Rent prices have surged in recent years, and wages have not kept pace, according to an update from real estate tech firm Zillow (Nasdaq: Z and ZG).
While last year was a bright spot — wages grew faster than rents nationally and in almost half of major U.S. metro areas — “the opposite was true in New York City, where the nation’s largest gap emerged,” the team at Zillow noted in an update.
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Since 2019, U.S. rents have “grown 1.5 times faster than wages, according to a new analysis of rental data from Zillow and StreetEasy, along with wage data from the Bureau of Labor Statistics.”
Demand for rentals from the large millennial generation — “many of whose members have remained renters longer than previous cohorts — and Gen Z adults has run headlong into the country’s housing shortage, causing rents to quickly rise.”
That trend cooled last year, “as national rent growth (3.4%) was outpaced by wage growth (4.3%).”
Strong multifamily construction “has helped absorb demand for apartments, keeping rent growth in check in much of the country. But rents grew more than seven times faster than wages across New York City’s five boroughs last year.”
That gap between “rent growth (8.6%) and wage growth (1.2%) in New York City was larger than in any of the 50 biggest U.S. metro areas.”
StreetEasy Senior Economist Kenny Lee said:
“It is encouraging to see much of the country making even modest progress in the rental affordability crisis. Unfortunately, New York City is heading in the opposite direction. Despite a strong job market in the city, and in some ways because of it, the gap between what a typical renter can afford and the price of rentals on the market is growing. New multifamily buildings coming online has eased competitive pressure in many markets, but in New York City, construction just simply can’t keep up with demand.”
Moderating rent growth across the country “has given wages a chance to catch up, providing a reprieve for renters in many markets. Rents dipped in three markets last year — Austin; Portland, Oregon; and San Francisco — while wages continued to grow. In 20 other metros, rents grew, but wages grew faster, giving renters some breathing room.”
Florida markets occupy three of the five spots “where rent growth has most dramatically outpaced wage growth over the past five years. Florida has been a migration hot spot since the pandemic, with new residents attracted by the possibility of year-round outdoor living and relatively affordable housing compared to many coastal markets.”
This surge in demand has led “to skyrocketing rents in the state, while wages have struggled to keep up. Even in Miami, where wage growth has been slightly above the national average, a nearly 53% increase in rents — the most dramatic jump of any U.S. market — has left a huge gap between the income residents are earning and the income they need to comfortably afford the area’s typical rental.”
Wages have consistently outpaced rents “in recent years in only six major metros. The biggest gaps have been in San Francisco, San Jose and Houston.”
Zillow and StreetEasy have a number of tools that help renters with affordability and access.
The upfront costs of finding “a place to rent can add up, with Zillow research showing those costs tend to be higher for renters of color. In New York City, upfront costs average almost $10,500, with broker fees often the largest expense. Lowering upfront rental costs will give all New Yorkers expanded choices in the rental market, which is one of the reasons Zillow and StreetEasy are advocating for broker fee reform.”
As covered, Zillow Group, Inc. says that it is “reimagining real estate to make home a reality for more and more people.”
As the “most visited” real estate website in the United States, Zillow and its affiliates “help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing and renting experiences.”
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