Tim Hubbard breaks down why rents are climbing fast: the U.S. housing shortage grew from 2.5 million units in 2018 to 3.8 million by 2020. Lumber costs jumped 150% since the pandemic, zoning delays stretch timelines, and builders focus on luxury units instead of affordable rentals, shrinking supply where it matters most.
Questions this video answers
Housing shortage increased from 2.5 million in 2018 to 3.8 million in 2020 (52% increase).
Lumber prices increased by 150% since the pandemic.
Chapters
Ladies and gentlemen, we are on the verge of something big here in the US we are entering a renters nation and it is inevitable that rents are going up. So stay tuned. We're going to jump in this week to the reasons why. But it all comes down to supply and demand. Welcome to Short Term Rental Riches where we'll discuss investing in real estate, but with a specific focus on short term rentals to help you build wealth faster with as little headache as as possible.
We are on the verge of changing times. It's been a super interesting year or two, hasn't it? One thing that is inevitable is that rents are going up and it's only getting steeper and steeper and it's not changing in all areas at the same pace. So let's break that down this week because it can be a little complicated. There's probably some things that we're not thinking, thinking about, but it really comes down to two things. So on one end we have supply, the other end we have demand. This is the foundation of all economics, right? This is the foundation of what creates prices in our economy. And this is the same for real estate and this is the same for residential rentals. So I want to break down both of those sides and then also what this means potentially for your short term rentals and where we might be finding the most opportunity. So let's jump right in.
Freddie Mac suggests, and this is on the supply side, that the housing shortage has increased from 2 1/2 million in 2018 to 3.8 million in 2020. That's a 52% increase in housing shortage. That means we have a lot less homes for the people that need to rent them. So let's jump into why this is. Well, in a nutshell, it's because we're not building enough. We're not building enough homes in the US and the types of homes that we're building are not entry level homes that renters would traditionally rent. So this is one of the reasons rent is going up. And now why are we not building enough homes? Well, simply because materials aren't available. Costs have skyrocketed. Lumber has gone up 150% just since the pandemic. Zoning can take a really long time. It takes a long time to get through that process before you can even build. And it's only getting more complicated. So the prices are getting more expensive to build. The time it takes to build is increasing. And builders that are providing all these homes have realized that they can't really make any money with these entry Level homes, which are traditionally what people are going to be renting. So what are they doing? They're building higher end homes so that they can make some more profit. And so the category of renters have less supply, less supply simply because we're just not building enough.
On the demand side, a lot of things have changed and are still changing. One of the big ones is that the millennials, which there's over 70 million, it's the largest demographic in the United States. I am a millennial myself. These are people that were born anytime between 1981 and 1994. So for all of those that are turning around 30 in the millennial demographic, we are peaking in terms of home buying. But a lot of millennials can't afford to buy homes, so they're stuck with renting. Right? That's the other option. We either buy or we rent. And why are a lot of millennials at this peak stage? Well, they've gotten a little older, they have families now, they want a little more space, They've moved out from their parents place. So that is putting increased demand on real estate, on rental real estate. And with lower supply because we're not building enough, and increased demand, well, that means prices are going up. So that is one of the reasons we have this other thing in the economy that really controls most everything, all the spending, and those are interest rates. And we know that we're living in a time in history where we've never had lower interest rates. So that means a lot of people were able to buy homes. And again, they're buying homes from a supply that's shrinking, so there's less available properties. Now on the flip side of this, when interest rates go up, that means people can't afford homes. Because usually people are buying a home based on their payment, right? They don't buy it based on, you know, it costs $500,000. Calculate the payment and say, okay, I can afford to purchase this property. So, so the payment is what's determining how many people are buying homes. And so if interest rates go up, that means less people are gonna be able to buy homes and then they're gonna be stuck renting as well. So a couple big changes in 2020 year over year. Actually, this might be into 2021 as well. Biggest increase in rents. Get this. This is unbelievable. Jacksonville has seen a 35% year over year increase in rents. 35%. Can you believe that? That means if you had a rental property in Jacksonville, it's likely that maybe a year ago you're renting for $1,000 and now you're renting for 1350. Is that crazy? And that's happening in a lot of different places. But there's also places where rent is going down. And one of the biggest drops in rent nationwide, and of course this is in the U.S. san Francisco. I don't think that comes as a huge surprise to a lot of you out there. A lot of people left these densely populated areas like San Francisco during the pandemic. The pandemic actually just increased that outgoing population. These were trends that have kind of already been happening. 18% drop in rent in San Francisco year over year. So we've got one end. We've got Florida, which Florida's been booming, but Jacksonville specifically up 35%. And then we have San Francisco on the other end, 18% down. Now, of course, every neighborhood's different. We can't, you know, say San Francisco is just one market. But in general, these, this is what's happening. So a lot of places are seeing huge, huge increases. And Florida is seeing a really large increase because there's more demand there. But if we think about it, we can't just build faster all of a sudden because we have more people moving there. It still takes time to do all that zoning. And with construction costs going up, these places are seeing a really big increase in demand. And that's why their rents are going up and up and up. So we're basically entering what you could call a renter nation. Homeownership has gone down to 65% from 68% where it was in 2018. So we've got to think for every percentage drop in home ownership, that's millions of people that are renting. So this is just how it is. This is the economy. This is supply and demand. We have a shrinking supply and we have an increase in demand in renters. So it's putting a lot of pressure on rents. And if we're in the right area, hopefully we are. If we're in the right market, well, as real estate investors, we are going to see the benefit of that. And how does this apply to our short term rentals? Well, as a lot of you guys know, these markets that are seeing the big rent increases, these are the markets I recommend getting short term rentals in as well. So if we buy a property in an area that's seen increased demand and there's less supply there, well, that means our rents are going to go up. That would mean that our short term rental rents would go up as well. And that means that those places are probably going to appreciate faster than other markets. So it's a fantastic time to be a real estate investor. It has been, you know, for the last 10 years, so I don't really think there's been a better time. And you might be saying, tim, prices are out of control. They are in some places. But if we're buying for cash flow, remember, the prices shouldn't really matter. Right. As long as we can buy a property using leverage and our payment is fixed for 30 years, which we can do now at incredibly low interest rates, that means our payment's going to stay the same. And if we continue to have rents going up and up and up, well, then that's going to be a sound investment, no matter what the purchase price is, as long as it's cash flowing from day one and you're in the right market, well, then congrats to you, my friend. It's gonna be a good real estate journey. So hopefully that excited you guys on one end. It's kind of sad that, I mean, people aren't able to afford to buy their own homes, but we're also living in a society where people are just valuing mobility a little more, too. Millennials value mobility, so a lot of them aren't buying homes just because they don't want to. Right. So it's a big, fantastic time to be a real estate investor. Hopefully that excites you guys. And until next time, have a wonderful day.
