Prices are soaring and the option to buy is receding for millions of tenants nailed by rising rents
The price of rented accommodation in the United States is up 26% since the early 2020s. The number of tenants with unaffordable rents and utilities — those paying 30% or more of their income — is at an all-time high. Half of the nation’s tenants are in this situation because rents have risen more than incomes for decades and the pandemic further complicated the situation, according to an annual report from Harvard’s Joint Center for Housing Studies, which also points out that buying a home is increasingly expensive, preventing millions from climbing onto the property ladder.
Home prices are 47% higher than they were four years ago. Median prices are five times the median household income. In the 1990s, they were just three times higher. Add to this the cost of mortgages with interest rates exceeding 7% and the fact that home insurance that has been rising steadily.
The conclusion drawn by the Harvard think tank is that solving this crisis — in addition to other housing crises regarding the record number of homeless, those in inadequate housing or subject to the threat of climate change — requires the private and non-profit sectors to join forces with the public authorities at all levels of government.
You can have short term price shocks, like if there’s a huge, unexpected flood of people into or out of an area. Demand for housing can change more-quickly than supply of housing.
However, over time run, supply catches up, and the price of housing is set by two things:
The cost of construction. What does it cost to get the land, get the materials, and get the labor to build more?
The cost of capital. How difficult is it to get ahold of capital to do construction?
In cities, it does cost more to get land, but you can also build up, and the land value becomes less and less significant as the heght increases.
In cities – especially expensive places like San Francisco or New York – a major factor is usually that there’s some form of height restrictions. That is, it would be possible for someone to obtain capital, buy land, build a building on it, and make a reasonable return, but there are zoning ordinances or the like that prevent this. Sometimes there are outright height restrictions. In London, there are restrictions on buildings that obstruct a network of views to various landmarks, which has a similar effect. Developers have an interest in building as long as they are allowed to do so. Eliminate height and similar zoning restrictions that prevent construction, and it will show up.
This is an article that I really like, was run in The Atlantic some years back, focusing on why housing is so expensive in New York City, due to a history of planning restrictions on construction:
https://www.theatlantic.com/magazine/archive/2011/03/how-skyscrapers-can-save-the-city/308387/
California in particular has seen spread of the YIMBY movement (that is, a counter to NIMBY, where people want to block construction near them) aimed at removing restrictions on housing construction.