How Affordable are Apartments in the Largest U.S. Metros?
Despite a marginal improvement for small property renters, housing affordability levels remain uneven across the major metros in the US.
Housing Affordability Update at the Metro Level
Reflecting the broader macroeconomic recovery, the latest data from the Census Bureau for year-end 2015 indicates a slight improvement in housing affordability for apartment renters.
As highlighted in our recent post, renter households living in small properties (5 to 49 units) allocated, on average, a 39.5% share of their income towards housing costs (gross rents) in 2015 — which was about a percentage point lower than the previous year.
At the same time, housing affordability varies significantly across prominent US metro areas, with renters in the biggest small asset markets, in fact, paying a share higher than the national average.
As shown below, small property renters in the two largest U.S. markets — New York and Southern California (Los Angeles-Riverside-San Bernardino) spend between 42% and 45% of their income on housing. Miami is the least affordable large metro for small asset renters with nearly 46% of household income going towards rent.
On the other hand, the steep rents in San Francisco appear to be off-set by high levels of tech job growth, keeping the income share allocation towards housing costs below the national average.
Change in Housing Affordability
With the concurrent increase in rents and income over 2014-15, a closer look at the year-over-year change in housing affordability indicates a broadly stable picture across the top small asset markets.
In fact, 15 of the Top 20 small asset markets became more affordable over the course of 2014-15, with 11 markets outpacing the national change in the share of household income going towards rent (1.74% less than in 2014). Out of the markets examined, San Francisco affordability improved the most with 5.5% less of household income going to rent — again, likely due to wage growth from high-paying tech jobs.
Among the largest markets, New York, Chicago and Washington D.C. moved in the opposite direction relative to the improving national affordability trend, while Houston and Tampa showed the worst performance in terms of affordability.
While local economies are unique, in timing pricing changes and market cycles, property operators would be well served by also tracking national wage and price trends for comparisons to get a better handle on the overall context.