The Rent is Too Damn High or What is the Meaning of “Best”? (Part II of the Series That Began with Rents Rise)

If the near past and the present were not depressing enough for renters of lesser means, the Atlantic in a recent darkly named article, A Bleak Future for Renters talks about what is next to come. The author Gillian B. White, cites a study by the Harvard Joint Center for Housing Studies and Enterprise Community Partners, which predicts a rise of 4 million people in the renting population, and a total of 13 million people being severely rent-burdened (i.e. spending 50% or more of their income on rent) by 2025. The study’s researchers also predict that due to multiple factors, including but not limited to: stagnant wages, low vacancy rates, limited rental housing stock, and decreased rates of homeownership, minorities, Millennials, and the elderly will be hardest hit.

Dr. Chris Herbert, Managing Director of the Harvard Joint Center

(Courtesy of the Harvard Joint Center)

Digging deeper, specifically here in Dallas, limited single family housing stock may be the cause for the decreased rates of homeownership. Earlier this month in D Magazine’s D CEO, in an article titled, The Year's Best Real Estate Projects, Christine Perez, cited a shortage of construction workers and those who could manage them, as the drivers of this shortage. The former, an executive she interviews says, may due to the Great Recession have pushed into different lines of work, or have returned to Mexico, while the latter have opted for office jobs in place of the trades. The economic slowdown seems too have also trimmed government apparatuses devoted to project approvals, which puts a further crimp on the number of projects getting through the pipeline.

Though Perez cites these reasons as those behind the shortage of single family housing stock, one might surmise that these could have an effect on multifamily housing construction too. Regardless, Perez does say that this shortage itself puts more pressure on the multifamily housing market. She quotes Steve Bancroft, of Trammel Crow Residential, who says, “By most accounts, this is the best multifamily market that Dallas-Fort Worth has ever seen.” Perez fails to mention that, of course, the word “best”, used here and in the title of the article, is from the developers’ point of view. This situation is not exactly the “best” for those in the market for a rental unit, especially if they are struggling. And so unsurprisingly, Perez admits that, “Ongoing (rent) increases likely will compel renters to begin considering other options,” even, she says, “doubling with a roommate.”

Speaking with The Washington Post’s Emily Badger, two of the above Harvard study’s authors are ready to sound the alarm, even if D CEO is not. The effect, they say, will cascade from renters to others they interact with. “Money pooled in the hands of landlords, doesn't circulate through the economy with the same impact as money spent at local retailers and grocery stores,” one says, while the other, “suggests there may be serious health costs associated with a population that has to sacrifice health spending to pay the rent.” And so, Badger ends her piece with an ominous warning from one of the scholars, “In certain places, we’re probably getting close to the breaking point for a lot of folks, and I don’t know how that plays out."

Earnest Burke, Plano Housing Authority

(Courtesy of WFAA)

With all of this in the background nationally and locally, should we really be surprised with the Kafkaesque story of Navy veteran, Jermaine Williams? If all you read was the title of the WFAA report, you would be forgiven for thinking that a junior editor forgot to fix a typo: Navy vet gets to use housing assistance, after 70 tries. If only. The piece by Jobin Panicker tells the story of Williams, who after a long episode of homelessness received a voucher from the Plano Housing Authority, only to find that a housing voucher did not equal housing. Panicker quotes Earnest Burke, with the Plano Housing Authority, who blames the over-saturation of the rental housing market throughout North Texas for Williams’ woes. Out of the 15 vouchers he gave out, only three veterans actually landed housing*, as “apartments are filling up and becoming more selective of potential tenants.” More selective means, that landlords can (legally), and indeed do refuse to rent an apartment to someone like Williams, due to the source of that rent money, Uncle Sam. In the next installment of this series, we will discuss how government could save people like Williams from the trials and travails of searching for months, spending hundreds of dollars in application fees, just to find an apartment.  

* I reached out to Burke, for an update on how many additional veterans have been housed in the four weeks since September 30, 2015, the date of the WFAA story, but have yet to hear back. I will update on the blog, when I do hear back.

Rents Rise

One would think that ending one’s homelessness would be fairly quick and easy, once one had a housing voucher, provided by a government program. Over the course of the next few blog posts, we will explore this proposition, why in fact this might not be the case, possible solutions, and what stands in the way of these solutions. Along the way, we will touch on the state of the housing rental market, in general, and how the lack of affordable housing can contribute to homelessness.

Jonathan Chew titles a recent article in Fortune quite straightforwardly, Why rents could rise by 8% in 2016, citing a survey representing hundreds of thousands of units. No need for an advanced degree in economics to figure out why.  As, Chew says, “The reasons are manifold, but 64% of landlords surveyed identified two main factors: the twin pressures of increased demand for units and low inventory.” High demand, plus low supply, regardless of the widget being demanded and supplied, equals higher prices.

One reason this problem might be exacerbated in Dallas, could have to do with the age old dilemma, for those with the means to make a choice, of renting vs. buying. Three Florida based scholars Drs. Eli Beracha, William G. Hardin and Ken H. Johnson, have developed the eponymously named “BH&J Buy vs Rent Index”. As they describe on the Index website, it is “designed to signal whether current market conditions favor buying or renting a home in terms of wealth creation over a fixed holding period in a particular market relative to historical market conditions and alternative investment opportunities.” Right now, the index indication for Dallas, unlike for most of the country, is clear: Rent; don’t buy.

The numbers are pretty. As the site Rent Jungle tells us, “As of August 2015, average apartment rent within 10 miles of Dallas, TX is $1502. One bedroom apartments in Dallas rent for $1263 a month on average and two bedroom apartment rents average $1796.” For comparison, according to the site, as recently as January 2012, these numbers stood at $967, $977 and $894 respectively.

 
In fact, according to Steve Brown in the Dallas Morning News in his recent article, Soaring Dallas apartment costs haven’t put a dent in rentals, there could be a more permanent and fundamental shift at work here, then just renting until it makes more sense to buy. As he says of a recent trend in a growing number of Downtown and Uptown rental properties, “Most of their new renters — a combination of young professionals and affluent empty nesters — could save money buying a house in the suburbs.” These people are instead choosing lifestyle and proximity to downtown, over homeownership, Brown says. He quotes “Dallas developer Lucy Billingsley,” who says, “We know we have lifetime renters who will be with us now.” As Brown emphasizes, “A generation ago, apartments in Dallas were the waiting rooms for homeownership. That’s not the case anymore.”

At the same time, Brown also points out that some of the pressure comes from rental customers coming to Dallas, because in comparison to other cities on the coasts, and even Chicago, Denver, Atlanta and Minneapolis, Dallas is still a bargain. Therefore, not surprisingly, according to Bloomberg News, as cited in Finance and Commerce, “U.S. commercial real estate investors are looking inland. The Dallas-Fort Worth area of Texas, prized for its diverse job market and success luring companies that are relocating, ranked as the top area for commercial-property investment in a survey of almost 1,500 real estate executives, according to a report Wednesday by the Urban Land Institute and PricewaterhouseCoopers LLP... while the big coastal cities of New York, San Francisco and Boston, traditional magnets for buyers, were deemed less attractive.” It goes without saying, that this competition coming in can make things more difficult for those already here with less mean, less skills, and less mobile lives. And all of these developments lead to an obvious problem, which we will delve deeper into in our next post, “The Rent is Too Damn High!”