Inflated rents are clobbering young Americans across the country. Everyday millennials contribute a bigger slice of their income toward housing costs, and the problem doesn’t appear to be subsiding. It is getting worse.
Just a few dozen yards from where David “Big Papi” Ortiz of the Boston Red Sox regularly hits it out of the park, you’ll find my old apartment complex in Boston. A modest former tenement that lines Boylston Street, across from Fenway Park, is home to hundreds of millennials who work or study in Boston. I too, from 2007-2009, called this far from luxurious, turn of the century apartment home. My rent was $1,140 for a 300-square-foot apartment when I moved in during the summer of 2007. Today, only six years later, that same apartment goes for more than $2,100 a month.
What happened between 2009 and 2015?
As the economy collapsed during the great recession, many job seekers rushed to exit their beleaguered states and headed to areas where they could get work or continue their education. Migration to cities such as Boston, New York, San Francisco and Washington DC grew enormously during this era, and these newly arrived young professionals have created distortions in those rental markets. The real estate boom of the mid-2000’s that ended in a spectacular crash has now given way to a rental bonanza all over the United States, especially in cities with large amounts of white collar young professionals. Nationalwide, rental vacancy rates are at 20-year-lows.
It’s a Landlord’s Market
Between an uncertain job market and expensive property values in cities that have healthy job growth, many millennials find themselves with little choice but to rent. They simply cannot buy real estate. Coupled with unsustainable amounts of student debt and new stricter rules from lenders, buying is increasingly out of reach for young Americans. The new economy has galvanized a large demographic of “perma-renters” who are making neighborhoods across America dangerously unaffordable.
Per capita income peaked in Boston in 2008 (and nationwide in 2007) and has since edged down under the weight of a terrible job market. It has only recently begun to rebound. In the meantime, rents have increased dramatically as supply continues to shrink. The recession-era credit crunch delayed many construction projects, and today’s rental unit building boom has yet to bring down prices. Today’s rents are unsustainable, as every day a greater percentage of people’s earnings are earmarked to keeping a roof over their heads. This has all occurred simultaneously during an explosion of student debt.
Average student indebtedness continues to creep up. This only further strains already tight households dealing with rising rents and declining wages. This leads many to one inevitable conclusion: Boldly claiming there’s low inflation when many Americans have seen their rents rise casts doubt on the accuracy of inflation statistics.
Millennial Migration is Causing Social Disruption
In healthy job markets, the influx of young professionals is swiftly changing the fabric of working-class neighborhoods. Rising rents are causing rapid gentrification and displacing historical communities as longtime residents find themselves priced out of their own communities. Soon, millennials might begin to ponder whether it’s worth half their paychecks to keep living in the same city.
As result, reverse migration back to once recession-battered places may already be occurring. In an analysis by the personal finance publication WalletHub, just 4 of the 20 fastest-growing cities in America had large populations. Such a migration might be in the offing for middle-aged Americans as well since their homeownership was the most harmed by the recent recession. With increased college costs making the competition for scholarships even more important than before, parents concerned for their children’s futures could be leaving high-cost cities which provide less value in their public schools.
During the last recession, rent didn’t really go down that much in areas that were hemorrhaging jobs. Rental inflation merely cooled for a bit, and then got red-hot as soon as the economy recovered. In some markets, the construction boom of apartment complexes may create a more competitive environment, and slow rental price growth. Loosening mortgage loan requirements could also drive more people to purchase homes, which would also lower the demand for rental units. There are limitations on how much more rental prices can grow, as incomes must rise in order for price increases to be sustainable. Fortunately, this means runaway inflation in rental prices may be subsiding in the near future.