What Income Level is Effected the Most by Current Rent Increases?

In recent blogs we have discussed rent price growth and its effect on potential markets throughout the United States. In this post we will continue the discussion by looking at what income bracket is being affected the most by rising rent. Many argue that rent prices are growing at an exponential rate which is negatively affecting lower income families at a higher rate than higher income families.

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It is important for rental property owners and commercial property management companies to analyze the data to confirm whether this hypothesis is true. From a pure economical and business perspective it is important for rental and property owners to know which income bracket is being affected the most by rising rent as that income level could be an early indicator for when rental prices have hit equilibrium.

In the second quarter of 2014 the price of an average apartment rose 3.4% reaching 18th months of consecutive quarter rent increase (source). In 2014, the cities with the highest average rent for a two bedroom apartment was San Francisco (1,956) Washington (1,469), Boston (1,454) NYC (1,440) and LA (1,398) according to Joint Center for Housing Studies at Harvard & HUD. One reason why these cities may have such high average rent is because they have the highest incomes.

ATIF MIAN AND AMIR SUFI though research on Zillow found that from November 2010 to March 2014 rental price grow the most for wealthier zip codes where the population made 100k or higher. In fact, rent increased the most (25%) for zip codes where people made between 100k-200k versus in zip codes where individuals make on average lower than 35k (10%). One potential explanation for this trend is that zip codes with high foreclosures have the least growth in rent because foreclosures add housing supply to the rental market and because neighborhoods with a lot of foreclosures are less desirable

Based on these numbers one cannot be certain which rental market is likely to see rental prices slowdown first. It is possible that as foreclosure numbers fall we may see growth in rent for lower income markets begin to outpace rent in higher income market. However, based on current data we would expect the growth in rental prices for high income zip codes to slow down first as the growth rate has been so high over the past 4 years.

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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.