Affordability Falling as Permits Lag Growth

The old maxim that a household rents only until it canrnafford to buy a home is apparently being stood on its head in a lot of housingrnmarkets.  A study published on Friday byrnZillow says that “rental affordability is as bad as it’s ever been.”  Nationally, in fact, they found it is<bconsuming nearly twice as much of a family’s monthly income as wouldrnhomeownership and in many markets that ratio is even higher.</p

In the fourth quarter of 2014 Zillow found that, in the U.S.rnas a whole, households are spending 30.1 percent of their income for a rentalrnwhile, with a Zillow Home Value Index (ZHVI) of $178,700 and historically lowrninterest rates they would spend 15.3 percent on an owned home.  According to Zillow’srnFebruary Real Estate Market Reports, the ZHVI above reflects a 4.9 percentrnyear-over-year increase while “Zillow rents” rose 3.4 percent nationally torn$1,355.*  </p

Compounding thernproblem is the slow rate of income growth. rn According to Zillow, since 2000,rnrents have grown at roughly twice the pace of incomes. Partially as a result, ThernCensus Bureau says the percentage of Americans citing “cheaperrnhousing” as a reason they moved to a different home has almost doubled,rnfrom 5.6 percent then to a current 9.6 percent.</p

But underlying the disconnect between the cost to rent andrncost to buy is the issue of basic  affordabilityrnand Zillow found that the least affordable markets for both renters andrnhomeowners are those where new housing permits have not kept up with populationrngrowth.  They looked at permits forrnhousing units issued in major markets in 2012 and 2013 for every new residentrnwho arrived in those cities in 2013 and 2014.</p

In traditionally pricey Los Angeles and San Francisco thernZHVIs are $533,700 and $751,800 respectively. rnIn Los Angeles rents consume 48.2 percent of income and house paymentsrn40.1 percent; in San Francisco 44.0 and 39.2. rn Each has lagged far behind theirrnrespective population increases in terms of building authorizations; LosrnAngeles with 187 permits per 1,000 new residents and San Francisco withrn193.  </p

Zillow said the short supply is nornsecret to policy-makers. The mayor of San Francisco has pledged to add 30,000rnhousing units by 2020, and a Boston city report (permits there were at a raternof 299/1000) made a similar recommendation to meet demand with 53,000 newrnhousing units by 2030.</p

Only three cities were cited in thernsurvey as more than keeping pace with growth, issuing permits in excess ofrn1000.  The three, Detroit (1,813), St.rnLouis, Missouri (1,036), and Cleveland (1,311), had remarkably similar housingrncosts as a percentage of income ranging from 10 to 10.9 percent for house paymentsrnand 24.4 percent to 27.4 percent for rents.  A fourth city, Pittsburg, was said to have overrn42,000 permits per 1000 new residents. rnWe assumed this to be an error although the city’s housing costs werernvery much in line with the other three.</prn<table class="blogtable" style="height: 815px" border="1" cellpadding="0" cellspacing="0" width="650"<tbody<tr<td

