Where the Housing Affordability Burden Is Rising the Fastest

In the priciest markets, some are spending nearly half their income on rent or mortgage. See how your area compares.
by | August 3, 2016
A historic home in Medford, Ore. (Wikimedia Commons)

Renters seeking affordable housing around Medford, Ore., face a dire situation. With foreclosed units in limbo and little construction taking place, few vacancies remain. The units that are available have seen rents increase, often making them out of reach for working families.

Over the past 12 months, rental affordability in the Medford metro area has worsened at a faster rate than any other area in the country. Median income households there spend 35.3 percent of their incomes on rental costs, up from 31.8 percent a year ago, according to Zillow data.

Other regions have seen similar increases as rents have ballooned and the housing market has recovered. But a select few of these metro areas are outpacing other markets, experiencing particularly notable increases over only the past year. We’ve compiled data from real estate company Zillow, providing an up-to-date snapshot of conditions in each area.

Nationally, median rent costs account for 30 percent of median household incomes, a figure that’s been mostly steady since 2010. Along with Medford, regions where the share is growing at the fastest rate tend to be located out West or around college towns.

"Rental affordability has deteriorated much more dramatically in the booming labor markets of the coasts,” said Zillow senior economist Aaron Terrazas.

Rents are rising more in places with a constrained housing stock, particularly where a lack of available land or regulations limit development. A Zillow study in April found that rents in cities with the most restrictive land use policies were growing nearly three times faster than those with the least restrictive regulations. Of course, housing affordability is also influenced by the extent to which regional economies and incomes have grown.

In Buffalo, N.Y., renting isn’t as expensive as it is in many other markets, but the area has experienced one of the sharpest upticks in its affordability burden in recent months. Robert Silverman, an urban planning professor at the University of Buffalo, said much of the recent development downtown consists of more expensive senior housing or high-end complexes. At the same time, more people are renting because they don’t qualify for mortgages or can’t find properties as a result of few housing starts.

There’s been a general concern about the lack of affordable housing being built in the city, said Silverman. Advocacy groups are pushing local officials to adopt inclusionary zoning ordinances aimed at boosting the stock of low-income housing.

In other markets, rents have stabilized. The Washington, D.C., area, for example, had been one of the nation's hottest markets, but affordability changed little over the past three years, according to Zillow data. Costs in the Minneapolis-St. Paul area are following a similar trajectory, remaining steady after climbing over a decade.

Largest Year-Over-Year Increases in Rental Affordability Burden

Metro Area Percentage-Point Change 2015 Q1 Share of Median Income 2016 Q1 Share of Median Income
Medford, OR +3.5 31.8% 35.3%
San Francisco, CA +3.1 42.9% 46.0%
College Station, TX +3.1 38.3% 41.4%
Kokomo, IN +2.9 17.6% 20.5%
Santa Rosa, CA +2.9 38.5% 41.4%
Mount Vernon, WA +2.9 30.9% 33.7%
Buffalo, NY +2.8 25.6% 28.4%
Longview, WA +2.7 33.2% 35.9%
San Jose, CA +2.7 39.0% 41.6%
Dalton, GA +2.4 24.8% 27.2%
SOURCE: Governing calculations of Zillow Rental Affordability Index data

In the priciest markets, median rental costs are approaching nearly half of median incomes. By comparison, rents are only about one-fifth of the median income in parts of the Midwest, according to Zillow’s latest data.

A similar -- but smaller -- group of metro areas are experiencing significant upticks in mortgage costs given residents’ incomes. While home values climbed in recent years, interest rates remain low.

“It makes buying a home look very affordable,” said Terrazas. “As home prices have increased, you have to come up with a much larger down payment than in the past.”

This issue is particularly apparent in warmer climates and in California, where mounting housing costs pose difficult hurdles for prospective homeowners in places like San Jose and San Francisco. One factor hindering affordability in the state is the inadequate amount of construction that's occurred over the longer term, said Jordan Levine, an economist with the California Association of Realtors.

Turnover for California's housing inventory also trails other states. A law limiting property tax hikes, Proposition 13, incentivizes homeowners to retain properties. What's more, economic uncertainty is further limiting new listings.

"People are in a wait-and-see mode in listing their homes, which is affecting inventory," said Levine.

While incomes have started to rebound, they haven't nearly caught up with growth in home prices. Over the past 12 months, the median selling price of single-family homes in California jumped 5.5 percent, according to the association.

Concerns over whether growth can be sustained are escalating in a few of the state's most expensive regions.

San Francisco, a region with already some of the nation's priciest real estate, has incurred among the largest recent increases in the affordability burden for both renters and homeowners. Median home prices there are currently about 13.7 times greater than median incomes. That hasn't deterred the enthusiasm of tech workers and other high-income earners to buy there, said Levine. Still, the region's price-to-income ratio is approaching 15 -- the highest level since back in 2005.

Largest Year-Over-Year Increases in Mortgage Affordability Burden

Metro Area Percentage-Point Change 2015 Q1 Share of Median Income 2016 Q1 Share of Median Income
San Jose, CA +3.7 38.2% 41.9%
Boulder, CO +3.0 24.0% 27.0%
San Francisco, CA +2.8 37.7% 40.5%
Carson City, NV +2.5 20.3% 22.9%
Reno, NV +2.5 20.7% 23.1%
Bend, OR +2.4 22.7% 25.1%
Morgantown, WV +2.3 12.7% 15.0%
Portland, OR +2.3 20.3% 22.6%
Denver, CO +2.3 18.7% 21.0%
Fort Collins, CO +2.1 21.3% 23.4%
SOURCE: Governing calculations of Zillow Mortgage Affordability Index data

Assessing rent and mortgage costs relative to median incomes is a useful metric in understanding changes in affordability over time. It doesn’t fully reflect, however, burdens faced by those at the top and bottom of the income ladder.

Data for several larger markets reviewed by Zillow suggest rents are climbing faster for the bottom third least expensive units than they are for the rest of the rental stock.

In the Los Angeles and Sacramento metro areas, median rents for low-end apartments rose more than 25 percent over only a year.

Meanwhile, rents in wealthier neighborhoods and for luxury units haven’t grown nearly as fast. Builders have expanded the supply of high-end units rather than construct more affordable properties, and affluent renters are starting to hit their upper limits of what they’re willing to pay, said Zillow’s Terrazas.