Image of the day: renting vs. owning in the US
Data visualization from the Economist
The Economist: Is it cheaper to rent or buy property? From November 2023.
For years new homebuyers in America have enjoyed lower housing costs than renters. Between 2011 and 2020 the monthly mortgage payment on a typical home was 12% lower than the rental for a similar property (assuming a deposit of 13%, the current national average).
Since 2020 nominal house prices have climbed by roughly 40%, while the average 30-year fixed-rate mortgage rose from 3.1% to 7.3%. Nominal mortgage payments have more than doubled since 2020; rents have risen by only about 20%. By our calculations, for 89% of Americans renting a two-bedroom place is now cheaper than buying a comparable property. Three years ago the figure was 16%.
The good-news part of the story is that more rental supply in the US is keeping rents from rising too much:
Rents, meanwhile, seem unlikely to climb much, owing to a glut of newly built apartments and weak demand.
Have economists ever modelled how much downward pressure you'd get on rents from an actor willing to take even a small loss on building and renting? I think there's a lot of reluctance to build when there's no clear high profits to be had. (The "actor" I have in mind is government, of course, I don't believe in fairies.)
Isn't it inevitable that rents will rise to match costs of owned housing, as new builds become a bigger proportion of the rental stock?
On another note, see Brian Palmquist's interesting piece (brianpalmquist@substack.com) on the new building at 2nd and Spruce, which was approved as 'affordable housing' 2.5 years ago, with $31.8 million in provincial funding, and where the cheapest STUDIO is $2499/mo. Affordable for a household income of about $100k/yr.
We seem to be in housing cloud cuckoo land... will any conventional calculations on the effect on cost of rentals of addition of new housing stock hold up in this environment?
Really heads should roll over the debacle on Spruce Street...