It’s been a housing kick here, for good reason. The availability is too thin; the prices are crazy and getting worse.
Forget about buying a home, many millennials have done so. They don’t have a down payment and, according to a survey, half of those who don’t yet own a home have even given up on trying to save for it. Prices keep going up, there is a chronic shortage of properties for sale at reasonable prices, especially as those with the money move on, buy more modest places, tear them down and build something new. big. Selling prices have jumped more than 24% since 2017.
Those who cannot own a place are forced to be part of the class of probable permanent tenants. Now comes the other bad news: rents are skyrocketing.
Real estate tech site Zumper, which is an apartment rental marketplace, has released its October 2021 rent report (I am linking to an archived version to ensure consistency). Check out some of the median bedroom rent prices:
1. New York: $ 3,100
2. San Francisco: $ 2,800
3. Boston $ 2,530
4. San José $ 2,310
5. Washington $ 2,240
The only city in the top 10 under $ 2,000 was Scottsdale, Arizona, at $ 1,890. The explosion in rents is a bigger problem than a cluster of cities, as the report points out:
“Since March 2020, the median rent for a bedroom has increased by 11.8%, while that for apartments with two beds has increased by 14.3%. With house prices also skyrocketing during the pandemic, soaring housing costs are one of the main drivers of inflation fears. “
As the site also notes, the result becomes a blockage. Many people who in milder times bought homes and moved beyond the rental system, increasing supply and possibly lowering prices, are still renting. More and more people are in need of rental housing, making it a prime product to build in the commercial real estate market (apartments, professionally called multi-family, are a huge business).
Such concentrated jumps are one example of why inflation can be so deadly. What does it matter if you can get inexpensive canned tamales? More and more of your income is absorbed by the need for housing, which becomes money invested on behalf of others with no chance that you yourself will see a return.
By channeling so much income into housing, millions of people do not have it to create wealth through investments, which ultimately spill over into other uses.
The bigger question is how long they will be able to afford rents of any kind. The financial pressure had already gotten bad. A Center for Analysis of Budget and Policy Priorities showed that between 2001 and 2019, the median income of renter households only increased by 3.4%, while the median rent increased by 15%. Much of the difference is due to the enduring problems of the Great Recession, as median incomes fell and only regained the loss in 2017.
Now there have been significant rent cuts at the start of the pandemic. But prices have skyrocketed. In August 2021, it was the first time that national rent growth has reached double digits – 11.5% year-over-year, or $ 169 more per month for renters, according to the National Association. of Realtors. That’s even faster than the growth in home prices, which rose 8.6% this month.
How long is it possible for this to last? A lot of people in real estate assume that because people need a place to live, rents can keep going up. But there is not an infinite capacity to absorb the continuous increases because people also need to eat. They need care. They need transportation to get to and from work. They need child care.
We have a strange relationship with each other in this country. There is the underlying assumption that the economy has no limits, that there is an inherent right to absorb as much of each other’s value as there is to take. But it is mathematically absurd. A stable society needs stable systems in which people can get what they need. Drain this ability from others to further fuel your own wealth and you engage in what was called under-optimization.
It can be great for you personally, but terrible for society. Eventually, you have to live in what this society becomes, and it could get horribly ugly. Money can only protect you for a long time.