Leading Indicators

Rising Rents in Greater Philadelphia in 2022: An Update

Even with the Federal Reserve’s recent implementation of measures to curb inflation, including increasing interest rates for mortgages and auto loans [1], rents continue to rise across the country. In this Leading Indicator, we review updated rental data from Zillow to monitor rising rents in both the city and metropolitan region.

 

What You Need to Know

  • By April 2022, average rents in the U.S., Greater Philadelphia, and the City of Philadelphia were 16.4 percent, 11.6 percent, and 8.5 percent greater than they had been in April 2021, respectively.
  • Prior to the pandemic, it took two-plus years for average rents to increase by $100. In the year from April 2021 to April 2022, average rents increased by $197.
  • Stark increases in rent will likely have a serious impact on Greater Philadelphia’s financially vulnerable populations.
  • The City of Philadelphia’s proportion of renters who are rent-burdened—or spending 30 percent or more of their income on rent—has hovered around 50 percent since 2006.
  • While the proportion of rent-burdened renters in the City of Philadelphia and Greater Philadelphia has remained stable since 2006, the national average has been declining since 2011.
  • At 48.1 percent, the City of Philadelphia has the fifth highest proportion of rent-burdened among the ten largest U.S. cities in 2020.
  • Philadelphia’s proportion of rent-burdened outpaces larger cities, like Chicago and Phoenix, by more than 3.0 percent and is 2.4 percent greater than the national average.
  • As of March 2022, the City of Philadelphia’s average rent was 19 percent higher than it had been in January 2018, but the average hourly wage was only 2.5 percent higher; this indicates that there is a 16.5 percent gap between the average growth of rents and that of wages in Philadelphia.

Rents Still on the Rise

Figure 1 shows the rate of change for average monthly rents (as calculated by Zillow) for the United States, Greater Philadelphia, and the City of Philadelphia from January 2018 to April 2022. Prior to the COVID-19 pandemic, rents were relatively stable – showing modest growth from January 2018 to March 2020. In fact, during that time, the average rents for the U.S., Greater Philadelphia, and the City of Philadelphia all respectively grew by 0.3 percent from month to month. The average rent for the U.S. increased from $1,483 to $1,609during that period, in Greater Philadelphia it went from $1,476 to $1,594, and in the City of Philadelphia it increased from $1,388 to $1,488.

 

Graph instructions

FIGURE 1 

SOURCE: Zillow Observed Rent Index (ZORI) from Zillow. A detailed methodology of this calculation can be found here.

NOTE: The volatility of the City of Philadelphia estimates reflects Zillow’s zip code sampling methodology.

 

By March 2020, the annual growth rates for rent declined as the typical churn of the housing and rental markets halted during the initial months of the pandemic. Churn in a typical rental market comes from new vacancies. Some of these vacancies come from new construction or the conversion of owner-occupied homes or non-residential buildings into rental housing. However, most rental vacancies come from the turnover of existing rental units – when former renters leave to buy a home, move to a new rental unit, get evicted, or die [2]. The pandemic’s initial lockdown disrupted this typical churn. It halted construction projects, prevented “ready-to-buy renters” from purchasing homes, and slowed renter turnover; additionally, government moratoria put a halt to evictions [3,4]. Figure 1 shows that during this time the average rent for all three geographies continued to increase but at half the rate of previous years.

 

By autumn 2020, shortages in the housing market inflated residential property values which started to impact the rental market by early 2021 [3,5]. The rental market’s typical churn stagnated since limited housing inventory prevented many would-be first-time homebuyers from leaving the rental market; additionally, many renters had recently been laid off or furloughed in the initial months of the pandemic, and moratoria continued to prevent evictions [4,6]. Property owners and landlords who could take advantage of rising property values to recoup losses began charging higher rents [3,4,6]. This is evident in figure 1 where, by February 2021, the average rents across all three geographies began to increase sharply. By February 2022, rents were 17.2 percent, 12.0 percent, and 8.8 percent greater than they had been in February 2021 for the U.S., Greater Philadelphia, and the City of Philadelphia, respectively.

 

In the past two months, it seems that rents may be stabilizing as the annual rate of change across all three geographies starts to slowly decline. This, however, comes after a year of sharp increases. As of April 2022, the average rent in the U.S. is roughly $1,927.00, $1,822.00 in Greater Philadelphia, and $1,659.00 in the City of Philadelphia. Prior to the pandemic it took two-plus years for average rents to increase by $100, but in the year from April 2021 to April 2022 average rents increased by $197.

 

Stable Rent Burden

Since renting is often the first step many individuals and families take into the housing market and remains the only option for many low-income residents, the recent increases in rent will have a serious impact on Greater Philadelphia’s financially vulnerable populations. Figure 2 shows that our region’s rent-burdened populations, or those spending 30 percent or more of their income on rent, have remained relatively stable from 2006 to 2019 while the U.S. has seen decline in recent years. 

 

FIGURE 2 

SOURCE: Data were obtained from one-year estimates of the U.S. Census Bureau’s 2006 through 2019 American Community Surveys.

 

Since at least 2006, the City of Philadelphia’s rent burdened population has hovered around 50 percent – meaning roughly half of the city’s renters half been spending 30 percent or more of their income on rent. Greater Philadelphia’s estimates, which include the city, hover around 48.5 percent. (The large decline in 2017 for both the city and the metropolitan region reflects a sampling error made by the U.S. Census Bureau rather than any decrease in rent burden.) Nationally, the proportion of rent burden increased with the Great Recession in 2007 and only began to decline by 2011. Since then, rent burden across the U.S. has remained in decline.

