Northwest Arkansas Democrat-Gazette
Rents’ rise cools to 3.8% in August
Pace still near twice wage growth, crunching renters
WASHINGTON — U.S. home rents rose at a slower pace in August, a downshift that may reflect the rise of apartment construction in many major cities.
Median rents rose a seasonally adjusted 3.8 percent from a year ago, off from the annual pace of 4.2 percent in July, real estate firm Zillow said Tuesday. Rental prices are still climbing at a faster pace than average earnings, increasing the financial burden of housing and potentially delaying the accumulation of savings to buy a home.
Rental increases tailed off in several metro areas in August. In Los Angeles, the pace slipped to 4.2 percent from 4.8 percent. Similar slowdowns were seen in Dallas, Philadelphia, Miami, Boston, San Francisco, Phoenix and Denver last month.
The deceleration may reflect the impact of new units coming onto the market, which has increased the available supply and therefore limited how much prices can rise. Construction firms have broken ground on 12.7 percent more apartment buildings this year to date, according to the Commerce Department. This includes a 42 percent jump in apartment construction in the Northeast and 25 percent increase in the West.
Still, rental housing costs have been rising nationwide at roughly double wage growth. Average hourly earnings have risen only 2.2 percent over the previous 12 months, according to the Labor Department.
The result is an affordability crunch for renters.
More than a quarter of all renters devoted at least half their incomes to rent in 2013. That figure will likely balloon over the next decade, accord-
ing to a report released Monday by Harvard University’s Joint Center on Housing Studies and the nonprofit Enterprise Community Partners.
If rental costs outpace wage growth by as little as 0.25 percent annually over the next decade, the number of households spending half their income on rent would increase to 13.5 million.
The number of such “severely cost-burdened” households is currently 11.2 million, the Harvard report said.
In 1960, less than a quarter
of all renter households spent 30 percent or more of their income on housing. That’s the cutoff (pre-tax) for what’s generally considered affordable.
As other budget items have shrunk with time (food and clothing eat up relatively less of our money), for the past five decades renter households have been spending more and more of their income on housing.
Andrew Jakabovics, the senior director for policy development and research at Enterprise Community Partners, and Chris Herbert, director of the Harvard center, say new rental construction hasn’t kept pace with population growth and household formation. New
housing now is often built for the high end of the market, and so contributes little to the lower-price supply, they say.
In cities such as Washington, low-price housing has been remodeled into luxury rentals.
The cost of rent is also determined by the land underneath it.
“It really fundamentally comes back to land costs,” Herbert said. “And as metro areas grow, that pushes land prices up because it increases demand for land close in.”