Tag Archives: rent

Chicago rents up at three times the rate of median household income in 2+ decades

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The cost of renting in Chicago has increased in recent years:

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After adjusting for inflation, Chicago’s median household income grew by just 9% from 2000 to 2023. Meanwhile, the city’s median cost for rent and utilities grew by 28%, roughly three times faster, according to a WBEZ analysis of census data.

This particularly affects lower-income residents:

Like Robinson, about 129,000 renter households in Chicago — roughly one-fifth of the citywide total — make between $2,000 and $4,000 a month, according to a WBEZ analysis. About 30% of those households are spending a majority of their income on rent and utilities…

Twenty-five years ago, a majority of the apartments in a dozen neighborhoods would have been affordable for someone making about half the city’s median income, like Robinson. They would have included North Lawndale, South Lawndale, the Lower West Side, the Near South Side, Douglas, Grand Boulevard, Washington Park and Woodlawn. Now, a majority of the rents in those eight neighborhoods are completely out of her reach. For example, after adjusting for inflation, the median rent in the Near South Side community has nearly quadrupled since 2000.

And the causes?

New apartment construction fell off dramatically in the late 2000s, in the early years of the subprime mortgage lending crisis and the Great Recession. “A number of single-family home builders [and] a number of multifamily developers left the sector all together,” Hermann said. “Less housing was built for more than a decade than we’ve seen pretty much ever.”…

The city is also losing housing — in particular, older two- to four-unit apartments that have historically offered more affordable rents for families.

Can leaders – political, business, real estate, etc. – address this issue? Building more units overall could help. Offering more incentives for affordable housing could help. Promoting and incentivizing development throughout the city – and not just areas where developers see the potential for a lot of profit – could help. Can housing be a leading issue to tackle?

Big cities face numerous issues but housing is a foundational concern. Residents need quality housing at prices they can afford. Not having such housing can affect all areas of life, including people’s hope for what their future can be. It can lead to people leaving (hinted at by the end of the article) and limit who can move in. And if the affordable housing shortage continues, the number of units needed only increases.

Even as there appeared there might be some energy in mid-2024 to address housing concerns at a national level, communities need to keep at this and make sure there is affordable housing on the way.

Record high rents in NYC

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Remember lower rents in New York City during COVID-19? A new report about high rents suggests any price drops in the city are long gone:

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The cost of renting a one-bedroom apartment in New York City reached an all-time high for the second month in a row in August, according to Zumper’s latest National Rent Report.

Residents are paying a median amount of $4,500 for a one-bedroom apartment in the city, up 12.8 percent compared to a year earlier and 3.4 percent compared to July. Those renting out two-bedroom apartments are not doing much better. According to Zumper, the median two-bedroom rent reached a record high of $5,100 in August, up 13.3 percent year-over-year and 3.7 percent month-over-month…

But the rent increases in New York mark a resurgence for the city’s market, after rent dropped to a four-year low in January 2021 during the COVID-19 pandemic. At the time, the median one-bedroom rent was $2,350. Since then, rent has nearly doubled—confirming New York’s rental market to be the most expensive in the nation.

Three quick thoughts in response:

  1. Who can afford such prices?
  2. Is this just supply and demand where the number of housing units is not keeping up with all the people who want to live in NYC? How do public and private actors continue to contribute to such an expensive housing market?
  3. For better or worse, these are the sorts of numbers that people remember when they think about housing prices. Most housing markets in the United States are not Manhattan or San Francisco or Seattle. But people generally know these places are expensive and those costs produce all sorts of reactions. Could a national policy to addressing housing costs, such as hinted at recently by one presidential candidate, address the issue in New York City and in other places?

Rents set by algorithm and how housing prices are set

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New tools allow landlords to set rental prices and this has led to lawsuits:

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Instead of getting together with your rivals and agreeing not to compete on price, you can all independently rely on a third party to set your prices for you. Property owners feed RealPage’s “property management software” their data, including unit prices and vacancy rates, and the algorithm—which also knows what competitors are charging—spits out a rent recommendation. If enough landlords use it, the result could look the same as a traditional price-fixing cartel: lockstep price increases instead of price competition, no secret handshake or clandestine meeting needed…

According to the lawsuits, RealPage’s clients act more like collaborators than competitors. Landlords hand over highly confidential information to RealPage, and many of them recruit their rivals to use the service. “Those kinds of behaviors raise a big red flag,” Maurice Stucke, a law professor at the University of Tennessee and a former antitrust attorney at the Department of Justice, told me. When companies are operating in a highly competitive market, he said, they typically go to great lengths to protect any sensitive information that could give their rivals an edge.