 

The most recent U.S. Census estimates in figure 3 show that, at 48.1 percent, the City of Philadelphia has the fifth highest proportion of rent burden among the ten largest U.S. cities in 2020. It outpaces larger cities such as Chicago and Phoenix by over 3.0 percent and is 2.4 percent greater than the national average.

 

FIGURE 3 

SOURCE: Data were obtained from five-year estimates of the U.S. Census Bureau’s 2020 American Community Survey.

 

The increasing concern is that rents are growing consistently faster than wages. Figure 4 details the indexed growth of the City of Philadelphia’s average monthly rent and average hourly wage for private employees in nominal dollars.

 

Table instructions

FIGURE 4 

SOURCE: Zillow Observed Rent Index (ZORI) from Zillow (a detailed methodology of this calculation can be found here), and average hourly earnings of private employment in the City of Philadelphia from the Bureau of Labor Statistics’ Current Employment Statistics program.

 

As detailed in figure 1, the city’s average rent has consistently grown since January 2018 and began to increase sharply by February 2021. As of March 2022, the city’s average rent was 19 percent higher than it had been in January 2018. The city’s average wages, on the other hand, have remained relatively stagnant and even saw decline prior to the pandemic. In previous briefs, we have commented on the city’s stagnant wage growth and how job growth has been skewed to the lower end of the wage scale. This indicates that workers’ incomes have not kept up with the city’s growing cost of living. In fact, the steep incline in average wages in the spring of 2020 at the onset of the pandemic largely reflects a statistical anomaly where the loss of so many low-wage workers pushed the average higher (the calculation no longer included as many low wages). As of March 2020, the city’s average hourly wage stands at 2.5 percent higher than it had been in January 2018 – indicating a 16.5 percent gap between the average growth of rents and that of wages in Philadelphia.

 

Will Increased Interest Rates Help Rents?

The Federal Reserve’s recent decision to increase interest rates on federally backed loans is meant, in part, to help increase the supply of residential properties in the housing market and reinvigorate the churn of the rental market [1]. Recent insights show that the time houses spend on the market is increasing, in comparison with a year ago [9], but the impact on the rental market will take some time. In fact, many economists and housing market experts are largely predicting that higher rents are unlikely to decline [3,4,8]. Once a value threshold is reached, rents typically continue to grow – even in times of economic downturn where they are more likely to plateau than contract. This is evident in figure 1 when average rents continued to slightly increase even amid a global pandemic.

 

Though there seems to be little sign of downward pressure on rents, workers may be able to command higher wages especially in the wake of the Great Resignation. Pennsylvania continues to be a regional outlier in terms of its stagnant $7.25 an hour minimum wage; perhaps rising housing costs could make a minimum wage increase more politically salient in an election year.

 

Works Cited

[1] Horsely, Scott. 2022. “The Fed raises interest rates by the most in over 20 years to fight inflation.” NPR, 4 May. Retrieved from: (https://www.npr.org/2022/05/04/1096111642/federal-reserve-interest-rates-inflation-prices#:~:text=Fed%20policymakers%20said%20in%20March,by%20the%20end%20of%202023.).

 

[2] Zuk, Miriam. 2020. “Preventing Gentrification-Induced Displacement in the U.S. - A Review of the Literature and a Call for Evaluation Research.” Pp. 302-316 in The Routledge Handbook of Housing Policy and Planning, edited by Katrin B. Anacker, Mai Thi Nguyen, and David P. Varady. New York City, NY: Routledge.

 

[3] Sisson, Patrick. 2021. “What’s Driving the Huge U.S. Rent Spike?” Bloomberg CityLab, 5 October. Retrieved from: (https://www.bloomberg.com/news/articles/2021-10-05/tenants-struggle-with-red-hot-u-s-rental-market).

 

[4] Squires, Camille. 2021. “Rents in the US are rising even faster than home prices.” Quartz, 22 December. Retrieved from: (https://qz.com/2101421/rents-in-the-us-are-rising-even-faster-than-home-prices/#:~:text=Rental%20prices%20are%20now%20overtaking,demand%20in%20the%20rental%20market.

 

[5] Bernstein, Jared, Ernie Tedeschi, and Sarah Robinson. 2021. “Housing Prices and Inflation.” The White House, 9 September. Retrieved from: (https://www.whitehouse.gov/cea/written-materials/2021/09/09/housing-prices-and-inflation/).

 

[6] Horowitz, David Mamril. 2021. “With falling rents, lease negotiations abound, but tenants refuse to call San Francisco a renter’s market.” Mission Local, 13 January. Retrieved from: (https://missionlocal.org/2021/01/with-falling-rents-lease-negotiations-abound-but-tenants-refuse-to-call-san-francisco-a-renters-market/).

 

[7] U.S. Census Bureau. 2020. 2015-2019 American Community Survey 5-Year Estimates. Retrieved from: (https://www.census.gov/data.html).

 

[8] Veiga, Alex. 2021. Risking Rents Taking up Growing Share of Americans’ Income. The Associated Press, 4 November. Retrieved from: (https://apnews.com/article/coronavirus-pandemic-business-lifestyle-health-prices-f4f279a4250fa95dd540c6de7247f3d5).

 

[9] Dougherty, Conor and Jeanna Smialek. 2022. “The Sky-High Pandemic Housing Market Finds Gravity Does Exist.” The New York Times, 18 April. Retrieved from: (https://www.nytimes.com/2022/04/16/business/economy/housing-market-interest-rates-prices.html).