Across large segments of the US rents are rising faster than wages, and that’s putting pressure on more and more households:
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.
So there are more renters which is putting pressure on the current housing stock and that means rising rents.
“Rents have skyrocketed so much and incomes haven’t kept pace, so we have an affordability crisis in some of our major metropolitan areas for the middle housing market,” said Kenneth Rosen,chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.
The squeeze is tighter in some of the “usual suspect” markets like San Francisco and New York, but even markets like Nashville are seeing it too:
Nashville is one city “getting meaningfully more expensive,” saidGreg Willett, vice president for research and analysis at MPF.
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.
If the affordability crunch isn’t addressed soon then we’ll start to see more and more cities try to do what Nashville is doing, but they might find themselves fighting an uphill battle when confronted by NIMBYism from neighborhood groups. This article about San Francisco’s struggle to find a solution to its affordable housing crunch is an excellent primer on difficult a nut this can be to crack. Private sector development is critical to this process, and hopefully cities will work with developers to address these issues, but even if they do there will still be a steep hill to climb with interest groups.