Tag Archives: San Francisco

Renting in America’s Largest Cities

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Following up on an earlier graphic they produced, the NYU Furman Center and Capital One have issued a report, Renting in America’s Largest Cities. The Executive Summary reads,

This study includes the central cities of the 11 largest metropolitan areas in the U.S. (by population) from 2006 to 2013: Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, New York City, Philadelphia, San Francisco, and Washington, DC.

The number and share of renters rose in all 11 cities.

The rental housing stock grew in all 11 cities from 2006 to 2013, while owner-occupied stock shrank in all but two cities.

In all 11 cities except Atlanta, the growth in supply of rental housing was not enough to keep up with rising renter population. Mismatches in supply and demand led to decreasing rental vacancy rates in all but two of the 11 cities in the study’s sample.

The median rent grew faster than inflation in almost all of the 11 cities in this study. In five cities, the median rent also grew substantially faster than the median renter income. In three cities, rents and incomes grew at about the same pace. In the remaining three cities, incomes grew substantially faster than rents.

In 2013, more than three out of every five low-income renters were severely rent burdened in all 11 cities. In most of the 11 cities, over a quarter of moderate-income renters were severely rent burdened in 2013 as well.

From 2006 to 2013, the percentage of low-income renters facing severe rent burdens increased in all 11 cities in this study’s sample, while the percentage of moderate-income renters facing severe rent burdens increased in six of those cities.

Even in the cities that had higher vacancy rates, low-income renters could afford only a tiny fraction of units available for rent within the last five years.

The typical renter could afford less than a third of recently available rental units in many of the central cities of the 11 largest U.S. metro areas.

Many lower- and middle-income renters living in this study’s sample of 11 cities could be stuck in their current units; in 2013, units occupied by long-term tenants were typically more affordable than units that had been on the rental market in the previous five years.

In six of the cities in this study, the median rent for recently available units in 2013 was over 20 percent higher than the median rent for other units in that year, indicating that many renters would likely face significant rent hikes if they had to move. (4)

While this report does an excellent job on its own terms, it does not address the issue of location affordability, which takes into account transportation costs when determining the affordability of a particular city. It would be very helpful if the authors supplemented this report with an evaluation of transportation costs in these 11 cities. This would give a more complete picture of how financially burdened residents of these cities are.

Friday’s Government Reports Roundup

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  • United States Government Accountability Office releases report: “Collateral Requirements Discourage Some Community Development Financial Institutions from Seeking Membership”.
  • The National Low Income Housing Coalition (NLIHC) released its Out of Reach 2015 report, in which it asserts that low wages and high rents are preventing people from living in many different areas of the country. It states that the most expensive city to live in is San Francisco, where a worker would need to make $40/hour to afford a decent two-bedroom apartment.
  • The Federal Reserve released its Report on the Economic Well-Being of U.S. Households in 2014, which reveals how adult-consumers feel they are doing financially. Though in a number of categories adults’ beliefs on how they are doing went up beneficially, half of all renters that wanted to purchase a home could not afford the down payment and 31% were unable to qualify for a mortgage.

Airbn-Beffudled

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MainStreet quoted me in Is Airbnb Making It Impossible For You To Rent That Dream Apartment?. It opens,

The accusation is blunt: Airbnb, say some, is sucking up apartment units that otherwise would be available to renters. In San Francisco, that claim is spoken so loudly – by so many politicians – a city agency just filed a report on it.

Similar claims are heard in Santa Monica, Calif., in Manhattan and some Brooklyn neighborhoods, a few areas in Seattle and also a sliver of Boston and adjacent Cambridge. True? False? Is that Airbnb host putting vacationers up in what should be your prime Greenwich Village flat?

Some think such accusations are just distracting from the main issue at hand: housing inventory shortages.

“It’s a diversion,” says Richard Green, the Lusk Chair in Real Estate at the University of Southern California. “Politicians are not dealing with what they should be dealing with to address housing unavailability so they are singling out Airbnb.” His nuanced point is that in most markets the number of Airbnb units is trivial and so whatever impact it has on apartment availability is minimal.

The San Francisco government report does not disagree: “the Budget and Legislative Analyst estimates that between 925 and 1,960 units citywide have been removed from the housing market from just Airbnb listings. At between 0.4 and 0.8%, this number of units is a small percentage of the 244,012 housing units that comprised the rental market in 2013.”

