16 ms·

Renting in America Has Never Been This Expensive

80 points by uptown 11y ago

smoyer 11y ago
"Exceptions include the Silicon Valley area in California, where homeowners and renters each devote 42 percent of income to housing costs." Single engineers and DINKs in the SF area should be buying if they're expecting to stay any real length of time. Price corrections when the housing market collapsed may not have helped SF like it did in other areas of the country but mortgage rates are dirt cheap and rent versus own pricing is at parity.
- drewg123 11y ago
  My family and I lived in Mountain view for 2 years. We knew we'd only be there for a year or two, and decided to rent, not buy. After two years, we'd sunk $120K into our rental. Meanwhile, a friend bought a house at the same time for $1.3M and sold it just before we left for $1.6M. Even after real estate commissions, taxes, mortgage interest (which is tax deductible) and upkeep, I'm sure he came out well ahead of us.
  - mlpinit 11y ago
    The market doesn't always move in that direction. Your friend could have been in a much different position if he invested at a different point in time. If you take into account the real estate commission + recordation fees, your friend probably payed about 120k-130k. Also take into account the mortgage interest and the opportunity cost of the money he could have otherwise invested in this crazy bull market and your friend probably just barely broke even. This is in a great market, imagine what would have happened in a bad market to him...
  - abalashov 11y ago
    Your friend just got lucky. I bought in May of 2007 and ended up $50k underwater with a 6.5%/8.25% mortgage.
- hkarthik 11y ago
  I totally agree. I just moved my family of 4 to the Bay Area and we chose to just buy outright, despite the huge sticker shock and more limited availability. To meet our needs (space + good schools + public transit commutes to SF) we were looking at upwards of $4K/month to rent a dilapidated shack where we'd likely have to give up our family dog to qualify as renters. And then be subject to 4-5% increases per year from the landlords. Paying an extra $1K/month and getting both the mortgage interest deduction + property tax deduction made far more financial sense. And we actually got more choices in terms of better quality housing for our family.
- twright0 11y ago
  > mortgage rates are dirt cheap and rent versus own pricing is at parity. I think you're discounting the down payment factor. As a single engineer in SF, I could afford the monthly payment on a mortgage, but putting down 20% of a $1m house is beyond me and probably will be for a while (a few years). The other trick is concern about this being the peak or close to the peak of the housing bubble in SF - so if I drop that kind of cash into a house, the market might collapse leaving me with property worth substantially less than what I'm paying.
leeoniya 11y ago
who at bloomberg thought it would be a good idea to pollute my browsing history as i scroll between articles. ugh. at least use replaceState instead of pushState
iamthepieman 11y ago
This is true even in rural areas. I bought a house 2.5 years ago and have a monthly payment (including taxes and insurance) that is about 20% less than an equivalent monthly rental. I didn't want to buy a house. I wanted to keep renting and retain the flexibility and freedom that renting gave me. It just no longer made sense financially. What are the underlying reasons for the disparity between rental and home ownership costs? Obviously low interest rates are one and rented houses that were bought by their owners at higher interest rates reflect that in their price. But surely this would eventually normalize if rates stay low. There must be something else since the relatively low cost of home ownership should be putting downward pressure on rental rates.
- johnminter 11y ago
  There is a lot more to housing cost than monthly payment (for P&I), taxes and insurance. Landlords also must pay for repairs, hedge against costs to evict those who do not pay and or trash the place, pay for water, sewer, garbage disposal, lawn care, snow removal - unless the lease puts those responsibilities on the tenant. People often underestimate these other costs when buying a home and become what we used to call "house poor." There are other good reasons to be cautious about homeownership. Typically, one must stay in a home for 5 years to break even on closing costs. Jobs typically are not that stable these days. It is often less expensive to sublet/get out of a lease than it is to find a willing, qualified buyer.
- herge 11y ago
  Even very cheap houses still require a mortgage. If mortgages are harder to get since the sub-prime crisis, more people will be forced to rent than to own. By the law of offer and demand, that would raise rents and lower housing costs.
- breischl 11y ago
  It is always the case that the monthly cost to buy is lower than rent. It has to be, because the rent is covering the cost of repairs and depreciation which isn't included in your mortgage payment. And then there needs to be some left over to cover vacancies, and some profit for the landlord. Clearly in some markets buying is legitimately a better deal. But most people do a fairly cursory and incomplete analysis before coming to that conclusion. 20% is actually not a very large margin. Depending on how much your house cost, and how much your rent was, it may have actually been cheaper to rent.
groutexpectatio 11y ago
