Average Rent Increase Per Year: Everything You Need to Know

As a property owner, increasing rent prices shouldn’t be something you shy away from. Property-related expenses such as home repairs, property taxes, and utilities get more expensive as time goes on due to inflation. To remain profitable and offset these costs, you’ll need to gradually increase the price of rent for your rental property.

It’s important to raise rent gradually and in tandem with fair market value (FMR). This ensures your rental remains competitive and isn't vacant for extended periods of time. Knowing when and how to increase rent prices can be tricky because rental trends differ from state to state, and even between neighborhoods. For example, the price of rent in rural Illinois probably increases at a much slower rate than in Chicago.

Rent increased by an average of 5.45% over the last year. However, in some regions such as Amagansett, New York, rent rose by a staggering 63% year-over-year. With such a wide disparity in rent increases across several regions, it can be difficult to know how much you should be raising rent each year.

In this blog, we’ll discuss everything you need to know about rent increases, including how much rent is rising in each state, what influences rental prices, and what to expect from the rental market in the near future.

How much does rent increase each year?

In 2020, several local governments imposed rent freezes in light of the pandemic, causing rental price growth to remain stagnant throughout most of the country. As rent controls eased up in 2021 and 2022, the rental market started to come back into balance rather abruptly, with an average rent increase of 18% in 2021, which was five times faster than in the first year of the pandemic. From 2021 to 2022, average rents increased by 14.07%, marking one of the largest year-over-year increases since 2017. In 2022, rental price growth began to slow down, increasing by 12.2% from the year prior for new tenants. 

According to Nerd Wallet, U.S. asking rents now average $2,062. The price of rent is expected to continue rising in 2024 due to limited housing supply and increased rental demand. However, the growth isn’t expected to be as extreme. Rents are predicted to increase by 3.9% in the top 100 U.S. markets through 2024, followed by a 5% increase the following year. If these expectations hold, rental price growth would eventually come back down to a more normal rate of growth of 3.5% per year.

What determines rent increases?

Rent increases are determined by several factors such as vacancies, population shifts, supply chains, and housing laws. The importance of these factors fluctuates from state to state, but there are a few economic and social factors that affect rent in virtually every part of the country. Take a closer look at these determinants below:

Rising inflation

Most real estate analysts will tell you that although rental price, growth, and inflation don’t always increase at the same rate, they usually correlate. When one goes up, so does the other. We saw this happen in 2021 when inflation rose by 6.3% and rent prices rose by more than 10.1%. Inflation makes everything more expensive, including property-related expenses. This motivates rental owners to transfer the cost of inflation to tenants by raising rents.

Driving forces behind rent increases: home prices and rental supply & demand

Two key factors driving rent increases are the correlation between home sale listing prices and rent prices, and the supply and demand dynamics in the rental market. 

When it becomes challenging for individuals to afford a home due to high buying costs, there's an increased demand for rental properties. This heightened demand intensifies competition among renters, consequently driving up the average rental prices. 

Additionally, when rental demand outstrips the supply of available housing units, it inevitably leads to an increase in the average rent. Despite growth in housing supply since 1975, the rate of growth, especially since 2010, hasn't been sufficient to meet the current demand. 

In fact, construction of new apartments hit a five-year low in 2020, leaving a substantial gap in the number of apartments needed to accommodate the rising demand for rental housing in the U.S. As of 2023, it's estimated that the U.S. would need to construct approximately 4.3 million more apartments by 2035 to adequately address the burgeoning need for rental housing across the nation. 

How much has rent increased since 2020?

Average rent increases at a rate of 3.2% per year. However, in February of 2022, a year-over-year peak of 16.2% was recorded. Between Q1 and Q2 of that same year, the average rent increase was 18%. It’s fair to say that rental prices have experienced substantial growth since the onset of the pandemic. According to Rent.com, the U.S. median monthly rent rose from $1,614 in March 2020 to $2,038 in July of 2023, marking a 26.26% change in just 3 years.

Rents are more expensive than ever for a variety of reasons. We discussed some of the economic factors above, but there are also a few social factors influencing rental price growth:

Rental assistance programs

The pandemic ushered in a period of economic instability for millions of Americans, causing the federal government, as well as local municipalities, to step in and provide economic relief. An estimated 9.6 million Americans lost their jobs at the height of the pandemic. Tenants all across the country were unable to meet their rental obligations.

In response, billions of dollars were distributed through rental assistance programs to help renters and property owners stay afloat. Rent freezes were also implemented to further ease the burden on renters, making it difficult for rental owners to collect rent. Once these regulations were lifted, property owners naturally wanted to recuperate their loss in profits by raising rent prices, in many cases, abruptly.

