Wednesday, February 21, 2018

Conflicting reports on the "rental affordability crisis"

 - by New Deal democrat

Almost four 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 Q4 2017 report on vacancies and rents was released a few weeks ago, so let's take an updated look.

In the second quarter of last year, median asking rents zoomed up over 5% from $864 to $910. In the two quarters since, they have remained at that level:

Here is an updated look at real. inflation adjusted median asking rents, showing that rent pressures on household budgets continued to rise in 2017:

Year Median
Asking Rent
Usual weekly
Rent as %
of earnings

2004 59962995
2013 73477894
2014  76279196
2017 H1887860103
2017 Q3912866105
2017 Q4 910854107

The big increase in unaffordability is unfortunately of a piece with the rental vacancy rate which, after appearing to have bottomed in 2016, tightened again in this report: 

Meanwhile the CPI for owner's equivalent rent, the major component of inflation, remains near the highest levels in a decade, at over 3% YoY: 

Recently, HUD 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 Q1 of this 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.

Unlike my calculation above, HUD's shows that rental affordability actually *improved* (!) in 2016, and remained stable in 2017 as the recent spike in rents was more than matched by a big increase in renters' median incomes.

As a result, the trend in "rental affordability index," according to HUD, has been one of easing since 2011, as shown below:

Note in contrast that their measure of housing affordability declined a little in 2017, making home-buying the least affordable since 2008, although better than during the bubble years. 

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.  

Finally, there is a monthly rental index calculated by Rent Cafe.  This has the benefit of being much more timely.  Since it is not seasonally adjusted, the index must be compared YoY. While Zumper only includes 12 months of data in their releases, Mike Shedlock was able to obtain the entire history of their data, and published the result graphically last week:

Rent Cafe's measure of rent shows that the surge occurred in 2015 and early 2016, and has abated to less than YoY since, in complete contrast to HUD's and the Census Bureau's data.

Parenthetically, now that I have the full history of Rent Cafe's Index, I can follow it monthly, which will make for a much more timely measure than the quarterly Census Bureau report.

So unfortunately the conclusion here is messy. This quarter's Census report indicates no relief from the "rental affordability crisis." HUD (from the 3rd quarter), shows stability at a level of improved affordability due to income growth, and unlike either of the two government sources, Rent Cafe shows rent increases abating throughout 2017.