Multiple factors figure into why the rent is so high, but from a government policy standpoint, I'm interested in "the decision by consumers to rent over purchase" but what is more likely, that in spite of low mortgage rates, a number of buyers are not eligible for credit from private lenders. The other policy piece that I think is interesting is the private housing market's ability to deliver housing choices-- what are developers producing, are they producing luxury units, are they producing affordable options in high enough quantity, and are developers inhibited by government regulation in delivering a diversity of housing choices.
- SlalomStallone 11y ago
  I'm definitely in the "rent over purchase" group, even though I could get a mortgage with good terms. I think people are a bit nervous to purchase a home after seeing what happened in 2008.
  - smoyer 11y ago
    I think it depends on where you're buying your house. The value of my house dipped slightly in 2008/2009 but is now about 12% higher than it was in 2007. Buying a home is still a good long-term investment but you have to be in a position to hold onto it (perhaps by renting it out after you vacate it).
    - SlalomStallone 11y ago
      Mostly the interest and upkeep that are keeping me away from purchasing. If I bought a 200k house, in 5 years I would have paid 43k in interest and still owe 180k on the mortgage (according to some amortization table I found), and probably many thousand more fixing stuff that breaks. After 30 years I will have paid $164,813 in interest, so even if the house doubles in value it doesn't seem like a great investment. Am I missing something? Maybe I'm not understanding it correctly but it doesn't seem like that great of a deal.
- PopeOfNope 11y ago
  in spite of low mortgage rates, a number of buyers are not eligible for credit from private lenders. It could possibly have something to do with the largest group that traditionally bought houses in the past are now too busy paying off their student loans.
rm_-rf_slash 11y ago
Understated in these discussions is the role of landlords. In Ithaca, NY, where I live, people's proportion of income going towards housing by some counts surpasses Manhattan and San Francisco. Yes, it's a college town with students already accepting the huge cost of tuition and throwing rent on the debt pile. Yes, the city is hemmed in by a lake to the north and hills to the rest. But there are like three landlords in the entire city. One in particular, Jason Fane, is notorious for jacking up prices on his Ithaca properties as collateral for his investments in China. Meanwhile, Collegetown is becoming increasingly split between obnoxiously priced condos and old houses that look more depressingly decrepit with each passing year.
- WillyF 11y ago
  My 9 roommates and I paid $60k a year for one of those decrepit old houses--and this was 10 years ago. At $500 per month each, it didn't seem that bad, but we really got ripped off. The density of college living (for instance I had to walk through a roommates room to get to mine) allows landlords in Ithaca to get a level of rent that they'd never get from families or older individuals.
- Labyrinth 11y ago
  I too live in a college town and have felt the same impact of landlords charging insane rates. Right now I am currently living in one where if say some part of the property is damaged or needs replacing all tenants will pay. Even though I don't use it or it is not my fault, the landlord divides the repair bill among all tenets as a "overage fee". So a laundry machine breaks, not your fault but you'll pay regardless.
astrocyte 11y ago
It's simple ... Everyone got 'hip to the game' of extorting other people's productivity vs. being productive themselves (aka rent at elevated prices) > The housing bubble that blew up was re-inflated to keep tax revenue alive and keep the economy afloat (High entry cost warranting high rents) > Fed rates have been kept low attracting speculation > Tons of investment firms got into property management/real-estate > Money seeks easiest method of return.. My father once said "People will always need a roof over their head" > The U.S is pumping immigrants in hand over fist to offset lowered U.S birth rates (to keep the hamster wheel turning) > Housing is a need and, as such, there is a ton of room to exploit people... (Markets they call it) The funny thing about people highlighting wealth inequality is that those in the middle exploiting the crap out of each other for their own gain don't get the huge role they are playing in the over-all outcome. Meanwhile, it's those at the top who are making the lion's share of the profit while the dummies below eat each other. Of course, this eventually ends in tears but myopia causes one to ignore that and get what you can while the good is still gettin'. Bay area landlord "I heard your salary went up.. Your rent has just went up too" A true zoo.. and to think what American society would be like if we were trying to elevate each other as opposed to coming up with creative ways to exploit and keep others down. Instead of focusing on academic or economic interpretations, the biggest thing manifesting is : greed/selfishness/lack of comprehension of a greater whole
- zardo 11y ago
  We also set up regulations to make building truly dense affordable housing impossible. Where it is possible, it offers lower returns than low density luxury housing.
  - pc86 11y ago
