How is Rising Inflation Impacting Rental Affordability

Rent increases have eased substantially across the nation over the past year, curbing the biggest driver of inflation and providing relief to millions of Americans.

But not in least expensive areas, where low- and middle-income residents are most vulnerable to high housing costs.

In December, rent jumped 7.5% annually in the zip codes, or neighborhoods, with the lowest average rents, according to the Bank of America Institute’s analysis of check, debit, credit card and other types of rent payments by tens of millions of customers.

By comparison, rent increased just 4.4% annually in the middle third of neighborhoods based on rent levels and 3.4% in the most expensive areas, according to the institute, which analyzes deposits and payments of Bank of America customers to study consumer trends. The figures are based on three-month averages to minimize month-to-month volatility.

As a result, the low- and middle-income residents who are most likely to live in the cheapest areas and are already burdened by high rent and utility costs are feeling additional strains that could push them into dire circumstances, housing experts say.

The least costly zip codes are feeling the most relative pressure,” said Joe Wadford, an economist at Bank of America Institute.

From early 2022 to late 2023, rent hikes in the top two-thirds of zip codes far outpaced increases in the bottom third. In April 2023, for example, average rent rose 4.7% annually in the least expensive zip codes, 9.1% in the middle third and about 8% in the most expensive areas, Bank of America Institute data show.

But as the rent hikes increasingly squeezed tenants, many began moving to more affordable cities such as Indianapolis or Columbus, Ohio, or away from places like Charlotte and San Antonio to less expensive suburban or rural areas in the same metro areas, Wadford said.

That pushed up demand for apartments ‒ and rental prices ‒ in towns that are still less expensive but less so than they were. Starting in March 2024, the price dynamic among the areas flipped, with rent increases in the least expensive zip codes starting to outpace those in the middle and upper thirds, the institute's data show.

People have been chasing affordability,” Wadford said.

The upshot: Existing tenants in the least expensive communities are facing sharp rent increases that are stressing their finances.

Emmy Manley, 22, who lives in an affordable neighborhood in Duluth, Minnesota, has had to pay relatively modest yearly rent increases of $30 to $40 since moving four years ago to her two-bedroom apartment in a triplex that was converted from a single-family house. Those bumps have pushed her rent to a manageable $930 a month

This year, however, she received a notice that her rent would be rising by $155.

Had she decided to stay, she said she would have had to “cut out little treats for myself,” like grabbing coffee or lunch at eateries near her office and instead making her own. She also would have had to scale back dinner and movie nights with her boyfriend and shop exclusively at discount stores such as Walmart.

Lower-income Americans hit with big rent increases face starker choices.

“What this means is a cut into either medicine or food,” said Shamus Roller, executive director of the National Housing Law Project, which advocates for the rights of tenants and low-income homeowners.

For some, “The increase really starts to matter,” he added. “It can push them into homelessness.”

In 2023, 83% of renters who earned less than $30,000 a year were "cost-burdened," meaning they devoted more than 30% of their incomes to rent and utilities, according to the Joint Center for Housing Studies at Harvard University. That compares to half of all renters.

That year, those low-income renters spent a staggering 80% of their income on housing costs.

With rents rising sharply across the U.S. a few years ago, builders responded with a surge of apartment construction from 2021 to 2023, notes Joel Berner, senior economist at Realtor.com. But now that rent increases have softened, developers have “decided to pull back,” he said.

Yet even the new multifamily housing built a few years ago mostly consisted of more profitable luxury buildings geared to middle- and upper-income residents, Wadford said.

“It’s not likely to provide immediate relief for people in the least expensive areas,” he said.

There’s a nationwide shortage of 7.3 million affordable rental homes, according to the National Low Income Housing Coalition.