Metro area</p</td<td

February ZHVI</p</td<td

Percentage of Monthly Income Spent on Mortgage Payment </p

(2014 Q4)</p</td<td

Percentage of Monthly Income Spent on Rent </p

(2014 Q4)</p</td<td

Permits per 1000 new residents </p</td</tr<tr<td

United States</p</td<td

$178,700</p</td<td

15.3%</p</td<td

30.1%</p</td<td

384</p</td</tr<tr<td

New York- Northern New Jersey</p</td<td

$383,300</p</td<td

26.2%</p</td<td

41.6%</p</td<td

383</p</td</tr<tr<td

Los Angeles, CA</p</td<td

$533,700</p</td<td

40.1%</p</td<td

48.2%</p</td<td

187</p</td</tr<tr<td

Chicago, IL</p</td<td

$187,100</p</td<td

13.9%</p</td<td

31.1%</p</td<td

906</p</td</tr<tr<td

Dallas-Fort Worth, TX</p</td<td

$155,700</p</td<td

11.6%</p</td<td

28.5%</p</td<td

312</p</td</tr<tr<td

Philadelphia, PA</p</td<td

$202,800</p</td<td

15.2%</p</td<td

30.0%</p</td<td

671</p</td</tr<tr<td

Houston, TX</p</td<td

        N/A  </p</td<td

11.9%</p</td<td

30.3%</p</td<td

376</p</td</tr<tr<td

Washington, DC</p</td<td

$362,800</p</td<td

17.9%</p</td<td

27.0%</p</td<td

332</p</td</tr<tr<td

Miami-Fort Lauderdale, FL</p</td<td

$212,500</p</td<td

20.2%</p</td<td

44.2%</p</td<td

223</p</td</tr<tr<td

Atlanta, GA</p</td<td

$154,900</p</td<td

12.3%</p</td<td

25.4%</p</td<td

301</p</td</tr<tr<td

Boston, MA</p</td<td

$369,100</p</td<td

22.4%</p</td<td

33.8%</p</td<td

299</p</td</tr<tr<td

San Francisco, CA</p</td<td

$715,800</p</td<td

39.2%</p</td<td

44.0%</p</td<td

193</p</td</tr<tr<td

Detroit, MI</p</td<td

$114,400</p</td<td

10.0%</p</td<td

24.6%</p</td<td

1,813</p</td</tr<tr<td

Riverside, CA</p</td<td

$285,200</p</td<td

23.8%</p</td<td

36.4%</p</td<td

167</p</td</tr<tr<td

Phoenix, AZ</p</td<td

$203,400</p</td<td

17.4%</p</td<td

28.0%</p</td<td

250</p</td</tr<tr<td

Seattle, WA</p</td<td

$343,900</p</td<td

21.9%</p</td<td

30.8%</p</td<td

353</p</td</tr<tr<td

Minneapolis-St Paul, MN</p</td<td

$211,400</p</td<td

14.2%</p</td<td

25.9%</p</td<td

380</p</td</tr<tr<td

San Diego, CA</p</td<td

$474,100</p</td<td

34.0%</p</td<td

43.2%</p</td<td

188</p</td</tr<tr<td

St. Louis, MO</p</td<td

$132,500</p</td<td

10.8%</p</td<td

24.4%</p</td<td

1,036</p</td</tr<tr<td

Tampa, FL</p</td<td

$148,600</p</td<td

14.4%</p</td<td

32.1%</p</td<td

314</p</td</tr<tr<td

Baltimore, MD</p</td<td

$244,100</p</td<td

15.9%</p</td<td

29.2%</p</td<td

400</p</td</tr<tr<td

Denver, CO</p</td<td

$289,200</p</td<td

19.8%</p</td<td

33.4%</p</td<td

305</p</td</tr<tr<td

Pittsburgh, PA</p</td<td

$125,300</p</td<td

10.8%</p</td<td

25.2%</p</td<td

42,258</p</td</tr<tr<td

Portland, OR</p</td<td

$281,400</p</td<td

20.9%</p</td<td

30.9%</p</td<td

376</p</td</tr<tr<td

Sacramento, CA</p</td<td

$335,700</p</td<td

26.0%</p</td<td

33.2%</p</td<td

159</p</td</tr<tr<td

San Antonio, TX</p</td<td

          N/A  </p</td<td

12.4%</p</td<td

29.0%</p</td<td

166</p</td</tr<tr<td

Orlando, FL</p</td<td

$170,100</p</td<td

16.3%</p</td<td

32.7%</p</td<td

339</p</td</tr<tr<td

Cincinnati, OH</p</td<td

$138,000</p</td<td

11.4%</p</td<td

25.8%</p</td<td

554</p</td</tr<tr<td

Cleveland, OH</p</td<td

$119,700</p</td<td

10.9%</p</td<td

27.4%</p</td<td

1,311</p</td</tr<tr<td

Kansas City, MO</p</td<td

       N/A  </p</td<td

10.9%</p</td<td

24.9%</p</td<td

517</p</td</tr<tr<td

Las Vegas, NV</p</td<td

$187,600</p</td<td

16.1%</p</td<td

27.1%</p</td<td

242</p</td</tr<tr<td

San Jose, CA</p</td<td

$852,800</p</td<td

39.5%</p</td<td

39.4%</p</td<td

294</p</td</tr<tr<td

Columbus, OH</p</td<td

$146,300</p</td<td

11.6%</p</td<td

26.2%</p</td<td

528</p</td</tr<tr<td

Charlotte, NC</p</td<td

$158,900</p</td<td

13.2%</p</td<td

26.8%</p</td<td

472</p</td</tr<tr<td

Indianapolis, IN</p</td<td

$129,100</p</td<td

10.8%</p</td<td

26.3%</p</td<td

390</p</td</tr<tr<td

Austin, TX</p</td<td

           N/A  </p</td<td

15.9%</p</td<td

31.0%</p</td<td

486</p</td</tr<tr<td

Virginia Beach, VA</p</td<td

$211,300</p</td<td

15.1%</p</td<td

26.7%</p</td<td

588</p</td</tr</tbody</table

“As the economy continues tornimprove, more Americans are slowly moving off of their buddies’ couches and outrnof their parents’ basements into homes of their own, first likely as rentersrnand then eventually as homebuyers,” said Zillow Chief Economist Dr. StanrnHumphries. “Unfortunately, the supply of affordable homes, especiallyrnaffordable rentals, is insufficient in many areas to meet this growing demand.rnAs a result, the competition for those homes that are available can often bernfierce, driving up prices and contributing to worsening affordability. Morernconstruction will help ease the crunch, and getting a mortgage is also gettingrneasier, which will help more current renters transition to homeownership andrnfurther ease rental inventory shortages. But these fixes won’t happenrnovernight.”</p

*There is no context provided as tornwhether Zillow Rents or the Zillow Home Value Index should be interpreted as analogousrnto mean or median figures.

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