    > [affordable housing] offers lower returns than low density luxury housing. Not true - as a RE investor you're always looking for around 1% of the property's value per month as rent ($1 in rent per month for every $100 the property is worth). Much below that and you're not going to have sustainable cash flow. It is much, much easier to get $1k per month in rent from five $100k properties than it is to get $5k per month from a $500k property. Especially in areas with high property values (California), you're lucky to break 0.4-0.5%, which is not going to support any meaningful level of investment, only speculation. Which in turn helps drive a cyclical market, which helps pump up the higher end home values, which further hurts cash flow, etc etc. Lower value housing may offer lower returns in an absolute sense but as a far as ROI it's much easier to make it on the lower end of the scale.
sliverstorm 11y ago
My unproven suspicion is this is the consequence of the much-celebrated flight from the suburbs and return to the city. - Take a large population spread over a big area. - Consider that they are used to 2,000sqft homes and not the 300sqft apartments of decades long past - Squish them all into cities Boom, you've got yourself runaway prices.
- staticint 11y ago
  I agree with you entirely. I read recently that the population growth of downtown Toronto has tripled in the past five years. Assuming that is a trend consistent with most major North American cities, the cost of housing has to compensate.
  - wj 11y ago
    I don't read this site very often but did read this article about renting vs. buying using Toronto as an example. With his math you come out way ahead by renting in a new building downtown vs. buying a house in the suburbs. http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/ http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/ Of course, you might not agree with his math.
  - kevin_thibedeau 11y ago
    It isn't. Toronto has been building new housing at a rate higher than any other North American city. The city is filled with cranes everywhere. The growth is just from people filling up the newly created space. Something that isn't happening elsewhere on such a scale.
- hardcandy 11y ago
  Thanks to zipcar, uber, postmates etc it's becoming easier than ever to survive without a car. That's traditionally been a huge expense. Now those dollars can be redirected to housing instead.
  - sliverstorm 11y ago
    To what end though? Housing prices are just a bidding war to allocate desirable real estate. More and more wealth becomes trapped in real estate. It's an effective market-based method for allocating scarce resources- a classic tactic. But I'm beginning to wonder. America's real estate is worth ~$25T. Suppose property was simply assigned. An unfair system, probably vulnerable to corruption and nepotism and such, but on the other hand that's $25T that can be invested in other pursuits. What might that additional liquid $25T do for us? A gross oversimplification to be sure, and perhaps completely wrong-headed. But it seems like the key difference from many other bidding wars is the money doesn't leave the system. When I sell my house, I probably take the proceeds to buy another house. The seller of that house takes his proceeds, to buy another house, and so on. It seems rare that anyone downsizes houses, and takes the proceeds out of the market.
gglover 11y ago
I miss the super saturated double gradient Bloomberg used to have on their banners and feature images after the redesign.
dharma1 11y ago
not just in America, I think we are seeing the same in many major economies of the world - London, China, Australia, Brazil (house price vs income ratio being significantly higher than before) Good for those of us who own property but not so great for the rest, and makes you wonder whether it's sustainable.
- jazzyk 11y ago
  Of course it is not sustainable and will end in tears. Governments around the world have been (re)-inflating asset prices by keeping interest rates artificially low (far below even the official inflation rates, never mind the real ones). This causes an ultimately speculative stampede into assets (stocks, real-estate, etc)
hellofunk 11y ago
It wasn't explicitly mentioned, but I assume they are referring to a percentage of gross income, not net (after taxes) income? 50% of gross is gigantic, which would be a much higher percentage of your take-home pay. I remember as a student in NYC many years ago, some friends would spend about 70% of their take-home pay on rent, which on average would probably be half their gross, give or take. So I guess the numbers make sense, but that is still hard to imagine.
iamthepieman 11y ago
I think this is caused by a couple of things. Artificially low interest rates (insofar as the fed rates are artifical) Banks less willing to loan money to anyone that doesn't fit a narrow financial profile. Individuals and business with access to existing capital can get money extremely cheaply (see points 1 and 2 above) This creates a stratification that makes it difficult for one group of people to enter the real estate market and easy for another group to enter and speculate in it. The group without access to loans obviously must rent even if they would like to buy. This inflates the demand for rentals thus raising their price. The group with capital/access to loans can buy real estate with the express purpose of renting it taking homes off the market (decreasing supply, raising prices and further pushing up the bar for home ownership). This is even more attractive because of the increased demand and price for rental units. Of course by increasing the supply of rental units this should counteract rental prices but under the current circumstances I think there's a feedback loop that favors rising rental prices and entering/expanding the landlord business.

