How Can Rent Costs Continue Like This?

by Tim Herriage

How Can Rent Costs Continue Like This?

by Tim Herriage

by Tim Herriage

shelter-cpi-to-incomeThis chart from The Daily Shot shows the evolution of the overall “shelter CPI” (as the housing cost of the consumer price index) vs. hourly earnings.  The increases in the cost of housing now are 40% higher than the increases in all wages – and the gap is widening.
The question becomes, can this continue down this path especially as greater pressure is placed on existing housing stock with 13 million new households due to be created in the foreseeable future without a commensurate increase in new and existing supply.
SHORT ANSWER
In the short term the answer is yes, absolutely as the lack of new supply makes the existing supply more valuable.  The variable is increasing income, but given the professional demographic that is renting investment grade single-family residences, income increases to meet rising cost of living is more likely.
LONG ANSWER
“Depending on whose estimate you’re looking at, we’re talking about 13 million to 16 million additional households in the U.S.,” says Lynn Fisher, the Mortgage Bankers Association’s VP Research & Economics. “The question is ‘How are we going to actually deliver housing units for all of these people?”
It is reported by survey sample that 93% of 75.3 million Millenials state they want to own a home in the near future, or at least over the next decade! Divide 68 million souls by 2 people per family, then add 1.6 children and a dog over the next decade and this quickly equals 123 million souls that will move to find another home over the next decade.
GOOD NEWS FOR INVESTORS
The pressure on housing markets is not going to stop as success breeds success. There are serious financial and structural obstacles to providing housing most of which can be alleviated by regulatory and financial changes that should lead to the building of single-family residential homes as standalone or semi detached properties. The biggest structural problem is land availability. The “drive till you qualify,” or in this case, till you can find a home you can afford, is not very attractive to active and employed Millennials. They are less likely to compromise convenience for affordability but they want a home that echoes their upbringing. If we are to follow other major Western cities expect aggressive in-fill housing, buying and scrapping larger homes with yards for higher density homes, increased gentrification and densification of depressed urban neighborhoods that in turn creates affordable housing opportunities. For investors all of this change and pressure spells opportunity. If you are looking in Texas markets, especially the DFW area go to www.2020rei.com and www.investablerealty.com who can help you find and potential fund your investment needs.

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