27 February 2021

Rising Rents Outpace Wages in Wide Swaths of the U.S.

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The cost of renting a home is rising faster than wages across wide swaths of the country, a problem that has become especially acute in the past year, putting a big squeeze on many household budgets. The situation is particularly noticeable in long-pricey areas across the West and in big cities like New York, where the average household pays more than 40% of its gross income for rent, according to online real-estate database Zillow. But rising prices also have spilled over into cities like Denver, Atlanta and Nashville.

Much of the problem is attributable to simple supply and demand. The job market has improved and millennials are entering the labor pool in force, boosting household formation. But in a structural shift for the real-estate market, new households are much more likely to be renters than buyers.

In the first quarter of 2015, the number of U.S. households was up by almost 1.5 million from a year earlier, the second consecutive quarter of relatively strong growth following years of only tepid gains. But the net increase was entirely due to renters, while the number of owner-occupied households fell slightly. That’s broadly been the case since the housing bust, with new household formation consistently coming from renters rather than buyers. The homeownership rate hit a 48-year low, according to estimates published Tuesday by the Commerce Department, declining to 63.4% in the second quarter from 64.7% in the year-earlier period.

And as rents rise, it’s not only low-income people feeling the squeeze. Economists generally consider a household cost-burdened when it is paying at least 30% of its income for rent. Younger Americans also are taking a hit. From 2003 to 2013, the share of renters aged 25 to 34 who are considered cost-burdened increased from 40% to 46%, according to a recent report by Harvard University’s Joint Center for Housing Studies.

Nationwide, U.S. government data shows tame inflation, with the notable exception of rent. The consumer-price index for rent of a primary residence in June was up 3.5% over the past year, while the overall index was up only 0.1%. Meanwhile, average hourly earnings were up 2% during the period. MPF Research, which tracks occupancy and rental rates, found second-quarter rents rose 5.2% from a year earlier nationwide, a 15-year high. Oakland led the way with an 11.8% increase.

The strongest rent growth is in the West, but prices also are rising in midtier cities across the U.S. Rents there were up 5.1% in the second quarter from a year earlier, well outpacing incomes. According to separate Labor Department data, average weekly wages rose 2.4% in the Nashville metropolitan area between 2013 and 2014.

While builders have been adding new units to the market, most are luxury apartments. In response, the Nashville Metropolitan Council passed a bill July 21 ordering the local planning department to devise a zoning plan that would increase the supply of affordable housing.

Click here to access the full article on The Wall Street Journal. 

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