80 points by uptown 11y ago

"Exceptions include the Silicon Valley area in California, where homeowners and renters each devote 42 percent of income to housing costs." Single engineers and DINKs in the SF area should be buying if they're expecting to stay any real length of time. Price corrections when the housing market collapsed may not have helped SF like it did in other areas of the country but mortgage rates are dirt cheap and rent versus own pricing is at parity.

drewg123 11y ago
My family and I lived in Mountain view for 2 years. We knew we'd only be there for a year or two, and decided to rent, not buy. After two years, we'd sunk $120K into our rental. Meanwhile, a friend bought a house at the same time for $1.3M and sold it just before we left for $1.6M. Even after real estate commissions, taxes, mortgage interest (which is tax deductible) and upkeep, I'm sure he came out well ahead of us.
- mlpinit 11y ago
  The market doesn't always move in that direction. Your friend could have been in a much different position if he invested at a different point in time. If you take into account the real estate commission + recordation fees, your friend probably payed about 120k-130k. Also take into account the mortgage interest and the opportunity cost of the money he could have otherwise invested in this crazy bull market and your friend probably just barely broke even. This is in a great market, imagine what would have happened in a bad market to him...
- abalashov 11y ago
  Your friend just got lucky. I bought in May of 2007 and ended up $50k underwater with a 6.5%/8.25% mortgage.
hkarthik 11y ago
I totally agree. I just moved my family of 4 to the Bay Area and we chose to just buy outright, despite the huge sticker shock and more limited availability. To meet our needs (space + good schools + public transit commutes to SF) we were looking at upwards of $4K/month to rent a dilapidated shack where we'd likely have to give up our family dog to qualify as renters. And then be subject to 4-5% increases per year from the landlords. Paying an extra $1K/month and getting both the mortgage interest deduction + property tax deduction made far more financial sense. And we actually got more choices in terms of better quality housing for our family.
twright0 11y ago
> mortgage rates are dirt cheap and rent versus own pricing is at parity. I think you're discounting the down payment factor. As a single engineer in SF, I could afford the monthly payment on a mortgage, but putting down 20% of a $1m house is beyond me and probably will be for a while (a few years). The other trick is concern about this being the peak or close to the peak of the housing bubble in SF - so if I drop that kind of cash into a house, the market might collapse leaving me with property worth substantially less than what I'm paying.

leeoniya 11y ago

who at bloomberg thought it would be a good idea to pollute my browsing history as i scroll between articles. ugh. at least use replaceState instead of pushState

iamthepieman 11y ago

This is true even in rural areas. I bought a house 2.5 years ago and have a monthly payment (including taxes and insurance) that is about 20% less than an equivalent monthly rental. I didn't want to buy a house. I wanted to keep renting and retain the flexibility and freedom that renting gave me. It just no longer made sense financially. What are the underlying reasons for the disparity between rental and home ownership costs? Obviously low interest rates are one and rented houses that were bought by their owners at higher interest rates reflect that in their price. But surely this would eventually normalize if rates stay low. There must be something else since the relatively low cost of home ownership should be putting downward pressure on rental rates.