The lawsuits also argue that RealPage pressures landlords to comply with its pricing suggestions—something that would make no sense if the company were merely being paid to offer individualized advice. In an interview with ProPublica, Jeffrey Roper, who helped develop one of RealPage’s main software tools, acknowledged that one of the greatest threats to a landlord’s profits is when nearby properties set prices too low. “If you have idiots undervaluing, it costs the whole system,” he said. RealPage thus makes it hard for customers to override its recommendations, according to the lawsuits, allegedly even requiring a written justification and explicit approval from RealPage staff. Former employees have said that failure to comply with the company’s recommendations could result in clients being kicked off the service. “This, to me, is the biggest giveaway,” Lee Hepner, an antitrust lawyer at the American Economic Liberties Project, an anti-monopoly organization, told me. “Enforced compliance is the hallmark feature of any cartel.”

The company disputes this description, claiming that it simply offers “bespoke pricing recommendations” and lacks “any power” to set prices. “RealPage customers make their own pricing decisions, and acceptance rates of RealPage’s pricing recommendations have been greatly exaggerated,” the company says.

It will be interesting to see how the courts decide in this area.

I would be curious to hear how this process differs from the way housing prices are determined. The “correct price” does not just emerge. There are a set of actors – such as realtors, appraisers, and websites – that contribute. There are local histories that inform current and future prices. The housing market follows particular patterns and I recommend reading sociologist Elizabeth Korver-Glenn’s 2021 book Race Brokers: Housing Markets and Segregation in 21st Century Urban America on this topic.

Is the primary difference that there is not a centralized tech source for housing prices? (But maybe there is – how much has Zillow and its Zestimate changed the game?) Or are the new actors viewed with more suspicion than others (tech sector versus realtors)? Or are we in a particular social moment where high costs of housing prompt more questions and thoughts about alternative?

Rent prices down in Chicago during 2020

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Several sources suggest rent dropped in Chicago during this past year:

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And she’s not alone; in Chicago, rents dropped by almost 12% in December compared to December 2019, according to a new report from Apartment List, a website for apartment rentals. Average rent was $1,355 in Chicago a year ago; it fell to $1,193 in December.

Zillow data, too, marked the starkest plunge in year-over-year rental prices in the Chicago metropolitan area since it began analyzing national rents in 2014, with a decline starting in July and continuing through the latter half of the year.

Zillow reported a 2.2% decline in Chicago-area rents in November compared to a year earlier. When including the suburbs, Apartment List’s figures — which the service claims is more closely aligned to U.S. Census Bureau data — showed a similar decline of 6%, suggesting the suburban markets have not been as hard hit as the city.

Chicago was among the most severely impacted cities when it came to falling rents, said Rob Warnock, who co-authored the Apartment List study. Due to the pandemic, more expensive cities with competitive job markets saw rent decline — many for the first time in a decade.

It is good to see more data on the effects of COVID-19 on housing. As the article suggests, even a small drop in rents could be helpful for people in more uncertain economic times. This is not a big drop percentage-wise in Chicago, particularly compared to larger drops in Manhattan or San Francisco, but the Chicago market as not as overheated as some locations.

At the same time, it would be fascinating to see more detailed data addressing:

  1. Within cities and metropolitan regions, where have rents dropped, stayed about the same, or risen? And how does this line up with other social patterns?
  2. How much longer can renters and landlords continue on this path? How might this matter by location, different kinds of housing, and different landlords?
  3. Does this do anything to help address long-standing affordable housing issues in Chicago or is it a slight blip?

Some of these will take time to resolve as will the question of whether rents will go back at some point. In the meantime, many people in many communities are affected by these changes.

The billions owed in back rent in the United States because of COVID-19

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Estimates for how much Americans owe in rent because of COVID-19 are in the tens of billions:

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Estimates for the nation’s total rent shortfall on Jan. 1 range in the tens of billions of dollars, potentially exceeding the amount of emergency rental assistance that Congress may or may not deliver over the next few weeks. If lawmakers fail to act, the New Year could trigger a long-feared disaster — an avalanche of evictions during the dead of winter, as the pandemic rages.

