Corridor rents higher than before COVID-19, but increases cooling, data show

Rent increases are leveling off after historic high spikes driven by the COVID-19 pandemic, but remain higher than before the virus’ global spread, new data show.

Nationally, rent prices have risen about 19 percent since 2019, but prices increased only about 1 percent in the past year, according to an analysis of rent data from CoStar Group by The Washington Post. The pace of price bumps has slowed from 2021 and 2022.

In Johnson County, the average rent is $1,338. Overall since 2019, rents have spiked 15.1 percent but have slowed to 3.4 percent since 2023. In Linn County, average rents were lower at $897. Similarly, rents have climbed 17.1 percent since 2019 but that has slowed to 3 percent since 2023.

The pandemic slowed construction of sorely needed new housing units for a time, but now more new housing stock has come online and eased pressure on the market, driving a slowdown in price spikes.

Still, local housing officials say the baseline increase in rental costs and rise in other living costs such as utilities, groceries and transportation are straining household budgets. And more housing stock is needed to make a true dent in rental costs.

“Even if rent levels off, we’re still seeing household finances not rebounding to pre-COVID stability,” said Simon Andrew, executive director of The Housing Fellowship, a nonprofit that owns affordable rental homes throughout Iowa City, Coralville and North Liberty and rents to people with limited incomes.

Daniel Haight has rented the same one-bedroom apartment in southwest Cedar Rapids for 11 years. He said the rent has only increased twice, but the most recent increase was a much larger jump than the first one.

When Haight first moved in to Shamrock Apartments in 2013, he was paying $400 a month for rent plus a utility fee. In 2017, that monthly payment increased 15 percent to $460. That’s where it stayed until earlier this year, when it increased 24 percent to $570.

Haight, who works as a technical media producer with KCRG, said he hasn’t personally had much trouble keeping up with the increased rent, but he’s worried about the way increases around the city might affect people with less financial stability.

“I would say that compared to the other rental properties that I’ve seen here in Cedar Rapids, Shamrock is the cheapest by far,” Haight said. But, I think with the situation that’s going on right now, I think that if this trend continues, most people aren’t even going to be able to afford renting.“

Why have rental costs gone up?

Andrew, a nonprofit landlord, said rising property insurance costs and interest rates have walloped landlords, challenging their ability to keep housing costs down.

“Our insurance costs as a landlord have, in some cases, doubled and tripled in a year or two,” Andrew said. “ … Even with all the other costs of doing business, all that is enough to make it that we are struggling to keep rents lower.”

Locally, he said the amount of new housing coming online for much of the last decade has not kept pace with Johnson County’s population growth. High demand for insufficient supply further pressures rental costs.

Jessica Andino, executive director of the Johnson County Affordable Housing Coalition, said vacancy rates are under 5 percent, so the greater Iowa City area rental market is very competitive.

Being home to the University of Iowa, where there’s essentially only enough on-campus housing for first-year students, Andino said that also fuels demand and adds pressure to Iowa City’s rental market.

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“We have to do some catching up and before we'll see any sort of rent decreases here locally,” Andrew said of the need for additional housing stock.

In Linn County, Tracey Achenbach, the East Central Iowa Council of Governments’ housing director said the 2020 derecho — coupled with the pandemic — drove rental costs higher because the unprecedented storm damaged so much housing stock. Many rental units were rendered uninhabitable for a time, making the intact units that much more in demand.

“The pandemic impacted people because of the cost of construction, and then once we had the derecho, it really took a lot of rental units out of the mix,” Achenbach said.

Much of the construction that the pandemic put on ice resumed again, bringing new units online. And while the storm wiped out some housing, it also invited an influx of funding to replace what was lost in the derecho.

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The federal government awarded Iowa $57.6 million in Community Development Block Grant money to recover from the storm, much of it put toward housing. Of that, $38 million is going toward multifamily housing in Linn County, which bore the brunt of the derecho’s devastation, supporting nearly 300 new housing units.

“There’s a lot built in the Cedar Rapids area,” Achenbach said. “Those rents are going to go down if there’s more of those housing units and there’s more of a choice.”

