When the pandemic hit and tourism dried up, Gerardo Vidal, a New York City travel guide, lost nearly all of his earnings, he said.
Vidal, who lives with his wife and two children in a one-bedroom apartment in Corona, Queens, said work as a tour guide resumed early this year.
Not long after, however, he faced another financial shock. In February, his landlord told him about plans to raise rents from $1,100 to $1,900 a month, an increase of more than 70%, Vidal said.
“I felt very, very scared,” Vidal told TBEN News. “It was a lot of money to raise and of course we can’t afford it.”
Vidal is hardly alone. Tens of millions of renters across the country have faced skyrocketing prices in recent months as the pent-up demand from the pandemic has collided with a shortage of supply – a crisis that has especially put pressure on low-income renters who risk being pushed out of the market altogether, economists said.
“It can have a cascading effect on price levels,” said Jeff Tucker, senior economist at Zillow, an online real estate marketplace. “Perhaps those potential middle-income renters will be barred from apartments, displacing lower-income renters from the most affordable rental properties on the market.”
“That domino keeps falling and pushing out people who are really making ends meet and have no other options to go to,” he added.
Those dynamics have made rent a lesser-known but significant part of the U.S. inflation crisis, one that can’t be found on roadside gas price signs or on supermarket shelves, said economists with whom TBEN News spoke.
In June, U.S. rents were 14.1% higher than a year earlier, a staggering increase but slowing from the skyrocketing rate of 17.8% at the start of 2022, according to a report by Apartment List, an apartment list maintenance company.
The rise in rents has coincided with scorching inflation in many other consumer goods. The consumer price index, or CPI, stood at 9.1% last month, up from 8.6% in May, according to the Bureau of Labor Statistics. That is the largest increase in twelve months since December 1981.
The general price hike is driving up operating costs for landlords, some of which they pass on to tenants, said Thomas LaSalvia, senior economist at Moody’s Analytics CRE. Inflation may also allow landlords to push rent increases forward as the price increases consumers see for other products, he added.
“There’s a sense of general inflation with everything going up, and that’s why these consumers might be a little insensitive or feel like everything’s going up, so it makes sense for my rent to go up,” he said.
In response to inflation, the Federal Reserve has begun a series of hikes in its benchmark interest rate, raising borrowing costs for both consumers and businesses. That should slow the economy and reduce demand, eventually causing prices for some goods to fall.
But rate hikes are yielding mixed results for rents, economists said. A slower economy and a possible reduction in consumer spending should push demand downwards, pushing prices down. However, interest rate hikes are also driving mortgage rates up, keeping some would-be homebuyers in the rental market while waiting for a better opportunity to buy a home, helping to support demand and limit falls in prices.
“For most commodities, the mechanism of rate hikes is pretty clear: rate hikes cool the economy, cool demand, and control price growth,” Igor Popov, chief economist at Apartment List, told TBEN News. “With rents, it’s not so clear.”
Still, the frenetic pace of rising rents should decline through the rest of 2022, the economists spoke to TBEN News said. That won’t lead to an outright drop in rents, but it will bring some relief from the massive price hikes, she added.
Vidal, the New York City tour guide facing a rent increase of about 70%, got some of that relief last month. His landlord changed his mind and instead chose to raise rent from $1,100 to $1,300 a month — a significant 18% increase, but much lower than initially expected.
The smaller price hike will allow Vidal to continue living in his house, although it will still crush his monthly budget, he said.
“It’s a nice neighborhood,” he says. “The prices are very, very expensive everywhere.”