Here is the average rental price of a vacant apartment over the past couple of decades:
Note that this is the asking price for a vacant apartment, so it represents the actual cost of moving into a new place. Income is for nonsupervisory workers, who represent about 80% of the workforce, so it isn't skewed by the top 5%.
Rents increased steadily after the Great Recession and then surged during the pandemic, rising from 30% of income to 35% of income in only four years. For the most recent quarter, average national rent was $1,462 compared to average blue-collar income of $4,245 per month. This puts rent at 34.4% of individual income. As a percentage of the median household income it's about 25%.
As always, keep in mind that this is a national average. Rents are higher in hot markets and lower in rural areas and the burbs.
Is the median available?
It’s a useful chart, thanks! Sounds right to me, in my 20 years of rental experience (Austin, SF, Bay Area, and Madison).
While FAR from the full explanation, I will add this. Apartments built in the last 20 years, in particular in California, are pretty different than the 1990, or older, version of housing.
Modern apartments often have granite counters, stainless appliances, nice flooring, better life safety (sprinklers, integrated fire alarms etc), more common amenities (on site gym, mini dog park, even Amazon lockers). Further, the fees charged by municipalities have skyrocketed: for example, in a community near Sacramento, we are paying $47,000 per apartment unit for the right to build AND we have to do sewer improvements to a common line.
Yes older apartments still exist: however, often cities force upgrades to historic housing (especially for life safety ) and, even without upgrades, the market price for older housing is impacted by new housing rents. My point, its not apples to apples, at least in California, to compare housing across longer time periods.
Yes. Exactly my reaction. I live in a house built in 1923. It was around 1200 sq ft. (Wings were added, now it’s 2000 sq ft.) it was considered a mansion when built. Most garages built today are larger.
Building fees in CA are pretty insane. A lot of municipalities have found it's a convenient way to make sure the "right" kind of housing gets built -- i.e. McMansions and "luxury" apartment complexes for the 5%. Also, because of Prop 13, cities can't raise property taxes to fund new development, so they fall back on these builder fees to cover stuff like sewer connections, new bus stops, etc.
When you think about it, it's a win for them on every level. They get higher income residents, higher property taxes from those developments, new and improved infrastructure on someone else's dime.
Nicer options give people more "move-up" opportunities, which opens up more rentals in older structures. But then those rents can go up. So, it doesn't help the lowest income residents.
I can already hear the arguments that if we weren't letting in so many immigrants, we'd have less demand for housing and increase in rent costs.
And CA impact fees were just before the SCOTUS.
https://calmatters.org/housing/2024/01/impact-fees-supreme-court/?campaign_id=49&emc=edit_ca_20240110&instance_id=112152&nl=california-today®i_id=986034&segment_id=154772&te=1&user_id=991f89183c744047459d85498ea0671c
Yeah, I feel like there has also been a shift of more high-income individuals staying renters for longer rather than buying homes, which creates more demand for high-end apartment living. The median apartment price might be a better measure than the average apartment price for that reason.
A good point. A home today (apartment or house) is not what it used to be. Square footage, for one thing. But the norm today means furnishings and amenities no one had in the past.
As a counter to those memes saying "in the '50s a family could afford a house on one salary," you need to understand what a house meant then. Saw this table today. Pretty amazing that in 1960 households often lacked items like hot water and flush toilets. Especially in the South. More than 40% of homes in AR, MS, e.g.
Vast improvements by 1970. Thanks, LBJ.
The other thing that has really hurt people on the lower end of the scale has been the take over of trailer parks by hedge funds. Buy up mom and pop operations and jack up rent--it's not like people can actually move their mobile home.
Because I am a long term reader, I assume these are inflation adjusted.
A ratio like that doesn't need to be inflation adjusted because you'd be adjusting the numerator and the denominator by the same value.
The rent is too damn high.
It is, but this is also the reality of capitalism, especially the brand we've been practicing since the mid 80's where corporate responsibility went out of fashion in favor of shareholder value.
The best use of money is not supporting those who aren't contributing, it's supporting those who are. You see that reality in every policy decision. Every one of us is contributing to a line of someone's spreadsheet.
This is valuable, but to get to true cost you also have to add in other significant up-front costs for people moving in-- security deposit, utility hook-up fees, cost of renting truck(s) or hiring movers-- only some of which can be put on credit. It's a real cash strain for a lot of people.
Of course seeing vacancy rents rise like this also prompts landlords to raise rents on current tenants, so there's a trickle-down effect here.
We need to update Barbara Ehrenreich: it's expensive to be poor in America, and increasingly it's expensive to be nonsupervisory.
It looks like the share of blue collar income going to rent was down below 25% in the 1990s. It went over 25% in the 2000s, and now takes over 30% of income. Unless incomes have been soaring or other prices falling, this means that blue collar workers have a lot less money to spend as they will. Are they really a lot better off than they were 25 years ago? It sure looks like it. A slightly safer apartment doesn't compensate for a 10% disposable income cut.
With more and more money going to rent and moving up the spend-less higher income ladder where the landlords live, what does this mean for aggregate demand? Unless something changes, we're going to see even more asset price inflation, more people locked out of the housing market and less small business creation.
A big part of the problem is that between about 2008 and 2012 or 2015, there were virtually no new housing starts. You couldn't have gotten a construction loan if you'd offered 20% interest and your firstborn. *Nobody* was funding housing. Consequently we're millions of units in deficit, particularly on the coasts. It's going to take years to catch up, particularly for affordable/low income housing, which always faces insane NIMBY pushback wherever they want to build it.
Pretty much. The housing bubble popped 15 years ago. Then came the GFC and the long, slow recovery and the housing market has been a mess ever since. Signs are, things are picking up, but it'll take years before housing is more "normal."
My anecdatum is from 2007, when my wife was pregnant and we clearly needed a bigger place than the one bedroom we were renting. This was in a semi-rural semi-exurban town. The question was whether to buy or to rent a bigger place. Recall that this was at a housing price peak, what with all those subprime mortgages floating out there. Furthermore, its being at or near the peak was obvious at the time, at least to me. We seriously considered renting a bigger place, then buying after the bubble burst.
We decided to buy nonetheless, and it turned out to be an excellent decision. We were technically under water for years, but so what? We weren't planning on moving. And after the burst it was a lot harder to get a mortgage. Our credit was excellent, so probably we could have, but who knows? In the meantime, rents shot through the roof, and have never come down. We would have paid more in rent for a smaller place than we pay in mortgage, insurance, and property taxes. And rents have continued to rise far faster than any increases in what we pay.
The real earnings of production workers has increased since around 1995:
https://fred.stlouisfed.org/graph/?g=1dUgK
so the increase in rents, which are part of the CPI, is not a proof that these workers are worse off (on average) in terms of the CPI. If rents - and house prices - have increased relative to the CPI, which is what Kevin's graph shows, then the growth of other components in the CPI must have been less. This does not mean that prices have gone down - we are talking about rates of increase relative to wages.
You don't have to agree with this end result, but you would have to explain how the computation of these things is wrong or not representative. As Kevin has discussed before the computation of rents is tricky, involving some time lags. And just what is in the "basket" of goods that the BLS uses to compute the CPI, including rents and other things? Are they still using the small apartments and houses of 60 years ago, while you can only get McMansions and fancy apartments now?
The linked graph uses the CPI to get real earnings. The increase is even greater using the PCE, which usually gives lower inflation values.
PS The rent values that Kevin shows are not necessarily the ones used in the CPI.