Remote work

In addition to economic consequences, the pandemic also influenced our social interactions. Social distancing laws popularized remote work for millions of white-collar workers, allowing families to move inland or to smaller cities where the cost of living was lower. This drove up the price of rent unexpectedly, causing rents to rise in suburban areas more than rents lowered in urban areas, which resulted in a net increase in rents across the board. 

Greater demand for solo living

According to a 2022 study, prospective renters are increasingly looking for studio and one-bedroom apartments as opposed to multi-bedroom units. Not only is the desire to live alone driving up fair market rent, but it’s also placing a strain on new apartment construction which is already having difficulty keeping up with rental demand.

Rent increases by state

To get a better idea of the average annual rent increase in your specific area, take a look at the rate of change for rent from 2021-2022, as well as how that percentage translates into dollar amounts.

• Alabama: Rents increased by 1.86%, a dollar value of $180.
• Alaska: Rents increased by 2.83%, a dollar value of $408.
• Arizona: Rents increased by 5.36%, a dollar value of $708.
• Arkansas: Rents increased by 2.29%, a dollar value of $204.
• California: Rents increased by 25.77%, a dollar value of $4,992.
• Colorado: Rents increased by 4.46%, a dollar value of $732.
• Connecticut: Rents increased by 20.90%, a dollar value of $2,952.
• Delaware: Rents decreased by 26.95%, dollar value of -$5,184.
• D.C.: Rents increased by 15.59%, a dollar value of $2,088.
• Florida: Rents increased by 4.2%, a dollar value of $624.
• Georgia: Rents decreased by 3.72%, a dollar value of $468.
• Hawaii: Rents increased by 18.72%, a dollar value of $3,708.
• Idaho: Rents increased by 2.61%, a dollar value of $276.
• Illinois: Rents increased by 12.75%, a dollar of $1,560.
• Indiana: Rents increased by 2.62%, a dollar value of $264.
• Iowa: Rents increased by 2.85%, a dollar value of $276.
• Kansas: Rents increased by 1.39%, a dollar value of $144.
• Kentucky: Rents increased by 6.21%, a dollar value of $576.
• Louisiana: Rents increased by 7.04%, a dollar value of $732.
• Maine: Rents increased by 27.82%, a dollar value of $2,904.
• Maryland: Rents increased by 6.14%, a dollar value of $1,032.
• Massachusetts: Rents increased by 38.6%, a dollar value of $6,300.
• Michigan: Rents increased by 8.56%, a dollar value of $912.
• Minnesota: Rents increased by 11.52%, a dollar value of $912.
• Mississippi: Rents increased by 1.8%, a dollar value of $168.
• Missouri: Rents increased by 3.96%, a dollar value of $396.
• Montana: Rents increased by 11.07%, a dollar value of $1,104.
• Nebraska: Rents increased by 2.33%, a dollar value of $240.
• Nevada: Rents decreased by 2.83%, a dollar value of $396.
• New Hampshire: Rents increased by 12.12%, a dollar value of $1,668.
• New Jersey: Rents increased by 20.75%, a dollar value of $3,432.
• New Mexico: Rents increased by 5.67%, a dollar value of $576. 
• New York: Rents increased by 35.22%, a dollar value of $5,532.
• North Carolina: Rents increased by 3.11%, a dollar value of $348.
• North Dakota: Rents increased by 7.46%, a dollar value of $720.
• Ohio: Rents increased by 6.4%, a dollar value of $624.
• Oklahoma: Rents increased by 4.05%, a dollar value of $396.
• Oregon: Rents increased by 10.3%, a dollar value of $1,464.
• Pennsylvania: Rents increased by 9.04%, a dollar value of $1,032.
• Rhode Island: Rents increased by 12.37%, a dollar value of $1,548.
• South Carolina: Rents increased by 1.95%, a dollar value of $216.
• South Dakota: Rents increased by 4.55%, a dollar value of $420.
• Tennessee: Rents increased by 1.22%, a dollar value of $132.
• Texas: Rents increased by 4.77%, a dollar value of $624.
• Utah: Rents decreased by 4.28%, a dollar value of $564.
• Vermont: Rents increased by 25.61%, a dollar value of $3,012.
• Virginia: Rents increased by 1.2%, a dollar value of $180.
• Washington: Rents increased by 12.14%, a dollar value of $1,980.
• West Virginia: Rents increased by 6.05%, a dollar value of $528.
• Wisconsin: Rents increased by 7.27%, a dollar value of $756.
• Wyoming: Rents increased by 6.57%, a dollar value of $648. 

Will rent go up or down in the future?

According to the Washington Post, overall rent price increases have slowed down but are still growing faster than pre-pandemic levels. After seven months of consecutive, below-average monthly growth, rents increased by 0.41% in July. Although this is higher than the typical monthly increase in the month of July, it’s still slower than the pace of growth in July of 2021 and 2022. This suggests that although rent prices are still growing, they're not growing as fast as they were in the aftermath of the pandemic.