Read the San Francisco report. It said that under 1% of apartments have been removed from rental channels due to Airbnb. How important is that? What does it mean?

What is unique about San Francisco – also Manhattan and a few other places – is that apartment vacancy rates are fiercely low. In a recent survey, it stood at 4.1% in San Francisco and that means this is the type of town where would-be renters get in line early whenever a decent unit goes up for rent. Add back in those Airbnb units and, yes, that might be a happy day for some tenants. But not many.

The other unique feature: San Francisco, Manhattan and a very few other places attract large tourist populations, especially Millennials, and that has been a sweet spot for sharing economy rentals. Take tight supply, add in high hotel prices and a flood of tourists and there is the recipe for cries about any apartment that seems to be lost to the longterm tenant market.

In a lot of markets – from Phoenix to Houston – vacancy rates are already high, tourist numbers are low and nobody really thinks Airbnb is having any impact on local rentals.

But in some cities it just may be. Harry Campbell, TheRideShareGuy.com, said of Airbnb: it is “having a huge impact in coastal communities [of Los Angeles] like Venice/Santa Monica where mid level chain hotels can run upwards of $300-$400 a night. It just doesn’t make much sense for landlords to rent their apartments out traditionally when the profits are so much higher using Airbnb.” (Santa Monica, in mid May, enacted legislation banning short-term rentals such as Airbnb. Nobody knows how it will be enforced or if it will withstand legal challenges.)

At least one Portland, Ore. Airbnb host emailed Mainstreet to admit that two apartment units that had been rented to regular tenants are no longer. Explained that host: “From the point of view of a former landlord, the Airbnb experience is far superior. Airbnb guests are, on the whole, responsible, considerate and never late with rent since this is collected in advance by Airbnb.”

Either way, however, the calculus is not one-sided, not even in those premium markets like San Francisco. Green added: “You could also say that Airbnb is increasing the stock of affordable housing units by letting some keep their apartments by occasionally renting them out. It’s entirely possible Airbnb produces as many units as it loses.”

In that regard, listen to Kip (last name withheld) — a self-described 60+ woman living alone in Beverly Hills in a two bedroom apartment. A few times a month, said Kip, she rents it out through Airbnb. “That helps me with the cost of living,” she said. She stressed she would never take in a roommate but is happy with having guests a few nights a month. “It’s helped me boost my flagging income,” she said.

Christopher Nulty, an Airbnb spokesperson, had fighting words in response to the San Francisco report in particular.

“This comes from the same people who want to ban new housing in the Mission [a San Francisco neighborhood], ban home sharing and make San Francisco more expensive for middle class families,” he said. “Home sharing is an economic lifeline for thousands of San Franciscans who depend on the extra income to stay in their homes.”

So, who’s telling the truth?

“When evaluating claims about Airbnb, it is important to keep in mind whose ox is being gored,” said David Reiss, a professor at Brooklyn Law School. His point: In some cases, maybe Airbnb brings some harm. In other cases, it does good. Matters just aren’t simple or black and white.

Housing Affordability Across The Globe

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The 11th Annual Demographia International Housing Affordability Survey: 2015 has been released. The survey provides ratings for metropolitan markets in Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the U.K. and the U.S. There are some interesting global trends:

Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices from 2.0 to 3.0 times median household incomes. However, in recent decades, house prices have been decoupled from this relationship in a number of markets, such as Vancouver, Sydney, San Francisco, London, Auckland and others. Without exception, these markets have severe land use restrictions (typically “urban containment” policies) that have been associated with higher land prices and in consequence higher house prices (as basic economics would indicate, other things being equal).
Virtually no government administering urban containment policy effectively monitors housing affordability. However, encouraging developments have been implemented at higher levels of government in New Zealand and Florida, and there are signs of potential reform elsewhere. (1-2)
These findings are consistent with Glaeser and Gyourko’s research on U.S. housing markets. Not too many local politicians seem to acknowledge the tension between land use policies that limit residential density on the one hand and housing affordability on the other. The de Blasio Administration in NYC is a refreshing exception to that general rule.
The explicit bias of the Demographia International Housing Affordability Survey “is that domestic public policy should, first and foremost be focused on improving the standard of living and reducing poverty.” (2) Those who favor policies that create more affordable housing should take to heart the call for greater density and less restrictive zoning for residential uses. Otherwise, we are left with subsidy programs that can only help a small percentage of those in need of affordable housing and a lot of empty promises about affordable housing for all. Subsidies have a place in an affordable housing agenda, but so does density.

