Tuesday, May 16, 2017

Is the "rental affordability crisis" abating?

 - by New Deal democrat

Three years ago HUD warned of "the worst rental affordability crisis ever," citing statistics that
About half of renters spend more than 30 percent of their income on rent, up from 18 percent a decade ago, according to newly released research by Harvard’s Joint Center for Housing Studies. Twenty-seven  percent of renters are paying more than half of their income on rent. 
This is a serious real-world issue. I have been tracking rental vacancies, construction, and rents ever since.  The Q1 2017 report on vacancies and rents was released several weeks ago, so let's take an updated look.

The bottom line is that rent increases have stopped in the last year, and with increased wages, the effect is that rent has become a little more affordable.  Median asking rent was unchanged at $864 in the first quarter of 2017, and is actually down $6 from $870 YoY, a decrease of -0.75%. Median asking rent has not made a new high in a year, as you can see in the below graph: 

Here is an updated look at real. inflation adjusted median asking rents, which similarly show that after setting an all-time record in Q1 2016, rent pressures on household budgets have abated just a bit:

Year Median
Asking Rent
Usual weekly
Rent as %
of earnings

2004 59962995
2013 73477894
2014  76279196
2016  H1859826104
2016 Q3842835101
2016 Q4864843102
2017 Q1 864865100

While vacancies remain tight, the vacancy rate appears to have bottomed over the last two years, so while there is still stress, the level of stress is decreasing a little:

It is worthwhile to note that the CPI for owner's equivalent rent, the major component of inflation, remains near the highest levels in a decade, although it has backed off a little in recent months: 

 There are two other median measures in addition to median asking rent from the HVS:   the American Community Survey and the Consumer Expenditure Survey.  Unfortunately both are only current through 2015.  The below table shows their YoY increases, compared with median asking rent:

SURVEY: ACS        CES      HVS
2009 --------  (817)    -------     ------  (708)
2010  +2.9%  (841)   +1.4%   +2.6% (698)
2011  +3.6% (871)    +4.4%   -0.6%  (694)
2012  +2.1% (889)    +5.2%  +3.3% (717)
2013. +1.7% (904)    +4.3%  +2.4% (734)
2014  +1.8% (920)    +9.2%  +3.8% (762) 
2015  +0.9% (928)    +4.3%* +6.7% (813)
*June 2014-June 2015 all shelter.

Finally , HUD recently premiered a Rental Affordability Index,, using the ACS data. Similar to my chart above, it compares median renter income with median asking rent. Please note, however, that this has only been updated through Q4 of last year: 

Like the median household income data, this shows renters' income bottoming out in 2011-12, and rising since relative to rents as calculated by the ACS.

That gives us the "renatl affordability index" shown below:

I'm not sold on HUD's method, mainly because it relies upon annual data released with a lag. In other words, the entire last year plus is calculated via extrapolation.  I suspect we could get much more timely estimates using Sentier's monthly median household income series, compared with the monthly rental index calculated by Zumper.

But regardless of which method we use, while it continues to appear that apartment rents as a share of renter income are quite high, the crunch has prbably passed peak, and the "rental affordability crisis" appears to be abating at least a little.