The report also noted that from June to July, the price of asking rents increased by 0.5%, which is slightly lower than the 0.6% increase observed from May to June, April to May, and March to April. What we can infer from these trends is that while rents remain relatively high, rental price growth is beginning to stabilize. The sharp spikes in rent prices witnessed over the past three years are likely a trend of the past.

Depending on what your real estate goals are, it can be helpful to know where rents are increasing and decreasing the most. Here’s a brief overview of cities with the highest and lowest rent increases:

Cities with the highest rent increases

According to the same report mentioned above, the cities with the highest rent growth this year, month-over-month, were:

• Buffalo, NY (+1.44%).
• Virginia Beach, VA (+0.83%).
• Washington, D.C. (+0.81%).
• Birmingham, AL (+0.78%).
• New York City, NY (+0.76%).

The cities with the highest rent growth, year-over-year, were:

• Hartford, CT (+7.0%).
• Providence, RI (+6.5%).
• Boston, MA (+6.5%).
• Chicago, IL (+6.0%).
• St. Louis, MO (+5.7%).
• Buffalo, NY (+5.7%).

Cities with the lowest rent increases

The cities with the lowest rent growth, month-over-month, were:

• Atlanta, GA (+0.03%).
• Memphis, TN (+0.11%).
• Riverside, CA (+0.11%).
• Austin, TX (+0.13%).
• San Antonio, TX (0.14%).

The cities with the lowest rent growth, year-over-year, were:

• Las Vegas, NV (-2.3%).
• Austin, TX (-1.8%).
• Phoenix, AZ (0.1%).
• Seattle, WA (0.5%).
• San Francisco, CA (0.6%).

Rental industry trends to consider 

Evidently, rental price growth is influenced by both economic and social factors. In addition to supply and demand, there are two behavioral trends worth considering when predicting future rent prices: 

Junk fees exacerbate rent prices

The National Consumer Law Center published a report earlier this year suggesting that additional rental fees, such as pet fees, pest control fees, and other arbitrary fees, are making affordable housing less accessible. With 40% of U.S. renters allocating 30% or more of their income toward housing costs, this is often more of a burden than renters can bear. 

The Biden Administration recently reiterated its commitment to eliminating junk housing fees and improving transparency in the rental application process. As a property owner, this is worth considering because although you can maximize rental profits by charging additional rental fees, it doesn’t mean that you should. Excessive rental fees may turn prospective tenants off, making it more difficult for you to fill your units. 

First-time buyers need 13% more to buy a home than last year

More than 35% of American households rent. According to a recent Redfin report, a first-time homebuyer in 2023 has to earn an annual salary of $64,500 to afford a typical U.S. starter home. This marks a 13% increase, or $7,200 dollar difference, from what it cost to purchase a first-time property last year. 

To put things in perspective, the average American salary is $60,575, which puts the typical American slightly below the affordability mark for a starter home. This is worth considering as a property owner, because it suggests that first-time buyers may be unable to afford a mortgage, which means they’ll be renting for longer. Keep this in mind when renewing a lease agreement with a current tenant. 

How to raise rent on your tenants

Incremental rent increases allow your rental to remain profitable as time goes on. However, it can be difficult for renters to understand why rent increases are necessary, especially when they aren’t given a fair explanation as to why their rent is going up. Here are a few reasons you can give your tenants when you decide to raise rent:

• Operating expenses are higher.
• The cost of living has increased.
• The interest rate on your mortgage has risen.
• The rent for similar properties in the same area has increased within FMR.

In addition to providing valid reasons for raising the rent price, it’s also important for you to provide tenants with fair notice. Although a month’s notice is enough for many renters, informing them about a rent increase 3 months before their lease expires allows them plenty of time to adjust. This also increases your chances of collecting rent on time and in full once the change in rental price takes effect. Property owners should also prioritize reasonable rent increases over price hikes. Too steep of a rent hike at the time of a lease renewal could cause you to lose a good tenant.

Final thoughts on rent increases

Understanding how rent increases work is important for both property owners and renters. Since the pandemic, rental markets have experienced significant economic and social changes, which have caused sharp spikes in rent prices across the country. 

Luckily for renters, rental price growth has begun to stabilize and is expected to continue on a stable trajectory. However, rental demand remains strong, particularly for studio and one-bedroom apartments. Although the peak rent prices of 2021 and 2022 are likely a thing of the past, property owners can still expect healthy competition among renters. 

That being said, it’s important to keep in mind that rental market conditions vary widely from state to state and even within cities and neighborhoods. Determining when to raise rent, and by how much, will depend on factors relevant to your local rental market. By taking a balanced and informed approach to rent adjustments, property owners can ensure the sustainability of their investments while providing fair and competitive rates for their tenants.