The Rental Bubble: Millennials Make Rent Payments on Credit

Alice Salles Comments

Young people are increasingly resorting to lenders for help to pay rent. But considering that millennials are in deep financial trouble because of their student loans, this reality is particularly concerning.

As we look into what led them here, it’s important to think about what government policies have been fueling housing costs and worsening young Americans’ situation.

millennial rental bubble

Long before the housing bubble crash, analysts and talking heads ignored Austrian economists and their warnings, downplaying their criticism of the Federal Reserve’s easy money policies as “doomsday” economics. But Austrians were, indeed, right, as the artificially low rates pushed by the Fed helped to create a series of malinvestments over time. Nowhere was this clearer than in the housing industry, where the boom in the mid-2000s pushed investors and builders to erect too many houses, despite the lack of real demand.

But as entrepreneurs abandoned their projects and housing prices hit rock bottom, companies had to cut back on their operations, creating a recession. This period might have been painful to many, but necessary so the economy could get back on track. After all, if we keep relying on artificial demands, we will never be able to adjust to what the market actually needs. Unfortunately, our central bankers didn’t see it that way, and instead of increasing the interest rate and significantly cutting back on money creation, or balance sheet expansion, they carried on with the same irresponsible policies that created the bubble in the first place. Fast forward to a few years into the future and what do we have? Another bubble.

This time around, however, Americans aren’t as excited about buying property — they are renting instead. And with Fannie Mae and Freddie Mac financing the most recent rental boom, taxpayers are on the hook.

But before the bubble pops, there’s another group of Americans who are suffering the consequences of the Fed’s irresponsible policies: young adults.

According to Wall Street Journal, there are lenders popping up that offer loans to recent college graduates as well as young professionals moving to a new city who do not have the  money to rent. Many of those using these lending programs simply cannot afford to pay rent where they live. But because they believe they will catch up in the end, they remain in place, relying on these businesses for cash.

With outstanding consumer credit exceeding the $4 trillion mark and housing costs on the rise, many will continue to rent. Especially young, college-educated people who go to the city to find employment in their area, and who are unable to save money, thanks in part to their student loans.

Unlike the housing market, the rental market doesn’t usually scare the public as much. After all, a boom in the industry prompted by malinvestment will eventually produce lower rents, depending on the market. As such, booms and declines don’t get as much attention.

But until we see a real crash in the rental industry, young residents flocking to densely populated metro areas won’t listen to economists. And as debt piles up, they will continue to struggle to pay their bills, resorting to lenders for help.

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