How the “Affordability Disaster” Migrated from Excessive-Revenue Rental Markets, as Manhattan & San Francisco, to Decrease Revenue Markets, as Detroit & Fresno

The distortions caused by the shift to work from everywhere hit households that can least afford it.

By Wolf Richter for WOLF STREET.

For months we have seen the data how the big shifts due to the pandemic have affected property markets across the country. In terms of rents, tenants have left large, expensive places like San Francisco, Silicon Valley, Boston, or Manhattan, leaving high vacancy rates, falling rents, and a massive churn in stayers seeking this free upgrade to a nicer apartment as the landlords try to keep their units filled.

And we saw in the data that this outflow, conversely, has resulted in large inflows in destinations, usually less expensive markets, and driven up rents in those markets.

This shift has a troubling component, however. Rents are falling in places with some of the highest household incomes and they are rising in places with much lower household incomes, shifting the affordability crisis from housing to people who can least afford it – in a matter of months.

The following table lists the 16 districts (of the 100 largest districts) whose rents fell between 10% and 24% year-on-year in February. It also shows the median 1-BR asking rent and median household income, based on a new study by Zumper of the affordability issues that caused the shifts.

To point out that nothing is universal, there’s also one county on the list with a sharp year-over-year rent decline and one of the lowest rents and household incomes in the U.S. ($ 41,800): Hidalgo County, Texas.

When it comes to median household income, San Francisco ($ 124,000) and Silicon Valley Counties of Santa Clara ($ 133,000) and San Mateo ($ 138,000) top the list, and they also top the list for rental declines . For these lagged folks, renting has become, so to speak, a lot less unaffordable. (If your smartphone cuts off the sixth column on the right, hold your device in landscape orientation).

1-BR rental Y / Y% HH income
1 San Francisco County THE 2,663 -24% 123.859
2 Santa Clara County (Silicon Valley) THE 2.196 -21% 133,076
3 Suffolk County (Boston area) MA 2,000 -20% 77,558
4th San Mateo County (Silicon Valley) THE 2.195 -19% 138,500
5 Kings County (Brooklyn) NEW 2.108 -18% 66,937
6th New York County (Manhattan) NEW 2,955 -17% 93.651
7th Middlesex County (Boston area) MA 1.918 -17% 107.056
8th Hudson County (along the Hudson River, across from Manhattan) NJ 1,900 -16% 78,808
9 King County (Seattle) WA 1,595 -fifteen% 102,594
10 Queens County (Queens) NEW 1,825 -14% 73,696
11 Hidalgo County (McAllen, border) TX 605 -13% 41,800
12th Norfolk County (southwest of Boston) MA 2.095 -12% 107.361
13th Alameda County (Oakland) THE 1.995 -11% 108.322
14th Lake County (Chicago Area) THE 1.235 -11% 92.511
15th District of Columbia DC 2,107 -11% 92.266
16 Hennepin County (Minneapolis) MN 1,260 -10% 82,369

And most of the 16 boroughs that recorded rental income between + 10% and + 22% year-on-year have a relatively modest median household income compared to the wealthiest boroughs. The 22% increase in rents is particularly impressive in Detroit and Indianapolis, where median household incomes are on the lower end of the spectrum, and this will hurt.

1-BR rental Y / Y% HH income
1 Baltimore County MD 1,445 22% 77.358
2 Wayne County (Detroit) ME 1,050 22% 50.753
3 Marion County (Indianapolis) IN THE 996 22% 50.458
4th Pierce County, Tacoma WA 1,450 21% 79.243
5 Fresno County THE 1,175 21% 57,518
6th El Paso County CO 1,150 16% 72,830
7th Kern County (Bakersfield) THE 925 16% 53,067
8th Oakland County (Detroit) ME 1.109 16% 81.190
9 Monroe County (Rochester) NEW 1,160 14% 62.103
10 DeKalb County (Atlanta) GA 1,452 13% 63,652
11 San Bernardino County THE 1,550 13% 67.903
12th Shelby County (Memphis) TN 950 12% 52.614
13th Gwinnett County (near Atlanta) GA 1.283 10% 72.109
14th Duval County (Jacksonville) FL 1.005 10% 58,415
15th Bexar County (San Antonio) TX 970 10% 58,964
16 Sacramento County THE 1,425 10% 72.017

There is another element here. Some of the counties on this list are geographically located near very expensive, high-household income housing markets, such as Counties of Kern and San Bernardino in the urban areas of Los Angeles and San Diego. or Sacramento and Fresno counties to the San Francisco Bay Area, indicating that people are moving to cheaper cities just a few hours’ drive from their former location.

Given the large population like New York City, Los Angeles, or the Bay Area, they can easily skew rents in smaller, less expensive markets. And as rents go down in expensive cities and go up in cheaper cities, the difference between the two collapses where at some point it’s no longer worth moving.

The graph shows the difference between the 50% decrease in 1-BR rents in San Francisco and Sacramento and the 1-BR rents in San Francisco and Fresno, which fell 46%:

What has essentially taken place is a shift in tenants from the wealthiest to the less affluent districts, and once that shift has picked up, rents have increased in the receiving districts.

Some of these people who had moved kept their jobs but moved to work from everywhere. and they brought their high household incomes with them and they are used to the much higher rents in their expensive markets and they offer the rents and still think they are getting a deal.

At the receiving end of these shifts, however, are tenants with relatively modest household incomes who are now competing with an influx of high-income tenants, and they are now facing massive and unaffordable rent increases.

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