For every 1,000 new renters in the U.S., there are only 384 new units to accommodate them. Sure, some people might double up and room together, but hundreds will still lack options within their means. And we wonder why apartments are so expensive nowadays — high demand and low inventory are classic components of overpriced, competitive markets.
Nationwide, rents rose 3.3 percent from January 2014 to January 2015. This may not seem like a whole lot, but rents now increase at twice the rate of incomes. As a result, renters in “hot” markets now spend almost 50 percent of their income on rent (looking at you, Los Angeles).
Instead of devoting half of your income to rent, consider markets that aren’t pricing out the median income leaseholder. And for those looking toward the future, see what your options are if you eventually decide to buy.
Dallas-Fort Worth is currently one of the most affordable housing markets. At the end of 2014, Dallas renters were only spending 28.5 percent of their monthly incomes on rent — within the 30-percent-or-less rule that many financial advisers recommend. Even better, Dallas home-buyers who fall into the median income range only devote 11.6 percent of their paycheck to the mortgage. A low home value estimate of $155,700 could be the reason for affordable monthly payments.
Similar to Dallas, Philadelphia is affordable for renters and homeowners alike. Homeowners spend just 15.2 percent of their income on their monthly mortgage payments. Compare that percentage to, say San Francisco, where homeowners spend almost 40 percent of their income on their mortgage, and Philadelphians are setting themselves up to be in a much better long-term financial position. Finding a rental in Philadelphia shouldn’t be too difficult, either, because Philadelphia keeps rental costs down through new developments. The city permitted 671 new units for every 1,000 residents between 2012 and 2013, which is double the national average.
Although not a huge, bustling metropolis, Des Moines is a great option for those concerned with affordable housing. The median home value in Des Moines is only $109,800. If you were to purchase an investment property here, you’d only need about $21,960 to put down the recommended 20-percent down payment. Then, if you were able to get a mortgage with an interest rate of 3.74 percent, your monthly mortgage payment would only be around $583 per month. If you’d prefer to lease a home in Des Moines, the median rental value is around $1,113 per month – which is still incredibly low for living in a city, let alone one that is sometimes referred to as the “greatest city in the world.” For comparison, the median price of all U.S. rentals is $1,529.
You might be surprised to find the third largest city in the U.S. on this list, but Chicago renters get to live in a huge metropolis at a low cost. In the City of Broad Shoulders, renters spend 31.1 percent of their income on rent — slightly above the allocation regularly deemed “affordable” by economists, but not too far.
So why are prices so low? Part of it may stem from Chicago’s approval of a massive number of new units from 2012 to 2013, with an average of 906 new units for every 1,000 new residents. Homeowners in the Windy City also fare well, only spending about 13.9 percent of their median income on monthly mortgage payments, to pay for a median home value of $181,800.
If you’re thinking of relocating to a warmer climate, Phoenix should be high on your list when compared to its Sunbelt competitors. Miami, for example, costs lessees 44.2 percent of their monthly income for housing — significantly higher than the 30 percent affordability cap. Phoenix leaseholders, on the other hand, only pay 28 percent of their monthly income on rent.
Surprisingly, there weren’t many new units approved per 1,000 residents in 2012, so inventory hasn’t increased, but the small size and geographic positioning keep prices low. Bear in mind, however, Phoenix rents have been climbing since 2011, when the median price was just over $1,000 per month. Now, it’s at $1,173 per month. While it’s an inexpensive market now, be aware of a history that shows steady growth.
So when headlines read that no one can afford the rent — take a step back. There are plenty of options for renters to consider, and they don’t all involve moving to the suburbs or rural regions of America. Consider some of the aforementioned cities for your next move.