Image: House for rent © Vstock LLC,Tetra images RF, Getty Images

Related topics: homes, mortgage, rent, savings, real estate

Freaked by the housing market, more would-be homebuyers are opting for rentals -- and driving up prices along the way. But rising rents aren't the only thing apartment dwellers have to worry about. New costs could also make renting less of a bargain than it appears.

The average national vacancy rate for rentals fell by 17% last year to 6.6%, according to Reis, which tracks rental performance data. And as renting has gotten more popular, prices have jumped. The average monthly rent for studio, one-bedroom and two-bedroom apartments is now $986, based on Reis data. Before the recession, the average was $930. And in some markets, it's far worse: In New York, rents are up 9% on average in the last five years; in San Jose, they're up 8%.

Further, the market is likely to get tighter. For the first time in memory, the federal government is actively encouraging people to rent rather than buy. The Obama administration's recent housing proposal calls for a larger rental market and limits to homeownership. Not that renting needed the endorsement: It's already attractive to anyone hesitant to commit to a home in an uncertain job market, those who can't qualify for a mortgage, and people waiting for the housing market to stabilize before they buy. And some people just don't have a choice.

Skyrocketing foreclosures have left thousands of former homeowners with no option but to rent, says Frank Nitschke, a principal at Prudential Real Estate Investors. And with 5 million more homes expected to go into foreclosure over the next two years, according to RealtyTrac.com, more renters will soon enter the market and could drive rents up even more.

The growing demand almost certainly means higher rents -- Reis projects them to rise 3.4% by the end of the year -- and fewer of the perks that became popular during the recession, like two or three months' free rent for anyone willing to sign a one-year lease.

While shopping around, new renters should look for landlords who are still willing to provide a few rent-free months. The trend has been declining in the past year, but is still more widely available than before the recession, says Ryan Severino, a senior economist at Reis. Current renters might save money by renewing their leases sooner rather than later, when rents are likely to be even higher, he says. Before signing a contract, look for wording that promises your rent won't rise during the lease period. By the end of the year, rents could rise even further if inflation picks up.

But costs in addition to rent can take a bigger bite than many renters expect: insurance, storage fees and, in cities where home prices have plummeted, opportunity costs. Suddenly, homeownership doesn't quite sound so bad.

Storage costs

For former homeowners, renting often means living in a smaller space -- and putting the 8-foot dining room table or baby grand piano in storage.

At Public Storage, among the largest U.S. storage companies, the popular 100-square-foot unit (about half the size of a one-car garage) can cost up to $270 per month, depending on location, and the average price is around $150. There's also a one-time fee of about $20 to sign up. The company's U.S. same-store revenues were up modestly in the third quarter compared with a year ago. "There's no doubt, foreclosures have helped the industry," says Clemente Teng, the company's vice president of investor relations.

To lock in the most affordable storage rental, look online: Companies often offer lower prices online than over the phone. And since prices can vary by location, check out the options a town or two over. Consumers shopping for storage space might want to consider locking in the price now; when home sales and moves pick up in the summer, storage prices tend to rise.

Insurance fees

There are no reliable data, but anecdotal evidence suggests that more landlords are requiring tenants to sign up for renters insurance, says Loretta Worters, a vice president at the Insurance Information Institute. They're concerned about getting sued if someone gets hurt on their property. Although the extra cost may seem unnecessary at first, it makes sense: A typical policy covers a tenant's possessions, and it pays for hotel stays and living expenses in the event a rental is destroyed or seriously damaged.

Premiums usually range from $100 to $300 per year, according to State Farm, and rates vary based on location and amount of coverage. Some renters may want additional coverage, because most policies place a limit of $2,500 or less -- total -- on jewelry, fur, silverware, gold, art and rugs, whether they're destroyed or stolen. A supplemental policy, called a floater, costs on average $7.50 per $1,000 worth of jewelry, says Scott Simmonds, an insurance consultant based in Saco, Maine.

Missed opportunity

In some cities, the housing market has fallen so far, and the rental market has gotten so tight, that rent could cost significantly more than a mortgage on a comparable place.

Click here to become a fan of MSN Money on Facebook

In Miami's Dade County, for example, renting a two-bedroom apartment costs $1,206 on average. Monthly mortgage and property tax payments on the same property, based on a median list price of $209,000, would cost $774, according to Movoto.com, which tracks rentals and sale prices. Over five years, that's a difference of almost $26,000 -- not even including the tax break for mortgage interest. In Fairfax County, Va., the savings could be similar

To determine whether owning is cheaper than renting in a specific neighborhood, pull up equivalent for-sale listings online, speak with a real estate agent, and use a rent-or-buy calculator to compare the monthly costs of renting and owning. If the monthly savings are significant, there are other compelling reasons to buy, says John Mulville, a senior vice president at Real Estate Economics, which tracks residential real estate data: Prices are low, and so are mortgage rates.

This article was reported by AnnaMaria Andriotis for SmartMoney.