as many other things," Palion says.
Often, consumers can modify their budgets by swapping expensive items for less expensive ones. He jokingly gives the example of going to a high-end grocery store in search of imported luxuries. "If you go to the supermarket, and the price of the foie gras that you happen to be partial to is up, then you pick out a cheaper one," Palion says.
"In all seriousness, when it comes to food items, you can substitute. You can choose a less expensive item, and that's not a problem." But that's usually not possible with housing, he says. You live where you live, and you're likely to pay whatever the going rate is for the type of space you need within that geographic area.
Video by Mariam Abdallah
And as rents continue spiking, traditional rules for building your budget, like only spending 30% of your monthly income on rent, become much harder to follow, Palion says.
"When I was younger, the rule of thumb was to be able to pay your rent from one week's paycheck. Even in New York City, that was kind of doable 30 years ago for a single person," Palion says. "But these days, when you look at the rent in New York City, and especially in Manhattan, you have to make a ton of money" to make that ratio work.
The rapidly rising cost of living in many cities across the U.S. is going to force a lot of renters to make tough choices when it comes to their spending. One inclination might be to cut back on saving for retirement or other future goals, but that's a mistake, says George Gagliardi, CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts.
"You shouldn't be shortchanging your retirement savings for a step-up in your rental apartment quality," Gagliardi says. "Think of your regular paycheck deductions for your 401(k) as a required expense."
He suggests making a detailed budget that includes all rental expenses, like insurance and utilities, along with other required expenses, like groceries and health care. From there, think about what you can cut.
"Figure out what your priorities are," Gagliardi says. "A better apartment closer to your workplace and in a better neighborhood could well be a good investment for you, but don't go into debt to pay for this."
Video by Tala Hadavi
Some people, however, don't have a choice when it comes to delaying savings, Palion says.
"Are you going to cut out your food, because you have to pay your rent? No, you have to eat," Palion says. "You can probably substitute to economize, but you still need to spend money on food every day. It would be a little silly for someone to squirrel money away into their 401(k) at work and fall behind on the rent."
In these cases, when a pause on savings is necessary, Palion suggests setting up a simple phone reminder in a few months time to check on your budget again and see when you can resume saving for your long-term goals.
When you do revisit that budget, he agrees that you should be as strict with yourself as possible.
"Look at the more discretionary expenditures like clothing, going out, entertainment and dining, and even travel," he says to see what you can cut and put into your retirement savings. And remember, "the 401(k) is pre-tax, so that's a huge benefit for very many people." The benefits will pay off later on.
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