Why Is Rent So High in Ohio?

Rising rental costs are a concern for many Ohio residents. This issue is shaped by various interconnected factors within the housing market. Understanding these increasing rent prices requires examining economic and demographic trends, along with realities faced by property owners and developers. This article explores the influences contributing to Ohio’s rental affordability.

Housing Supply and Population Trends

A significant factor contributing to higher rents in Ohio is the imbalance between the available housing supply and the growing demand for rental units. New residential construction has increased since 2009, but the pace of building remains below pre-recession levels, creating a persistent supply deficit. This includes a notable increase in multifamily housing construction, which has grown by 71%, compared to only an 8% increase in single-family housing construction over the same period.

Despite this growth, Ohio faces a substantial shortage of affordable rental housing, particularly for low-income residents. There is a deficit of over 260,000 affordable units for extremely low-income households, a gap widening with a net loss of more than 15,000 units between 2020 and 2021. This scarcity contributes to a competitive rental market, evidenced by low rental vacancy rates (4.0% in 2021 and 6.2% in late 2022).

Increased demand for rental housing also stems from population shifts and household formation patterns. Areas with job growth, like Central Ohio, project a need for approximately 14,000 new housing units annually through 2032. This sustained demand, coupled with constrained supply, creates upward pressure on rental prices as more people compete for fewer units. Ohio’s median gross rent increased by 10% from $788 per month in 2012 to $870 per month in 2021, adjusted for inflation.

Rising Operational and Development Costs

The escalating costs associated with developing new rental properties and operating existing ones directly influence rental prices, as landlords often pass these expenses on to tenants. Building materials have seen significant price increases, such as an 83% rise in lumber costs and a 37% increase in iron and steel prices, impacting the overall cost of construction. The average cost to build a new house in Ohio ranges from $100 to $220 per square foot, or $200,000 to $450,000 excluding land costs, with materials alone accounting for about $50 per square foot.

Labor costs also contribute to rising expenses, with construction workers averaging $23.92 per hour and laborers $19.90. Acquiring suitable land adds another expense, with an acre in Ohio costing between $3,000 and $300,000, averaging $69,600, depending on location. Indirect costs, like building permits, can range from $150 to $4,000.

Existing rental properties also face increasing operational costs. Ohio property taxes, higher than the national average at 1.43%, are determined by county appraisals. As property values rise, landlords experience increased tax liabilities, leading them to adjust rental rates. Landlord insurance premiums in Ohio average between $950 and $1,500 per year, but can reach up to $2,046 annually, influenced by property value, location, and risk.

Economic Influences and Investment Patterns

Broader economic conditions and evolving investment strategies significantly affect the rental market in Ohio. General economic inflation increases the cost of living, which in turn influences rental prices. For example, a Cleveland Federal Reserve model suggests that rent inflation may not subside until mid-2026, indicating persistent upward pressure on housing costs. Rising interest rates, implemented by the Federal Reserve to combat inflation, also play a role by making borrowing more expensive for developers, thereby increasing the cost of new construction.

Increased interest rates also impact the affordability of homeownership, as higher mortgage rates can push potential homebuyers into the rental market, further intensifying demand for rental units. This shift from homeownership to renting can exacerbate the supply-demand imbalance in the rental sector. The median home price in Ohio in 2022 was 2.6 times the median household income, making homeownership less accessible for many.

Institutional investors and large-scale corporate landlords influence Ohio’s rental market through their acquisition patterns. In 2022, corporations purchased one out of every six homes sold in Ohio, a rate higher than the national average. These investors possess substantial capital, allowing them to outbid individual homebuyers and amass large portfolios. Their focus on maximizing returns can lead to rent increases, and they are more likely to impose additional fees and pursue evictions.

The growth of short-term rental markets also affects the availability of long-term rental units. An increase in properties designated for short-term rentals reduces the pool of housing available for permanent residents. This reduction in long-term rental supply contributes to the overall increase in rental prices within affected communities.