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Rising housing costs push homeownership ‘out of reach’

While housing costs have risen substantially, Andrew and Achenbach said wage growth has stagnated, so workers’ pay is not keeping up with increasing rents.

For homeowners and landlords, Andino said property values have increased, so landlords are trying to capitalize on those investments and sell those properties. In the coming years, she said aging baby boomers are likely to be looking to turn their houses into an investment property that they lease. But that may further challenge rental affordability.

“When they sell and make a huge profit margin, that's great for the original owner,” Andino said. “However, the new owners then will have to charge a rent that is actually higher, because their mortgage is higher not only on the principal value of the loan, but then also on the interest rate.”

With the economy largely built around homeownership as an investment, Andrew said, the incentive is that housing values rise and so do costs. But that means single-family homes are increasingly out of reach for lower-income households.

“That implies that we need to be doing something in terms of financing or down payment assistance to make sure that those households can still get into homeownership opportunity,” Andrew said.

Rising rents also can fuel housing instability, prompting families to move if the rent climbs to a price they can’t afford or if the landlord decides to sell the property.

“It affects our schools and the way our neighborhoods operate and interact if those families are bouncing around the community from year to year or within the school year,” Andrew said. “The next generation of housing stability is largely based on those children achieving in school today. And the best thing we could do to make sure that they have that stability and are able to achieve today is to make sure that they're able to stay in the housing that they’re in.”

What can be done about it?

Achenbach said a community could have a cap on rent increases.

Some states and municipalities nationwide such as Oregon have used tools such as rent control policies to cap increases in an effort to address tenants’ concerns about being burdened by housing costs.

Recognizing the burden of housing cost on U.S. voters, President Joe Biden in July unveiled a proposal calling on corporate landlords to cap rent spikes at 5 percent.

In Iowa, legislative efforts to enact such policies have stalled. Iowa law bars a county or city from adopting or enforcing a rent control or rent stabilization ordinance. A bill introduced in January would have removed the prohibition, allowing cities and counties to adopt ordinances that would put a cap on residential rent hikes.

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Caitlin Sugrue Walter, the National Multifamily Housing Coalition’s senior vice president of research, said people tend to see rent control as a quick fix. Recently conducted academic reviews the coalition commissioned suggest otherwise, she said.

A coalition report unveiled in January found that rental caps:

“When you look at it around the country, it doesn't actually help the folks who need it most,” Sugrue Walter said. “It disproportionately benefits white households or higher-income households. It doesn't help the folks who need it most and it also can actually make it so that folks who might want to relocate for a job, for example, don't feel like they can, because then they lose their rent-controlled unit. It decreases mobility for folks.”

At the same time, the Federal Reserve Bank of St. Louis reported in February that “tenants of controlled units can benefit from lower costs and greater neighborhood stability — as long as they don’t move.”

Still, housing advocates said there are other ways to keep housing affordable. Boosting supply across points is a key part of the solution. Offering financial incentives such as tax abatements or donating public land toward housing construction and conversion projects can help.

“Even if you build top-of-the-line luxury housing, eventually that will start to cause the rents to go down across the board,” Sugrue Walter said. More expensive luxury housing coming online frees up lower-cost housing for those who need it most.

Andino said investing tax dollars in local nonprofit housing providers is one way to keep money within the community at a mission-driven organization.

“There are a lot of tax incentives for for-profit developers to pursue affordable housing projects either through the state or through (the U.S. Housing and Urban Development Department),” Andino said, but it was better to support nonprofit housing providers that are guaranteed to invest their resources back into the community’s housing needs.

To boost housing supply, Andrew said local governments could lift hurdles to approving affordable housing, either by tweaking their zoning code or ensuring city councils are supportive of affordable housing and don’t block proposals that come their way.

Forming Community Land Trusts also can allow for a different ownership model, where nonprofits governed by a board of residents of the trust, community residents and public representatives provide lasting community assets and shared equity homeownership opportunities.

These trusts help people who couldn’t otherwise afford a traditional commercial loan access down payment assistance, low-cost financing, first-time homeowner programs or other supports for income-qualified people, Andrew said.

“None of these ideas are going to be a silver bullet that fixes the issue,” Andrew said. “It is such a massive structural issue …”

Emily Andersen of The Gazette contributed to this report.

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