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Do we have a housing crisis or a poverty crisis? There might not be an either/or answer.

Rising Rents Are a National Crisis: Is There a Solution?

Rising Rents Speak to National Crisis: Is There a Solution?

If you own a house, you might be oblivious to the problem. If you happen to be in a rural market where rents are affordable, you probably don’t have a good gauge on how serious the issue is. Even if you’re burdened with an expensive lease, your high income might render the problem less noticeable. Make no mistake about it, though – rising rents are a very serious problem in this country and it doesn’t seem to be getting any better.

Rental Rates Continue to Tick Up

New York City has always been one of the more expensive places to call home, but it’s never been this bad. Since 2009, asking rents have increased an average of 33 percent, or 3.9 percent per year. For comparison, the median wage increase has been just 1.8 percent annually.

What’s even more frustrating is that rents aren’t increasing proportionally. Rents for apartments priced in the lowest fifth tier of the market have spiked 4.9 percent annually since 2010, while those in the top fifth tier have appreciated just 3 percent. Couple that with the fact that low wage earners have experienced the lowest income appreciation over the past eight years, you have a disaster that threatens to compromise the very fabric of the city.

“New York City residents who are earning the least amount of money are experiencing the greatest competition for housing and the steepest rent increases,” economist Grant Long says. “As New Yorkers—particularly the lowest earners—are forced to dedicate more of their monthly income toward rent, it becomes extremely difficult to save for necessities like healthcare and education, or a down payment on a home.”

It’s not just New York. Los Angeles renters have seen the median rent for one-bedroom apartments increase by 4.8 percent over the past year, bringing the figure to an average of $1,340. By some estimates, one-bedroom apartments in Seattle have increased 7.9 percent in cost over this time last year. In Denver, median rent increased 1.2 percent from July to August alone.

What’s to Blame?

While it’s easy to blame real estate investors, they really shouldn’t bear the bulk of the blame. Property owners and landlords have a lot to consider when pricing their units and are often forced to ask high amounts just to produce reasonable cash flow in today’s market. Could it be that the real problem is low income?

“Our dilemma is not affordability,” says Chris Krehmeyer, president and CEO of a community development organization in St. Louis. “We have a pretty significant single-family rental portfolio, three-bedroom single family homes, 1,200 square feet, that we rent for $675. Affordability is not an issue.”

What is the problem, then? If families can’t afford three-bedroom homes at less than $700 per month, the issue can’t be only high rental costs.

“The challenge for us really becomes that even at that great price point, there are so many families that reach out to us and we say, ‘Sorry, we can’t rent to you because you don’t make enough,’” Krehmeyer continues. “Even at those low price points. And that’s a function of poverty.”

Do we have a housing crisis or a poverty crisis? It might be most appropriate to say we have a housing crisis and a poverty crisis, making many areas of the country unaffordable for large segments of the population.

Finding a Solution

There is no easy solution to this national problem. Major challenges lie ahead and it’s going to take some serious changes from those who control the fiscal and regulatory levers to begin making any progress.

Unfortunately, simple supply and demand shows that there are only two big-picture ways to lower rent rates without implementing additional subsidy program that burden society and might demotivate people to become successful enough to buy their own real estate.

The most practical option is to create a larger supply of homes. But even a massive increase in housing supply would only serve as a drop in the proverbial bucket. (For example, one economic expert says San Francisco would need an additional 200,000 housing units to revert to “normal” rental rates.)

The second option is to wait for a economic dropoff where unemployment soars and incomes fall. When people can pay less for housing, rents naturally adjust to the going rate. However, this is clearly counterproductive and isn’t a stable solution.

Here are two ways cities, states, and individuals might work together to gradually alleviate this burden by increasing the supply of homes in a healthy and ethical manner:

  • Fewer regulations. Regulations serve a purpose but they often hold people back from being able to make positive contributions to society. If local governments make a commitment to deregulating policies that hold real estate developers back from building, the housing supply would naturally increase and drive rent rates down in certain markets.
  • Build more manufactured homes. One of the more practical solutions is to change how we build new homes. By switching from the traditional on-site approach to off-site manufactured homes, affordability would be less of an issue. Research shows that the average construction price of a manufactured single-family home ranges from just $20,000 to $78,000. Not only would this price range enable more people to own homes, it would lead to more affordable rentals.

Again, no perfect solution exists. Either the supply of homes has to increase or incomes have to go down. Unfortunately, relief for the lower and middle classes still feels far away.

About Jessica McMohen

Jessica is an independent journalist, freelance blogger, and technology junkie with a passion for music, arts, and the outdoors.

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