Inflation's Impact: The realities of rapidly rising rent

 

SOUTH BEND, Ind.-- We're all feeling the heat of inflation. Just the sticker shock alone at the grocery store or gas station is enough to make anyone feel the pinch. What is keeping prices so high are factors like rent and fuel, according to the latest Consumer Price Index (CPI).

The Federal Reserve hiked interest rates up to record highs to temper the effects of inflation, but the housing market remains incredibly hot due to sheer demand. Plus, there just aren’t enough homes to go around. 

At its most basic—this is a story about supply and demand. Millennials make up a big portion of the population and many are looking for their first homes, but there just aren’t enough to go around. In the meantime, they rent, while trying to save for that house. 

It’s a struggle Sheena Frederick knows all too well. 

"I have a living room, a dining room, a fenced-in backyard," Frederick said. "I have some amenities here that are really—that have taken me almost three years to find.”

She is a lifelong South Bend resident. 

“I’ve been renting since I was 17 and 18 years old. My first was an apartment. It was $450 plus cable, internet wasn’t really important or essential, and Netflix was still on DVDs,” she said.

A single mom with three daughters, she's always been a South Bend renter, but in the last few years, she’s feeling the heat of rapidly rising rent. 

“Three and a half years ago, I was paying $770 for a house this size," she said, "and now we’ve tripled that.”

Her family suffered a house fire in that home, the house Frederick was updating monthly, investing in, on the path toward homeownership through a rent-to-own program with the landlord. 

That dream went up in flames, and Frederick moved in with her grandmother.

“I moved in with a relative and the notion was, ‘Oh I’ll find something quick,’ and it took me a year to find something,” she said.

For a year, Frederick faced hurdle after hurdle securing a spot for her family of four, often struggling to meet the demands of today's lease agreements.

“I need you to make four times the rent, I need you to make three times the rent, I need three months down, plus the security deposit,” she explained.

Her worst hurdle—getting scammed. She says some landlords are kind enough not to run a credit check but that also lends itself to scams.

"The online market has created so many fraudulent cases," Frederick said. "I can’t tell you how many times I went to go look at a house and I get there and it’s not actually for rent and there’s people living in it and you’re the fifth, sixth, twelfth person that’s come by.”

She finally found a spot and moved into her three-bedroom South Bend house with her three daughters and boyfriend. 

“If me and my boyfriend weren’t co-joined for bills, I would be cramped in a two-bedroom apartment with my three teenagers who are all bigger than me.”

She now pays $2200 a month in rent.

“If I wouldn't have had a partner to share that burden with, I mean, I’d probably be late every month, I'd be late every month. I would prob—I would definitely be late every month right now,” she said.

Frederick is on the path to buying a home in the next year or so, but she’s keeping her pulse on the local market.

Her story’s not uncommon.  She’s 34 years old and considered a millennial-- the biggest generation since the baby boomers.

ABC57's Annie Kate sat down with Klajdi Bregu, Assistant Professor of Economics at Indiana University South Bend.

“This is a big problem nationally for first-time buyers. It’s a big problem for millennials especially," said Bregu. "We have a large number of millennials creating families and they’ll need to move out of multi-family to single-family housing. And we have a—nationally—we have a shortage of single-family housing.”

Bregu also added, “When I first moved here, I first paid for my 2-bedroom apartment, $875, and now those same apartments are about 30 to 35 percent more, and for context, I moved here in the middle of 2017."

We wanted to put Frederick’s story into context—why is it so hard for millennials to get a house right now?

Bregu explained: first, you have the great recession, and builders stopped producing so many houses in the country. 

“On the one side, we have a shortage in terms of how much we have built, because of the scare we got out of the great recession," he said. "And on the other hand, we have the federal reserve, over the past couple of years, keeping interest rates super low, so what that did is that creates demand, but the supply couldn’t really match.” 

Then comes a global pandemic, and even though the housing stock is low, interest rates plummet, and the population spreads out. 

“The root of the problem is both on the supply side and on the demand side," Bregu said. "So, we don’t have enough single housing, and also, we stimulated the demand way too much after COVID especially, but even before then somewhat.”

So, how can millennials work to save up for that starter home?

“It’s a very good question and it’s a difficult one because it’s not only our rents that have gone up, the cost of living overall has gone up, especially in the last couple of years. After COVID, the cost of living has gone up as much as 20 percent,” Bregu said.

Inflation soared to record highs, and while the rate of inflation decreases, everyday sticker prices are still high, whether it’s groceries, gas, or rent.

Bregu's advice for millennials is to find ways to bring in extra income, like getting a side hustle. After all-- Frederick did!

“I have sold keto-made meals on the side, if I wouldn’t have done those things, either, over the last few years, I definitely—my kids wouldn’t do extra, they wouldn’t do softball.”

He even suggested getting a roommate if you live alone.

"For those who can do that, that’s a trend that many people are doing and it’s really helpful to save some money, is live with someone else, of course, and share the rent,” Bregu said. 

He says the real solutions can’t come from aspiring homeowners but from builders.

“So, the reason why prices are up is because the demand is higher, and supply is not keeping up. And our goal should be to fix the supply side instead of fixing prices because fixing prices never really works,” he said. “We should try to make building as easy as possible, because what's been happening lately, because interest rates are high, now the cost of building has gone up from that side. And if we want, can lower regulations somewhat and make it easier to build, then hopefully we can improve somewhat locally, the supply. Because only that will really solve this problem.”

And for Frederick, landlords could ease up on barriers to renting.

“I know it’s hard to give trust to people who rent. But I think that there should be a little more trust in tenants."