How out-of-whack is the discrepancy in growth between incomes,
rents, and house prices?
The “San Francisco Housing Crisis,” as it’s called on a daily basis, is an
extreme. But housing costs in major urban areas in the US have been eating up
more and more of household incomes, as house prices and rents have soared and
as incomes have crept up painfully slowly. In many cities, not just San
Francisco, this condition is now called a “housing crisis” where families
with median incomes can no longer afford to rent or buy adequate housing, or
where too much of their income is spent on housing, with not enough left over
for other things. They have no savings, they barely make it to the next
paycheck, and they can’t help the local economy because housing saps their
spending power.
Just how out-of-whack this discrepancy between income versus rents and
house prices has become over the years is depicted in a new study with
long-term charts, released by the research department of Clever Real Estate. Based on Census data going back to 1960
for median household incomes, median gross rents per month, and median house
prices, all adjusted for inflation, it shows that nationally, incomes since
1960 have risen just 16%, while rents have risen 72%, and house prices have
soared 121%:
But the national values above reflect everything thrown into one bucket,
from the more affordable areas to the biggest housing bubbles. So we will
separate them out by region and metro – and there are stunning differences.
All values in the charts are indexed to 1960. The charts only include data
for the depicted years: 1960, 1970, 1980, 1990, 2000, 2008, 2010, and 2017.
The data for the years in between those years are not included. For example,
if in one metro, the housing bust bottomed out in 2012, the low point falls
between the data points of 2010 and 2017 and is not depicted. But you get the
idea.
The West: house prices & rents v. household incomes.
In the West — a vast diverse region that spans Alaska, Arizona,
California, Colorado, Hawaii, Montana, New Mexico, Oregon, Utah, Washington,
and Wyoming — the median house price, adjusted for inflation, soared 195%
since 1960. And rents, adjusted for inflation rose 72%. But household incomes
adjusted for inflation ticked up only 26%.
The growth rate (vertical axis) is on a different scale in the charts. For
example at the chart above it tops out at 150% growth from 1960; in the chart
below, it tops out at 200% growth from 1960; in one chart further down, it
tops out at 550% (yup, San Francisco):
To dissect the changes in house prices and incomes in the West, the study
by Clever Real Estate separates out different metro areas. For example, in
Seattle and Denver, household incomes, adjusted for inflation, rose in
near-lockstep 56% since 1960, while house prices in Denver soared 239%, and
in Seattle 286%:
In Los Angeles, the median house price increased 358% since 1960, adjusted
for inflation, while the median household income rose only 32%. In other
words, house prices increased 11 times faster than household incomes:
San Francisco is tops, when it comes to house price increases: Since 1960,
house prices surged 531% adjusted for inflation. Over the same period,
household incomes also rose sharply, but not nearly enough: 91%. In San
Francisco – where about 1% of the population is homeless and many others are
struggling – the phrase “housing crisis” is in daily use for a reason: House
prices increased about six times faster than incomes:
The Northeast: house prices & rents v. household incomes.
In the Northeast – Connecticut, Maine, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island, and Vermont – house prices,
when adjusted for inflation, have declined from the peak of the prior housing
bubble, and are now up “only” 159% from 1960. They had been up 201% in 2008.
Rents rose 84% since 1960 – and they have not declined since the last housing
bubble, and have continued to outrun inflation. But household incomes rose
only 38% since 1960. They did decline between 2008 and 2010 and are now back
where they were in 2008:
The downward slope of the blue line above — a declining median house price
since the peak of the housing bubble when adjusted for inflation — is unlike
the chart for the West and nationwide. Clever Real Estate’s study explains it
this way (all data adjusted for inflation):
However, a surprising trend emerged in our data between 2000 and 2017. We
observed an increase of 110% in home prices between 2000 and 2008 (i.e.,
before the financial crisis), and a decrease of 24% between 2008 and 2010 (i.e.,
after the financial crisis), which real estate analysts expected. However,
unusually, home prices dropped by a further 18% between 2010 and 2017, while
household income increased by 9% between these years.
This trend in the Northeast overall is not the case in Boston. Adjusted
for inflation, house prices in Boston, after falling 25% during the housing
bust, are back where they were during the peak of the prior housing bubble,
and are up 228% from 1960. But house prices in the New York metro, adjusted
for inflation, while up 184% from 1960, have declined in real terms since the
peak of the prior housing bubble.
Since 1960, median household incomes have risen only 71% in Boston and 54%
in New York, adjusted for inflation, far outstripped by the surge in house
prices:
In Pittsburgh, house prices have by far surpassed the peak of the prior
housing bubble, which wasn’t much of a bubble, and are now up 64% since 1960,
adjusted for inflation. The median household income rose 31% over the same
period, a relationship to house prices that seems almost sane compared to the
utter madness in the West:
The South: house prices & rents v. household incomes.
In the South – Alabama, Arkansas, Delaware, D.C., Florida, Georgia,
Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South
Carolina, Tennessee, Texas, Virginia, and West Virginia – house prices rose
156% since 1960, and rents 93%, while household incomes rose only 49%, all
adjusted for inflation.
This region includes some of the poorest and lowest-cost and lowest-income
states in the US, but it also includes high-cost and high-income states. In
some cities in the region, real estate has gone through some mind-boggling
booms and busts. Washington D.C., Miami, and Tampa are examples — and they’re
included in my glory list of The Most Splendid Housing Bubble in America. So this here
is everything in the big and diverse South thrown into one chart:
The Midwest: house prices & rents v. household incomes.
In the Midwest – Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota,
Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin – house
prices increased a practically reasonable 82% since 1960 adjusted for
inflation, while rents rose 37% and incomes 29%:
As sample cities for the Midwest, the Clever Real Estate study selected
St. Louis and Cincinnati. In both cities, adjusted for inflation, house
prices are still down from the peak of the prior housing bubble. And incomes,
also adjusted for inflation, are about flat with the mid-1990s:
In some of the hottest most overpriced rental markets, changes are afoot.
Read… Apartment
Rents Fall in Seattle, Southern California, New York, Oakland, San Jose,
Chicago, Honolulu
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