Back rent owed by struggling U.S. households — about 11.4 million renters in all — averages about $6,000 per household, or around three-and-a-half months’ rent, according to Mark Zandi, chief economist for Moody’s Analytics. Most of it has accrued since the expanded unemployment benefits under the CARES Act expired over the summer.

“These are low-income households,” he says. “They’ve probably already borrowed as much as they can from family or friends. They have no resources left.”…

The National Council of State Housing Agencies commissioned its own report on the nation’s overdue rent, arriving at a figure of $34 billion back in September. Stout, the global advisory firm that produced the report, has since issued a biweekly report on households facing eviction, drawing on data from the Census Bureau’s American Community Survey and its weekly Household Pulse Survey. Stout’s tracker currently estimates that 7–14 million households will face eviction for nonpayment in January, with rental arrears totaling between $13–24 billion.

Even if COVID-19 ended tomorrow or the vaccine is quickly distributed, administered, and effective, this is a lingering effect that will take a long time to work through. It will affect renters, landlords, other actors in the real estate market (including lenders and investors) as well as communities if there are unpaid bills and/or people left without housing.

Even as the media coverage of this issue might focus on certain housing markets, the effects could stretch across many markets. Imagine the priciest markets: with high rents to start, how can people make up the money if they do not have jobs or the same income or how could they easily find housing? But, the cheaper markets may run into similar problems: if you cannot afford to pay back rent, how many cheaper housing options or replacement housing options could people find? Given the possibility of regional differences, this might mean more local units of government – states, municipalities – could provide different options that better address local circumstances.

More broadly, this hints at ongoing housing issues that seem to get little attention. Housing is a foundational, daily issue for many and COVID-19 just exacerbates existing issues. Relief money from the federal government may provide temporary help but housing costs and quality need attention in many places.

Example of rent drop in San Francisco: one bedroom down from $4,300 to $3,150

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After hearing of rent drops in Manhattan, I read about one example of rent dropping in San Francisco:

Until the pandemic hit, the city’s housing market was so tight that would-be renters lined up for viewings and arrived with thousands of dollars in cash, ready to sign a lease on the spot.

But now landlords are hard-up for tenants and some are offering several months free, said Coldwell Banker realtor Nick Chen, who recently rented out a one-bedroom for $3,150 that before would have easily gone for $4,300.

“San Francisco rents have been really inflated over the past couple years,” Chen said. “It will come back, but I think the question is: Will it come back to the level it was at previously? Maybe not.”

This is a sizable drop in rent, roughly 25% in a short time frame. Yet, that is still a price that few Americans across the country could meet. Even with significant changes in social life in cities like San Francisco and New York, this does not mean these places are now accessible to many.

Presumably, there is a bottom floor below which rents will not drop. The person who owns the property has their own bills to pay. Some people will see this as an opportunity to get a place in San Francisco at a lower rent and jump at lower prices.

Or, does COVID-19 shift housing prices in high-priced markets for a longer time? If businesses decide to continue work from home and employees are skittish about being around a lot of people in a dense city, do rents drop even further? Is there an opportunity for developers, buildings owners, housing groups, and local governments to jump in and acquire and/or offer cheaper housing? I would not guess expensive housing markets like San Francisco, Seattle, or Manhattan will soon become reasonable but perhaps there will be some opportunities for more people in the region to take advantage.

How far might rent drop in Manhattan and other cities and who will benefit?

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As some people reconsider living in Manhattan and other cities with high housing costs amid COVID-19, how far might rents drop?

According to StreetEasy, the median rent has fallen below $3,000. That is the lowest price since 2011.

The third quarter of 2020 also marked the first time since 2010 that Manhattan, Brooklyn and Queens all recorded year-over-year rent declines.

StreetEasy says renters are no longer willing to pay the so-called “commute premium” of living in Manhattan, because so many people are working from home.

Any rent drop in Manhattan or in New York could provide opportunities for people who even just a short time ago had little chance to live there.

At the same time, dropping below $3,000 for the median suggests that rent is still pretty high. Who can take advantage of this drop? Those with resources to do so, not necessarily people who need affordable or cheap housing. Indeed, if these lower rents quickly induce a number of people to take advantage, then rents could stabilize and head back up.