Nation of Renters

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NYU’s Furman Center and Capital One have produced an interesting graphic, Renting in America’s Largest Cities. The graphic highlights the growing trend of renting in urban communities, but also the increasing expense of doing so. The press release about this study provides some highlights:

  • In 2006, the majority of the population in just five of the largest 11 U.S. cities lived in rental housing; in 2013, that number increased to nine.
  • As demand for rental housing grew faster than available supply, rental vacancy rates declined in all but two of the 11 cities, making it harder to find units for rent.
  • Rents outpaced inflation in almost all of the 11 cities. Rents Increased most in DC, with a 21 percent increase in inflation-adjusted median gross rent, and least in Houston, where rents were stable.
  • In all 11 cities, an overwhelming majority of low-income renters were severely rent-burdened, facing rents and utility costs equal to at least half of their income.
  • Even In the most affordable cities in the study, low-income renters could afford no more than 11 percent of recently available units.
  • In five major cities, including New York, Los Angeles, San Francisco, Boston and Miami, moderate-Income renters could afford less than a third of recently available units in 2013.

Rental housing clearly has an important role to play in providing stable homes for American households, particularly in big cities. While rental housing has been the stepchild of federal housing policy for far too long, it is good that it is finally get some attention and resources.

I look forward to the Furman Center’s follow-up report, which will provide more detail than the graphic does. I am particularly curious about whether the researchers have addressed the difference between housing affordability and location affordability in the longer study. I would guess that the relative affordability of the cities in this study is greatly impacted by households’ transportation costs.

Reiss on Housing Unaffordability

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TheStreet.com quoted me in Homeownership Unaffordable For Most Americans in Major Cities. It reads in part,

Homeownership remains unaffordable for most Americans who are living in major cities.

A median-income household can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas, which is actually an improvement from 2013, according to a report by Interest.com, the Chicago-based consumer financial information website.

The most affordable metro areas area Atlanta, Minneapolis and St. Louis while San Francisco is the least affordable since the median income in the city is 46% less than what is required to buy a median-priced home in the area. Median-income households in San Diego, New York and Los Angeles don’t fare much better.

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Many potential homeowners should evaluate what kind of mortgage they really need, said David Reiss, a law professor at Brooklyn Law School. Since most homeowners only stay in their house for an average of seven years, getting a traditional 30-year mortgage may not be the solution and an adjustable rate mortgage which resets after a period of years could be more affordable.

“This advice holds particularly true for families that are thinking about having more kids, since they may move sooner than they think if they come to realize that they want more space,” he said.

Transit-Oriented Development No Panacea

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The Government Accountability Office issued a report, Multiple Factors Influence Extent of Transit-Oriented Development. The GAO writes that

From 2004 to 2014, FTA [Federal Transit Administration] allocated $18.9 billion to build new or expanded transit systems through the Capital Investment Grant program. One of the key goals for many local governments when planning major capital-transit projects is to encourage transit-oriented development as a way to focus future regional population growth along transit corridors. Transit-oriented development is generally described as a compact and “walkable” neighborhood near transit with a mix of residential and commercial uses.
GAO was asked to examine transit-oriented development. This report addresses (1) the extent to which transit-oriented development has occurred near select transit lines that received federal funds and the factors and local policies that affect transit-oriented development, and (2) the extent to which FTA considers factors related to the potential for transit-oriented development when assessing proposed projects and the extent to which FTA’s assessment of these factors is consistent with the factors that local stakeholders told GAO affect a project’s results. To address these issues, GAO reviewed relevant literature and visited six federally funded case study transit projects in Baltimore, MD; Washington, DC; Charlotte, NC; Santa Clara County, CA; San Francisco, CA; and Houston, TX, selected for diversity in local programs, markets, and geography. During these visits, GAO met with stakeholders, such as local officials and developers. GAO also interviewed FTA officials. In commenting on a draft of this report, DOT noted FTA’s longstanding commitment to encourage transit-oriented development.
The GAO’s findings are quite mixed, but it did note that “many of the factors or local government policies that supported or hindered transit-oriented development are generally consistent with FTA’s summary assessment for economic development and land use.” Some promote transit-oriented design as a panacea for what ails American communities and others argue that we are too developed and too dispersed for it to make much of a difference in how we live and work. This report does not really move the debate one way or the other, but it does provide some interesting case studies that can help to inform the debate.