The Commercial Real Estate Alpha Site

Another research banger by Jay Parsons, rental economist and interesting human being.

It’s easy to scream: “The rent is too high!” But it’s not that simple. Here’s why: Nearly one-third of American renters can’t even pay the operating costs of a typical apartment or single-family rental. That’s a real problem too few of us are talking about.

Here’s the math:

1) About 30% of renters make less than $30k/year (including more than 1 million earning ZERO.), according to Census data.

2) For rent (with utilities) to be “affordable,” you have to spend less than 30% of income toward rent.

3) That means — at $30k income — rent (with utilities) must be less than $600/month.

4) But, unfortunately, the vast majority of apartments and single-family rentals cost more than $600 per month to operate. That’s usually true even for older, less-amenitized rentals, which often have higher maintenance costs due to age.

Bottom line:

— If incomes can’t cover actual operating costs, that’s not a rent problem. It means incomes are too low and/or costs are too high (and, ironically, taxes are typically a property’s largest expense).

That’s a real problem, and yet most housing affordability experts and researchers aren’t talking much about it — let alone policymakers. Too many of them paint renters with a broad brush, which is a colossal mistake glossing over the real story: Rent affordability is K-shaped, haves and have nots.

Rental affordability challenges are BY FAR most concentrated among lower-income renters, yet too many people are misdiagnosing the problem. You cannot solve a problem if you can’t correctly define it.

If we sincerely want to help renters in need (and we should!), we do them a disservice by focusing on side-show issues that won’t help the 30% of renters who can’t even afford to pay the operating costs of a typical rental. Instead, we should focus on what can actually move the needle, and help more people afford a safe, quality place to live.

h/t to Ryan Davis for the Census data analysis included in this chart. And for a deeper dive on this topic, Ryan and I go in depth on it — with lots of data — in the latest episode of The Rent Roll with Jay Parsons podcast. We do some mythbusting, fact vs. fiction, and explain what many policymakers AND investors get wrong on the topic of rent affordability.

Other thoughts on the data?