Rising rents are making it harder for entry-level buyers to save up for a down payment, even as price increases in many markets make homes less affordable.
The solution? Builders need to significantly pick up the pace of new home construction to help more renters make the leap to homeownership.
That’s according to a new study by the National Association of Realtors, which found rent increases over the last five years have outstripped income growth, widening the wealth gap between homeowners and renters.
Not only have homeowners been shielded from rising rents, they’ve also steadily gained more wealth as their homes have appreciated in value and they’ve paid down their mortgages. Renters have enjoyed none of those advantages, said NAR Chief Economist Lawrence Yun.
The markets where rents have grown the most since 2009 are New York (50.7 percent), Seattle (32.38 percent), San Jose, California (25.6 percent), Denver (24.14 percent) and St. Louis (22.26 percent), according to NAR.
Over the past seven years, new-home starts (single- and multifamily) have averaged about 766,000 a year. Yun would like to see them back at the historical average of 1.5 million a year.
New-home starts peaked at 2.1 million in 2005, as builders seeking to take advantage of easy access to mortgage credit overbuilt in some markets. Since bottoming at 554,000 in 2009, new-home starts have gradually rebounded, edging past the 1 million mark last year.