Smaller cities are beginning to see rental rates rising faster than even some of the hottest U.S. markets. Cities such as Denver, Kansas City, Nashville, Portland, and Charlotte have shown higher rent appreciation over the past year than the national average of 4.9%.
Rental demand is being driven by improved employment, which has allowed new households to take shape again. More and more young adults are joining the workforce and moving out of their parent’s home. This trend has left smaller markets with more demand for rentals than the actual supply, allowing owners to bump up rents. Another trend taking shape in the rental market is that young Americans are renting for longer periods of time than in previous years. Higher rents, coupled with lower income have stalled many renters from saving up for a down payment.
According to Zillow, rents have grown twice as fast as wages since 2000. This has some economists worried that the rental market is acting as an obstacle to home buying. As rents continue to rise, the amount of for-sale listings will drop. This can be seen in Nashville and Kansas City, which have seen for-sale listings decrease by 20% and 9% respectively. This shortage of inventory will inevitably lead to higher home prices. Although it may be cheaper in the long run for young Americans to own a home, increasing rents are keeping them in place for the time being.