• In some of the nation’s most-expensive rental markets, including New York, San Francisco and Boston, rent has fallen more in pricier neighborhoods, even as it has remained stubbornly high in more-affordable areas.
• In more-affordable markets including Atlanta, Houston and Detroit, rents increased the most in ZIP codes with both the least-expensive rents and the lowest incomes, straining affordability for vulnerable renters. 
• And in the sunbelt and some popular Midwestern destinations including Boise, Phoenix and Dallas, rent is rising fastest in the most-expensive areas.

Rent has fallen more in the pricier neighborhoods of some of the nation’s most-expensive markets, even as it has remained stubbornly high in more-affordable ZIP codes. And in typically more-affordable metros, rent is rising fastest in the least-expensive neighborhoods. Both trends are illustrative of a tightening affordability squeeze for those renters struggling to keep a roof over their heads as traditionally affordable areas become increasingly out of reach.

Since the pandemic began, the rental market and for-sale markets have diverged significantly — rents have largely flatlined nationwide (and fallen significantly in several large metros), while home value growth has reached record highs. But the split masks a number of underlying truths, because even as rent has flattened or fallen in places, in many areas it remains incredibly high and/or is continuing to climb. And renters themselves, already disproportionately impacted by pandemic-related job losses, have not realized meaningful gains in affordability even among those lucky enough to remain employed — to say nothing of those reliant on tenuous unemployment assistance to help pay their bills.

Haves & Have Nots

In February, typical rent was down year-over-year in a number of large, pricey metro areas, including Boston (-5.6%), San Francisco (-5.2%) and New York (-4.3%). But even with these declines,  rents remain excessively high in many areas. The average rent in the most expensive neighborhoods of San Francisco, for example, was down 9.6% year-over-year in February, but at $3,380/month, it remained far more than the typical U.S. rent of $2,174/month in the most expensive neighborhoods of the country. The more-affluent renters in these areas could expect to spend 27% of their income on the local neighborhood rental, below the 30% threshold at which housing costs are deemed “unaffordable.”  But for renters in San Francisco’s least-expensive areas, rents fell just 1.8% over the past year, to an average of $2,461/month. This is still well above the national figure, and consumes a full third (33%) of local renters incomes in these areas — above the 30% affordability threshold and approaching a level at which housing insecurity and homelessness could be expected to rise more swiftly.

The trend is similar in other large, pricey metros. Rents in the wealthier neighborhoods of New York fell by 11.6% in February 2021 compared to the same time period in 2020, while rents in the least expensive neighborhoods actually rose by 1.8% over the same period. An increase in vacancies brought on by students and workers moving away from more-popular college areas and/or more-expensive downtown areas have contributed to declining rent in these places. The gap between rents in college areas and non-college areas is as wide as it has been since at least 2017, as more students moved back home to take courses online. Prior Zillow research found that 61.2% of 18 to 25 year-olds lived with their family in August 2020, compared to 54.4% in August 2019. Rents in expensive neighborhoods could also be driven down by still-employed renters looking to purchase their first homes and take advantage of lower interest rates, driving rents further down.

But those renters fleeing expensive areas because of a loss of employment or in search of savings will find little to celebrate by moving to the traditionally less-expensive parts of their town. Vacancies in these areas have fallen less as existing tenants hunker down and try to ride out the storm, and demand may be increasing as more would-be tenants seek an affordability edge in these areas that they weren’t finding in previously popular, pricier areas.

A Widespread Squeeze

Even in typically more-affordable markets including Atlanta, Detroit and Houston, the story is similar, but not exactly the same: Rents are rising across the board, but more so in the traditionally more-affordable areas. In Atlanta, rents in the lowest tier/most-affordable areas rose by 11 percent in year-over-year, while rents in the most-expensive locales rose just 3.4%. Rising rents in the low-tier ZIP codes, where median income is approximately $50,000, in addition to challenges brought on by the pandemic, have only compounded the difficulties of the vulnerable renters in these places.  

And the affordability squeeze is being felt even in the sun belt and the mid-sized boom towns of 2020, albeit in a different kind of way — this time, for those seeking to live in the tonier areas of town. An influx of people into increasingly popular destinations including Boise, Phoenix and Dallas has quickly pushed up rents in those areas’ most-expensive neighborhoods, making it difficult for renters to move into more centralized (and often more expensive) urban-downtown neighborhoods. Rents in the most expensive neighborhoods in these markets rose 9%-12% year-over-year in February. 

Methodology

The classification of rents (as measured by the Zillow Observed Rent Index) into tiers is done at the ZIP code level, where the rents are split by thirds. Variation in rents across ZIP codes is captured using the average year-over-year change in rents for each ZIP code. Median household income is obtained from the American Community Survey, 5-year data.