US rent receipts rose by tens of billions of dollars over the last 12 months. So have rental rates in Mass. finally hit the ceiling? What do recent trends mean for MA investors and renters?
According to the latest data from Zillow gross rents have been soaring by billions thanks to falling homeownership rates, the fallout of the foreclosure crisis, and skyrocketing rental rates. The National Association of Realtors and other analysts anticipate rents will only continue to rise, even though Zillow proclaims renting is half as affordable as buying and owning a home today.
According to the Zillow Rent Index in order to afford the median priced rental in Boston tenants would need to make a minimum hourly wage of $50. While that might seem outrageous to most it is still better than the $103 minimum wage required to rent in Menlo Park, CA, or $234 on Miami’s Fisher Island. However, Boston’s wages needed to rent are markedly higher than in Chicago, Las Vegas, and even New York City.
Of course, if you make $50 an hour, you probably aren’t going to be too excited about renting one of the most modest apartments in the city, if they would even work for your transport and lifestyle needs. That means you may be plowing far in excess of 50% of your monthly income for a rental you’d actually be willing to live in, if you can find a landlord that will approve such high ratios.
Additional government intervention could be in the works. American cities are in the fight of their lives. Not just for financial survival, but to remain competitive. A huge part of this is being able to attract and retain talent, and keeping it affordable enough for businesses to keep the best workers, as well as keeping affordable workers for the public sector. A lack of affordable housing can be a hindrance to these efforts. Local governments may have to step in and curb rents in the hottest urban hubs.
For some real estate investors this may create great opportunities to collaborate and receive various breaks for providing affordable housing within reach of dense urban areas and business districts.
Still, the overriding trend demands that both renters and investors need to look outwards for affordable rents, capital growth, yield spreads, and security. If rents cap out it also caps income property values.
For many in Mass., and the Boston area this means moving out to Worcester. If you aren’t sure how local rents impact your investment goals consider reaching out to a reputable local property management company that can clue you in.