Inflation is hitting younger renters hard, according to a new report from Redfin. Millennials with a new rental lease in July saw the overall cost of goods and services increase 11.6% year over year, which is substantially higher than 8.5% for the U.S. population as a whole. For Gen Z renters with a new lease in July, the personal inflation rate was slightly lower at 11.3%.
According to Redfin, these rates are attributed largely to escalated rental costs, with year-over-year asking rents up 13.5% in July. While rental costs are starting to decelerate, they are still roughly 25% higher than they were pre-pandemic. Both millennials and Gen Zers allocate over a quarter of their income to housing, which is the largest chunk of all spending categories.
“Inflation is hitting young renters hard because not only have prices of everything from food to fuel soared, but so have rental prices,” said Redfin senior economic Sheharyar Bokhari. “Homeowners are forking over more money at the grocery store and the gas pump, but at least the number on their mortgage statement isn’t going up every month. Combine high rental prices with student loan debt and relatively low incomes, and it’s difficult for millennials and Gen Z renters to put money into savings, retirement accounts, and down payment funds to eventually buy a house. They may also have higher interest rates on debt, which cuts further into their potential savings.”
While incomes for both Gen Zers and millennials have risen 9.7% between 2020 and 2022, expenses have increased about 17%, leaving the young adults with little disposable income.
For a typical Gen Z adult, only 1.9% of their $40,953 median income is left over after housing payments and other expenses, such as food and transportation. That’s down from 7.7% of their income in 2020. While a typical millennial’s income is more than double that of a Gen Zer, $85,233, they still only have 26% of their income left over after housing payments and other expenses, down from 30% in 2020.
Redfin explained if a typical Gen Zer saved all disposable income, they would have $766 at the end of the year, while millennials would have $21,959. At that rate, it would take millennials four years to save for a 20% down payment for a median-priced home. The amount of time it would take Gen Zers isn’t realistic since their incomes are expected to grow as they age.
In addition, four in 10 recent or current first-time home buyers didn’t purchase a home sooner because of the high cost of rent, according to a Redfin survey in August.
“The combination of expensive housing, high inflation, and relatively low incomes have forced many young renters to save money in creative ways,” said Bokhari. “Some are living with their parents or roommates longer than they would like, and others are moving to more affordable areas.”
The report also found that younger renters in Seattle, Miami, and New York have been hardest hit. Gen Zers in Seattle who signed a new lease in June saw prices of goods and services increase 17.1%—the highest inflation rate of the 21 metros in the Redfin analysis as well as substantially above June’s overall inflation rate of 10.1% for the city. Gen Z renters signing a new lease in Miami in June had a 14.2% inflation rate, compared with the overall metro’s 10.6% rate, and New York rounded out the top three with an inflation rate of 12.8%, nearly double the overall rate of 6.5% for the metro.
According to Redfin, the list is the same for millennials, with those signing a new lease in Seattle experiencing 16.8% inflation, followed by Miami at 14% and New York at 12.6%. These rates are partially due to increasing rents in these three gateway cities.
