For many people, purchasing a home is the largest investment they will ever make. Saving for a down payment can take anywhere from a few months to several years, and most mortgages are financed for 15 to 30 years. Even seasoned real estate investors require time to raise funds before purchasing a property. This begs the question, why are apartments in 2023 so expensive?
The average price of a house has risen dramatically in recent decades. Changes in the economy, rising construction costs, and a number of other things are behind this trend. In the next sections, we’ll talk about how housing prices have changed over time and what has caused these changes. Keep reading to find out why apartments are so expensive in 2023 and how this may affect your home-buying experience.
Housing Price History
The first housing census in the United States was conducted in 1940 when the average price of a single-family home was around $30,600. (when adjusted for inflation). As of January 2021, the average price of a single-family home in the United States was $346,000, according to the United States Census Bureau. So, how did the price increase from $30,600 to $346,000?
Since 1940, the average cost of a home has generally increased steadily. However, there have been some fluctuations due to various economic factors. The 1970s saw the greatest increase in home prices, rising by 43% during the decade. This was followed by the slowest period of growth in the 1980s, during which home prices increased by about 8%. There have also been brief drops, such as during the Great Recession of the 2000s, when home prices dropped by nearly 12%.
Unfortunately, average wages and salaries in the United States have not increased at the same rate as home prices. According to the Pew Research Center, wages grow at a rate of two to three percent per year. This disparity has rendered many Americans unable to purchase real estate, particularly in recent years. However, many homeownership programs exist to combat this reality.
It’s also worth noting how home prices have risen at varying rates across the country. The northeastern United States, for example, has seen the greatest increase in the average price of a single-family home. According to Investopedia, the South and Midwest have seen the smallest increases. While housing prices vary depending on location, the United States has seen overall growth.
Why are Apartments So Expensive?
Several factors have contributed to the historical price growth in the US housing market. Price increases have been consistent as a result of political, economic, and other societal changes. The following are the main reasons why apartments will be so expensive in 2023:
Location is one of the main reasons apartments are so expensive. Most of the time, apartments near big cities or tourist spots cost more than apartments in the suburbs or in rural areas.
This is because metro and tourist areas have the highest demand. Many people who work in the city and need to operate in an office prefer to live near their workplace. It enables them to live without a car, for example, because they can take public transportation or ride their bikes.
Many people want to adopt this lifestyle because it can save them money while also helping to protect the environment. The issue is that apartment complexes only have a limited number of apartments available. When there is a high demand for an apartment due to its location, the rent will rise.
This is also true for apartments near a beach or a town with a busy nightlife that attracts tourists.
#2. Land prices
Another reason apartments are expensive is because of their location. If an apartment is in a high-demand area, such as the city, the cost of owning the land will be high. Apartment complexes, like most businesses, must pay for the land on which they operate. This could be in the form of property taxes or rent if the land is leased from a landowner.
Some plots of land are more valuable than others. Land in the city, for example, is extremely expensive because there is so little of it available. Cities grow on every available square foot of land. If the land is located in an area with a high volume of business or traffic, such as a downtown area, the rent will be higher.
This is due to the high demand for that particular parcel of land. It has an opportunity area that can draw a large number of people to it. Landowners are aware of this and will either sell or lease their property at a premium. In either case, apartment complexes will have to spend a significant amount of money to acquire that land.
If they rent the land, their rental fees will be high because they must pay their rent while also operating the business. Apartments are expensive, depending on where they are built. Depending on their location, land parcels can range from being inexpensive to extremely expensive.
Many people believe that paying rent for an apartment is expensive because they are unaware that it includes their utilities as well. Some apartments, but not all, include bills like electricity and water with the rent. The apartment complex handles the utilities rather than having its tenants pay for them.
Apartment renters pay a higher rental fee as a result. The fee covers both their basic rent and their utility costs. The bundle may save them money in areas with expensive utility costs.
It may end up costing them more in other places. If you are unable to shop around for your energy or water provider, you may be forced to use the company that the apartment chooses for you. Even if another company offers a lower price, you are unable to switch. As a result, your rent is higher because the apartment uses a more expensive utility provider.
Other utilities tend to raise the cost of the rent. Trash collection is another fee that most people are unaware of that is added to their rental fee. Apartment complexes require a more expensive trash collection plan to deal with their dumpsters because they house many people.
The rent includes the cost of that service. Some apartments include internet service, but in most cases, you will need to pay for your own. This can also make it more expensive to rent an apartment because you have to use the internet service that the complex offers. The cheapest option may use a service that the apartment complex will not allow installation of because it violates their rules.
The number of amenities provided by the apartment is one of the most important factors influencing rent prices. An apartment with a pool, for example, will be more expensive than an apartment without a pool.
This is because a pool has several costs. Then there’s the cost of installing the pool, which, depending on its size, could easily cost several thousand dollars for an apartment. If the pool has heating technology or other special features, the cost will be higher. The cost of energy to heat the pool, for example, makes pool ownership expensive.
Then there’s the upkeep. To make sure the pool is safe, it needs to be cleaned often and closely watched. Some apartments may even hire a lifeguard to stay on duty to ensure the safety of everyone who uses them.