Perhaps there is little that could actually move rents and housing prices in certain housing markets to a point where many more residents could take advantage. A pandemic is unlikely to lead to the production of more housing and struggles with employment, among other factors, will limit who would move to big cities with temporarily lower prices. At the same time, COVID-19 could help nudge conversations about housing in a productive direction.

Chicago area apartment market continues price increases

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With homeownership still moving downward in the United States, the apartment market in the Chicago suburbs keeps going up in price:

The median net rent in the Chicago suburbs rose to $1.29 a square foot in the fourth quarter, another record, up 4.7 percent from a year earlier, according to a report from Appraisal Research Counselors, a Chicago-based consulting firm. The occupancy rate was 95.3 percent, versus 95.1 percent a year earlier.

Suburban rents have increased five years in a row—they rose 21 percent over that period—as more people have held off on buying a home, either because they can’t get a mortgage or are wary of owning after the housing crash. More recently, the improving job market has boosted demand for all housing, and apartment landlords are getting their share.

On the supply side, new developments are sprouting up from Naperville to Northbrook. Developers completed more than 3,300 apartments in the suburbs over the past year, the most in a decade, and another 2,700 are under construction, according to Appraisal Research…

Yet the revenue side of the equation is about as good as it gets for suburban landlords. Market revenue performance, a metric that combines the occupancy rate and median net rent, hit $1.23 in the fourth quarter, the highest it’s ever been, according to Appraisal Research.

An interesting housing market these days. Starter homes are not being built. New McMansions are back even as older McMansions sell briskly. People are considering disaster chic. The luxury market is booming in big cities like New York.

If apartments are indeed popular because they offer more short-term flexibility, how many suburbs will allow the construction of many apartments? Historically, wealthier suburbs in the Chicago area tend to avoid apartments and their more transient residents. So, I would guess most of these new suburban apartments are actually higher end, the kinds of places appealing to young professionals or the just retired and often located near cultural or transportation amenities like denser downtowns and train stations. If so, more expensive apartments don’t help many in the housing market who still need reasonably priced and conveniently located housing in the Chicago region.

“Peer to peer” car sharing ramps up

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I’ve talked before about how car sharing service Zipcar has freed my wife and me from needing to own a car.  Unfortunately, similar non-ownership options aren’t available to most Americans for the simple reason that Zipcar’s fleet is mostly concentrated in urban centers and around college campuses.  For many suburbanites, the prospect of an inexpensive, on-demand, by-the-hour car rental hasn’t been an actual prospect.

With RelayRides rolling out nationwide this week, however, that may be changing:

Companies like RelayRides…offer a different take on carsharing than the one established by Zipcar and its competitors. While those companies own fleets of cars, RelayRides is entirely peer-to-peer — if you have a car, then you can make it available for rental when you’re not using it. RelayRides says the average car owner makes $250 a month from the program.

Since it takes advantage of the cars already on the road, founder and chief community officer Shelby Clark argues that peer-to-peer carsharing can have a big impact — after all, a fleet-based company couldn’t simply declare one day that it’s launching nationally.

This is potentially very disruptive of Zipcar’s business model.  RelayRides (and other challengers like Getaround) don’t have to go head-to-head with Zipcar in many parts of the country because those markets are utterly unserved.  And even where RelayRides has to go head-to-head with Zipcar, their prices seem comparable.  So long as the reservation process and pickup hassle is roughly the same, I know I would have no problem booking cars through RelayRides.  My purchases within an active market for by-the-hour car rentals would simply be driven by normal consumer considerations like price, convenience, customer service, etc.

Indeed, this is the beauty of the free market, as Leigh Beadon over at Techdirt reminds us:

Nobody is immune—not even the last disruptor. Companies like Zipcar changed the game with their car-sharing services, but they are already facing new challengers….How big and how successful [RelayRides’] approach will become remains to be seen, but it’s a creative idea that makes a clear point: disruption can happen anywhere, to anyone. As the entertainment industry continues to fight progress, experts from every side of the debate love to make profound-sounding statements about how the internet has changed our media consumption habits, but that’s old news. From mobile-based taxi & limo services to the coming era of 3D printers and things like the Pirate Bay’s Physibles site, digital technologies are disrupting a lot of things, not just media.