Are you paying more for less space? If you’re a renter that’s highly likely according to a recent CNN Money report by Kathryn Vasel. While apartment sizes may be shrinking, rental rates have seen 7% growth in the last 5 years.
The report analyzed data from buildings in the 100 largest U.S. cities that have at least 50 units. The biggest losers were new studio apartments, which have shrunk by nearly 18% since 2006 to an average 504 square feet this year. One bedroom apartments are also getting smaller: shriveling 5% to 752 square feet from 794 square feet 10 years ago.
But not everything in the rental market is getting smaller. Two-bedroom apartments have held relatively steady, increasing 1% to 1,126 in the last 10 years. Developers have faced higher construction costs recently, especially in bigger cities, thanks in part to rising land costs and increased regulations. Fitting more units in a building tends to bring a higher return on investment (similar to when airlines pack more seats on a plane).
Developers had hit the pause button on building in the wake of the 2008 housing crisis. The average size of a rental took its biggest hit from 2011 to 2012 when the size shrunk 2.8% in a single year.
Demand for rentals has been on the rise as Millennials delay homeownership, baby boomers look to downsize, home prices continue to rise and more people choose to live in cities.
“Most of the new apartments that are going up are in central areas, downtown, and there isn’t a lot of space there, so developers are building up,” said Ama Otet, RentCafe’s real estate editor.
But rents have been rising faster than wages recently, which has created an affordability issue for many renters. Last week, a report from the Joint Center for Housing Studies of Harvard University showed more than 21 million people spend at least 30% of their paycheck on rent — a record high.
[Read the full article: Renters: You’re paying more for less space]
