Workplace flexibility is driving rental demand and price growth.
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New data shows national rents grew five times faster in 2021 than in 2020, on average, according to Realtor.com’s December rental report. In December, rents notched the sixth straight month of double-digit yearly increases nationwide and surged in the majority of large metros, led by Miami, Tampa and Orlando with gains of more than 34% each.
Realtor.com chief economist Danielle Hale said, “On average in 2021, national rents were more than 10% higher than in 2020. As our December report further illustrates, this average understates the wild ride that the rental market, and many renters, experienced in 2021. Rents started the year roughly flat and gained incredible momentum throughout the year, hitting double-digit yearly pace by summer and continuing to surge through December.”
“While yearly growth is still strong, monthly growth cooled in December, which is typical for this time of year and not expected to last,” Hale added. “With rents already at a high and expected to keep going up, rental affordability will increasingly challenge many Americans in 2022. For those thinking about making the transition from renting to buying their first home, rising rents will remain a motivating factor even as for-sale home prices and mortgage rates continue to climb.”
Largely attributed to winter seasonality, the median rental price posted a smaller monthly gain in December compared to earlier in 2021. However, December rental trends also reflect a shift in demand towards smaller rental units common to major metropolitan centers.
For instance, two-bedroom rents posted monthly declines for the first time since November 2020 in December, after skyrocketing earlier in 2021 as workplace flexibility enabled some big city renters to explore smaller markets offering more space for their money. Now that more workers are returning to downtown offices, studio rents accelerated at a faster pace than larger unit rents in December and helped overall rents remain at a double-digit percentage point higher than in 2020 for the sixth month in a row.
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- In December, the U.S. median rental price grew 19.3% year-over-year to $1,781, which was relatively flat from last month’s level ($1,780).
- Larger unit rents posted smaller monthly gains than seen from October to November, but grew by double-digits over December 2020. Among 0-2 bedroom units, the median rental price for one-bedrooms grew at the fastest annual pace, up 19.3% to $1,651.
- December rental prices for two bedroom units ($2,003) increased 19.1% year-over-year, coming in slightly below the November median ($2,005).
The median studio rental price continued to accelerate in December, rising 18.6% over the same month in 2020 to a two-year high of $1,462.
- Nationally, rent growth hit a double-digit pace in 2021, up an average of 10.1% – 5.3 times higher than the 2020 rate (+1.9%) and above the Realtor.com Forecast for 2022 (+7.1%).
- With demand for space rising during Covid, larger unit rents posted the biggest annual gains among unit sizes in 2021, each rising at a double-digit pace. Over the past 12 months, average year-over-year rent growth for two-bedroom and one-bedroom units was 11.7% (+$196) and 10.0% (+$139), respectively.
- Common to big cities that saw an exodus of renters earlier in the pandemic, studio rents declined at the beginning of 2021. However, studio rents began to recover in the second half of the year as downtown offices and attractions began to reopen, and ended 2021 at an average annual growth rate of 6.1% (+$76).
The real Cinderella story of the 2021 rental market was among smaller secondary metros. The year’s fastest-growing rental markets were all outside of big tech cities, with the top 10 led by the relatively affordable Los Angeles alternative of Riverside, California. Rental popularity in these secondary metros was driven by a number of Covid-related trends in consumer preferences, including the need for more space and easier access to the outdoors. As a result, 2021 annual rent growth across the top 10, on average, was two times faster than the national rate.
- In 2021, rents increased by an average of 20.7% in the top 10 markets, led by Riverside (+28.5%), Tampa (+25.6%), Memphis (+23.0%), Miami (+22.1%) and Sacramento (+19.5%). Additionally, December data shows many of these markets remained among the fastest-growing metro areas through end-of-year.
- A key trend driving rental demand and price growth in these areas is rising workplace flexibility. In half of 2021’s fastest-growing rental markets, LinkedIn data shows the share of job seekers applying for remote work roles is higher than national average (25.2%), led by Tampa (29.6%).
- Comparatively, big tech cities dominated the 2021 list of slowest-growing rental markets, with average rent growth across these 10 metros ending the year at just 2.0%. However, 2021 data shows big city rents recovered significantly from sharp drops earlier in the year, with average rents declining in just two of the bottom 10. (see table below)
Hale added, “Regardless of where you live, renting is generally more expensive now than in prior years. However, expected income growth could give renters more negotiating power – especially if you continue to have workplace flexibility. Those able to work big city jobs while living in secondary metros are still likely to find more affordable rental options than in the biggest tech cities. Take the example of Tampa – despite being one of the fastest-growing rental markets in 2021, the December median rental price ($2,038) remained significantly lower than in a big northeastern city like New York ($2,670).”