(NEW YORK) — When the pandemic struck and tourism dried up, Gerardo Vidal, a New York City tour guide, lost nearly all of his income, he said.
Vidal, who lives in a one-bedroom apartment with his wife and two children in Corona, Queens, said work as a guide picked back up at the outset of this year.
Not long after, however, he faced another financial shock. In February, his landlord told him of plans to raise the rent from $1,100 to $1,900 per month, an increase of more than 70%, Vidal said.
“I felt very, very scared,” Vidal told ABC News. “It was a lot of money to raise and obviously we can’t pay.”
Vidal is hardly alone. Tens of millions of renters nationwide have faced skyrocketing prices in recent months as pent-up demand from the pandemic has collided with a shortage of supply — a crunch that has especially squeezed low-income tenants who risk getting pushed out of the market altogether, economists said.
“It can create a cascading effect down price tiers,” said Jeff Tucker, a senior economist at Zillow, an online real estate marketplace. “Maybe those middle-income prospective renters are boxed out from apartments and they end up crowding out lower-income renters from the most affordable rentals in the market.”
“That domino keeps falling and pushes folks out who are really making ends meet and don’t have other options to turn to,” he added.
That dynamic has made rents a lesser-known but significant part of the U.S. inflation crisis that can’t be found on roadside gas-price signs or grocery store shelves, economists ABC News spoke with said.
As of June, U.S. rents had climbed 14.1% above where they stood a year prior, a staggering increase but a deceleration from the sky-high rate of 17.8% at the outset of 2022, according to a report from Apartment List, an apartment listing service.
The uptick in rents coincides with blistering inflation in a host of other consumer goods. The consumer price index, or CPI, stood at 9.1% last month, a significant increase from 8.6% in May, according to the Bureau of Labor Statistics. That is the largest 12-month increase since December 1981.
The overall rise in prices heightens operating costs for landlords, some of which they pass on to tenants, said Thomas LaSalvia, a senior economist with Moody’s Analytics CRE. Inflation also may allow landlords to put forward rent increases among the price hikes consumers see for other products, he added.
“There’s a sense of general inflation with everything going up, and so therefore maybe these consumers are slightly desensitized or feel like everything is going up, so it makes sense my rent is going up,” he said.
In response to inflation, the Federal Reserve has embarked on a series of hikes to its benchmark interest rate, which raises borrowing costs for consumers and businesses alike. That should slow the economy and slash demand, eventually bringing down prices for some goods.
But rate hikes produce mixed results for rent prices, economists said. A slower economy and a potential reduction in consumer spending should put downward pressure on demand, causing prices to fall. However, rate hikes also lead to a rise in mortgage rates, which keeps some prospective homebuyers in the rental market as they await a better home buying opportunity, helping sustain demand and limit price declines.
“For most goods, the mechanism of rate hikes is pretty clear: Rate hikes cool the economy, cool demand and get price growth under control,” Igor Popov, chief economist at Apartment List, told ABC News. “With rental prices, it’s not so clear.”
Still, the breakneck pace of rising rents should come down over the remainder of 2022, the economists ABC News spoke with said. That won’t bring an outright decline in rents, but it will bring some relief from the massive price increases, they added.
Vidal, the New York City tour guide facing a roughly 70% rent increase, received some of that relief last month. His landlord changed plans, opting instead to raise the rent from $1,100 to $1,300 per month — a substantial increase of 18% but far lower than initially expected.
The smaller price hike will allow Vidal to remain in his home, though it will still crunch his monthly budget, he said.
“It’s a nice neighborhood,” he said. “Prices are very, very expensive all around.”
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