All of these expenses are added to the rent. Even minor amenities like basketball courts, workout rooms, or tennis courts raise the rent. Even a dog park raises the rent because it needs regular maintenance and supplies like dog poop bags.
The more amenities that an apartment has, the higher the rent will be. Apartment complexes know that certain amenities will draw people to their properties, even though they cost money to maintain.
Because there is a higher demand for their apartments, the complex can raise the rent to ensure that only a few select people can afford it. Apartments are expensive because of the features and costs that come with them, as well as the higher demand that comes with them.
#5. Construction and finishing materials
Another reason for the expensive cost of apartments is the materials used in their construction and finishing. When it comes to finishing and construction, most apartments try to keep costs as low as possible.
They may have a target household income and understand that they must keep costs low to afford the apartment. That’s why they could be using fake wood instead of real wood. They may have outdated cabinets rather than modern ones. They might use off-brand refrigerators, washers, and dryers. Carpets are commonly used to finish rooms in lower-cost apartments.
This is because the carpet is inexpensive and simple to replace after each tenant moves out. However, not all apartment complexes take the low-cost route. Others wish to have a higher household income.
These buildings’ floors will be made of real stone. They will have new and freshly painted, high-quality cabinets. They’ll even splurge on expensive-end appliances from well-known manufacturers.
Taxes must be paid by all apartment complexes. They may be required to pay property taxes or general commercial taxes. When tax rates rise, the complex is required to pay more in taxes. Their profit margin is shrinking.
This could mean that they can’t pay for certain projects or pay certain employees. Most of the time, they end up raising the rent to make sure they keep making the kind of profit they need to stay in business and grow. If the apartment complex owns the land, one of the most significant taxes they will have to pay is a property tax.
Their property taxes rise as the complex expands or adds more amenities to the area. This is due to the complex’s increasing value. The apartment complex will raise the rent to cover the tax. When you hear that tax rates are going up, you can usually expect your rent to go up as well.
#7. Lower interest rates
Low-interest rates are one of the primary reasons home prices have risen over time, particularly in recent years. When interest rates go down, the cost of financing a home also goes down, which makes more people want to buy a home. This rise in demand almost always leads to an increase in overall home prices.
#8. Increase in local zoning regulations
Building and zoning regulations, as you may be aware, have come a long way since 1940. Changes in these laws have directly resulted in higher home prices, particularly in cities. Permit requirements, neighborhood rules, and laws governing how many people can live in a specific area are all examples of zoning rules. These factors have caused home prices to rise because they frequently limit the number of homes that can be built.
Most Expensive States to Buy Apartments
Some real estate markets are growing faster than others, which is driving up prices and shortening the amount of time it takes to sell a home. The real estate market in California has been known for a long time to be expensive and very competitive. However, several other states also have competitive conditions. Here are some of the most expensive states in which to buy a home:
Hawaii is a group of islands known for its tropical climate and stunning scenery. Although the population is small, the limited real estate is competitive. The average sales price in 2023, according to ZeroDown, will be around $856,000.
When most people think of expensive real estate, they think of California. The average home costs slightly more than $500,000. While some cities are losing population, the state remains a popular place to live.
Oregon has benefited from the growth of the technology sector, which has drawn an increasing number of people to the state. According to RentOwnSell, the median sale price of a home is around $312,205.
Washington, another Pacific Northwest state, has seen an influx of people as job opportunities expand. Aside from job opportunities, many people are drawn to the area because of its lush green landscape and outdoor activities. The median home value is approximately $340,000.
COVID-19 caused an influx of people in many states, including Colorado. Again, the state provides beautiful scenery as well as promising job growth. The average home value is currently $343,000, but it may rise in the coming months.
Homeownership is central to the American dream. For many, purchasing a home is a once-in-a-lifetime opportunity, while others make a living by buying and selling real estate. In any case, the steady rise in home prices has created difficulties for many people. Even though the government has tried to help with these costs, home prices have gone through the roof in the last few decades.
Keep in mind that there are a number of causes for the issue when seeking an answer to the question “Why are apartments so expensive in 2023?” Remember to plan ahead of time if you want to own real estate, and keep an eye out for all the different financing options available to you.
Frequently Asked Questions
Why does it cost so much to rent?
Rents increased due to simple supply-and-demand economics. Combine this with rising construction costs. Rent for new units increased by $92 per month due to higher lumber prices between April 2020 and July 2021. Then there’s the influx of Baby Boomers looking to sell their homes.
Why is rent so high in the US?
High demand as homebuyers are priced out due to rising interest rates and home prices; low inventory; landlords making up for lost rent during pandemic-related rent moratoriums; and higher maintenance costs as inflation rises, according to analysts.
Why is housing so expensive now?
The biggest factor in how much it costs to find a place to live is a lack of supply. According to Freddie Mac, the US is short of the 3.8 million units needed to meet current demand. “Builders haven’t built enough to keep up with demand,” Fairweather said. “We built fewer homes in the 2010s than in any other decade since the 1960s.”
Why are landlords raising rent?
Rents in London have nearly doubled to £1,832 per month, nearly £250 more than in May 2021. Because there aren’t enough houses to go around, rent prices have gone up a lot, and the average landlord signs a new lease within 14 days of putting a house on the market.
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