Newly Leased, Younger Renters Hit Hardest By Inflation

Steady, extreme inflation, created in part by the ongoing man-made recession, is hitting all consumers, whether they are homeowners or renters.

A report from Redfin this week suggested that Gen Z and Millennial renters who took on a new rental lease in July saw their overall cost of goods and services increase 11.6% year over year, substantially higher than 8.5% for the U.S. population as a whole.

Redfin Senior Economist Sheharyar Bokhari said in prepared remarks, “Inflation is hitting young renters hard because not only have prices of everything from food to fuel soared but so have rental prices.

“Homeowners are forking over more money at the grocery store and the gas pump, but at least the number on their mortgage statement isn’t going up every month. Combine high rental prices with student loan debt and relatively low incomes, and it’s difficult for millennials and Gen Z renters to put money into savings, retirement accounts and down-payment funds to eventually buy a house.”

Bokhari added that they may also have higher interest rates on debt, which cuts further into their potential savings.

Better to Marry the Proper Data Sets

Jay Parsons, head of economics and industry principals, RealPage, argues that using new lease rents as a proxy for rental inflation is not necessarily a proper barometer.

“This is highly unusual and not reflective of the increase a typical renter pays versus their prior lease,” he said. “Doing so would imply a renter moved out, then moved back into the same property and paid the new asking rent. This would overstate inflation.

“Additionally, it’s apples and oranges to compare government data on incomes with a private data collector’s rent data, which usually skew toward higher-rent properties and suggest renters are paying more toward rent than they are.”

Parsons said it’s important to align rent and income data for the same group of people to ensure accurate results.

“We marry those two datasets together, and find that the typical young adult is spending 23% of income toward rent,” Parsons said.

“The real challenge we see is not by generation, but by income threshold… among renters of all ages in the lowest-priced, Class C rentals, as well as in affordable housing.

“While rents in these segments grow much slower than Class A and Class B catering to higher-income renters, this is also a group spending a higher share of income toward rent … as they did long before the pandemic.”

He said that inflation tends to impact lower-income households most because they’re spending much more on essentials like food and gas (for example, grocery prices jumped 13% YoY), which leaves less money to pay for housing and other costs.

Industry analyst Greg Willett, first vice president, national director IPA Research, tells GlobeSt.com that high inflation has a more meaningful negative impact on moderate-income households than on their more affluent counterparts, simply because spending on necessities like housing, food and energy takes up a bigger share of their paychecks.

“To the extent that younger workers are in the earlier stages of their careers and, in turn, generally make less money, you can make the case that younger generations struggle a bit more,” Willett said. “However, income variation, not age difference, is what drives the experiences of individual households.”