Seattle’s affordability crisis is costing renters $6K per year, report says

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Across the United States, renters are paying more of their income on rent than ever before, and Seattle is no exception. But what’s the actual hit to the average renter’s pocketbook like?

A new study by Zillow analyzed cost burden from renters before the housing bubble and now. Between 1985 and 2000, typical rent in the Seattle metropolitan area was about 23.8 percent of area median income (AMI). Now, it’s about 30.8 percent.

In today’s dollars, that difference accounts for $5,592 per year, Zillow’s analysis found, but that’s directly comparing median income to median rent. For homeowners, housing affordability improved, with income share spent on mortgage actually dropping a couple of points.

This would imply that the affordability gap between renters and homeowners has only grown—meaning the typical cost burden for renters could actually be a little higher than 30 percent, although the Zillow data doesn’t conclusively point to that.

It would track with data from the Harvard Joint Center for Housing Studies, which found that in 2015, nearly half of renter households in Seattle spent more than 30 percent of their income in rent, with almost a quarter of renter households spending more than half their income.

Regardless, with more than half of those filing taxes in Seattle making under $50,000, it’s safe to say that not everyone that’s paying median rent is making median income—which broke $80,000 in 2015.

Even taking the numbers at face value, though, the problem is a little worse in Seattle than nationwide. In the United States as a whole, Zillow found, the percentage of median rent to median income went from 25.8 percent to 29.1 percent, costing the typical renter around $2,000 per year.

It’s going to get Worse for Renters

We often promote homeownership over renting when a family is ready, willing and able to purchase. There are both financial and non-financial benefits to owning a home of your own. Based on the headlines below, many news outlets agreed with us after they reviewed a recent report from the Harvard Joint Center for Housing Studies and Enterprise Community Partners.

The study states that the number of households spending 50% or more of their income on rent is expected to rise by over ten percent in the next decade. They concluded:

“Overall, this white paper projects a fairly bleak picture of severe renter burdens across the US for the coming decade.”

What do other experts think of the report? You can tell by the headlines they chose to introduce their stories:

“Renters, get ready to take it on the chin” – CNBC

“The Rent Crisis Is About to Get a Lot Worse” – Bloomberg Business

“Renters Will Continue to Struggle for the Next Decade” – World Street Journal

“Why the renting crisis could be about to get a lot worse” – Fortune Magazine

“Soaring rents are a problem that will only get worse” – Business Insider

“High rents are here to stay” – The Real Deal

Bottom Line

If you are thinking about buying a home and are financially positioned to do so, now may be better than later.

Buying a Home more affordable than Renting?

Keep renting? Thinking of Buying? What’s more Affordable?

The American Dream of owning a home just got more affordable, but that’s partly because the average American now spends nearly 30% of their income on rent.

U.S. home buyers making the nation’s median income and purchasing the typical U.S. home spend around 15% of their income on their monthly house payment, excluding insurance and taxes, down from the historical norm of 22% during the pre-bubble period from 1985 to 1999, according to data released in December by housing website Zillow. On average, U.S. renters spent nearly 30% of their monthly income on rent in the third quarter of 2014, up from 25% historically. “What keeps me up at night is the fact that it still remains so difficult for so many potential buyers to make those particular stars align [being able to afford to own a home] largely because renting is so unaffordable these days,” says Zillow chief economist Stan Humphries.

This is supported by earlier studies on the subject. Renting has become significantly less affordable in recent years, according to a report released last year by the Harvard Joint Center for Housing Studies. According to that report, 50% of U.S. renters spent more than 30% of their gross income on rent (the traditional measure of affordability) in 2010, up a record 12 percentage points from the 38% of households facing such a burden a decade prior. And many of those households, about 27% of renters, spent more than half of their salary on rent, up from just 19% of renters who did so a decade ago. Landlords are hiking rents as salaries—particularly for younger Americans—remain stagnant, it found.

Nationwide, rents rose 6.1% year-over-year in November, according to separate data released by Trulia on Tuesday. Rents increased most dramatically in Denver—where the median rent for a two-bedroom apartment hovers at $1,550— a 14.2% year-over-year bump. They rose 12.2% in San Francisco ($3,600 for a two-bedroom apartment) and increased 11.9% in Oakland ($2,450 for a two-bedroom apartment). The median price of a new house sold in the U.S. hovers at $208,300, up 5% on the year in October, according to data released last month by the National Association of Realtors. Jed Kolko, chief economist at real estate website Trulia, calls this the “millennial mismatch—they can afford markets where they don’t live, but they can’t afford many of the markets where they do live.”

Millennials tend to live in areas where jobs are more plentiful, but where home ownership is less affordable. In metros with a higher population of millennial residents, homeownership tends to be less affordable for younger Americans, says Kolko. In Austin, Honolulu, New York and San Diego, 20- to 34-year-olds account for at least 23.5% of the population, putting those metros in the top 10 metro areas with millennial residents. Fewer than 30% of homes for sale in those markets are within reach of the typical millennial household. There are cheaper markets, like Oklahoma City and Baton Rouge, that have a high share of millennials, Kolko says, “but they’re the exception.”

Homeownership rates in the U.S. have steadily declined in recent years in part because millennials have delayed buying homes. Still, Humphries says it’s likely that millennials will overtake Generation X as the biggest group of U.S. home buyers, a transition aided by widespread home affordability. Population numbers may also explain the jump in buyers. There are 89 million millennials (also known as Generation Y, born roughly between 1981 and 1996) and 75 million boomers (born between 1946 and 1964) in the U.S., compared with just 49 million Gen Xers. “The allure of fixed housing payments and building wealth through home equity will draw more buyers out of rentals and into homeownership,” he says.

Quentin Fottrell