johnminter 11y ago
There is a lot more to housing cost than monthly payment (for P&I), taxes and insurance. Landlords also must pay for repairs, hedge against costs to evict those who do not pay and or trash the place, pay for water, sewer, garbage disposal, lawn care, snow removal - unless the lease puts those responsibilities on the tenant. People often underestimate these other costs when buying a home and become what we used to call "house poor." There are other good reasons to be cautious about homeownership. Typically, one must stay in a home for 5 years to break even on closing costs. Jobs typically are not that stable these days. It is often less expensive to sublet/get out of a lease than it is to find a willing, qualified buyer.
herge 11y ago
Even very cheap houses still require a mortgage. If mortgages are harder to get since the sub-prime crisis, more people will be forced to rent than to own. By the law of offer and demand, that would raise rents and lower housing costs.
breischl 11y ago
It is always the case that the monthly cost to buy is lower than rent. It has to be, because the rent is covering the cost of repairs and depreciation which isn't included in your mortgage payment. And then there needs to be some left over to cover vacancies, and some profit for the landlord. Clearly in some markets buying is legitimately a better deal. But most people do a fairly cursory and incomplete analysis before coming to that conclusion. 20% is actually not a very large margin. Depending on how much your house cost, and how much your rent was, it may have actually been cheaper to rent.

groutexpectatio 11y ago

Multiple factors figure into why the rent is so high, but from a government policy standpoint, I'm interested in "the decision by consumers to rent over purchase" but what is more likely, that in spite of low mortgage rates, a number of buyers are not eligible for credit from private lenders. The other policy piece that I think is interesting is the private housing market's ability to deliver housing choices-- what are developers producing, are they producing luxury units, are they producing affordable options in high enough quantity, and are developers inhibited by government regulation in delivering a diversity of housing choices.

SlalomStallone 11y ago
I'm definitely in the "rent over purchase" group, even though I could get a mortgage with good terms. I think people are a bit nervous to purchase a home after seeing what happened in 2008.
- smoyer 11y ago
  I think it depends on where you're buying your house. The value of my house dipped slightly in 2008/2009 but is now about 12% higher than it was in 2007. Buying a home is still a good long-term investment but you have to be in a position to hold onto it (perhaps by renting it out after you vacate it).
  - SlalomStallone 11y ago
    Mostly the interest and upkeep that are keeping me away from purchasing. If I bought a 200k house, in 5 years I would have paid 43k in interest and still owe 180k on the mortgage (according to some amortization table I found), and probably many thousand more fixing stuff that breaks. After 30 years I will have paid $164,813 in interest, so even if the house doubles in value it doesn't seem like a great investment. Am I missing something? Maybe I'm not understanding it correctly but it doesn't seem like that great of a deal.
PopeOfNope 11y ago
in spite of low mortgage rates, a number of buyers are not eligible for credit from private lenders. It could possibly have something to do with the largest group that traditionally bought houses in the past are now too busy paying off their student loans.

rm_-rf_slash 11y ago

Understated in these discussions is the role of landlords. In Ithaca, NY, where I live, people's proportion of income going towards housing by some counts surpasses Manhattan and San Francisco. Yes, it's a college town with students already accepting the huge cost of tuition and throwing rent on the debt pile. Yes, the city is hemmed in by a lake to the north and hills to the rest. But there are like three landlords in the entire city. One in particular, Jason Fane, is notorious for jacking up prices on his Ithaca properties as collateral for his investments in China. Meanwhile, Collegetown is becoming increasingly split between obnoxiously priced condos and old houses that look more depressingly decrepit with each passing year.

WillyF 11y ago
My 9 roommates and I paid $60k a year for one of those decrepit old houses--and this was 10 years ago. At $500 per month each, it didn't seem that bad, but we really got ripped off. The density of college living (for instance I had to walk through a roommates room to get to mine) allows landlords in Ithaca to get a level of rent that they'd never get from families or older individuals.
Labyrinth 11y ago
I too live in a college town and have felt the same impact of landlords charging insane rates. Right now I am currently living in one where if say some part of the property is damaged or needs replacing all tenants will pay. Even though I don't use it or it is not my fault, the landlord divides the repair bill among all tenets as a "overage fee". So a laundry machine breaks, not your fault but you'll pay regardless.

astrocyte 11y ago

It's simple ... Everyone got 'hip to the game' of extorting other people's productivity vs. being productive themselves (aka rent at elevated prices) > The housing bubble that blew up was re-inflated to keep tax revenue alive and keep the economy afloat (High entry cost warranting high rents) > Fed rates have been kept low attracting speculation > Tons of investment firms got into property management/real-estate > Money seeks easiest method of return.. My father once said "People will always need a roof over their head" > The U.S is pumping immigrants in hand over fist to offset lowered U.S birth rates (to keep the hamster wheel turning) > Housing is a need and, as such, there is a ton of room to exploit people... (Markets they call it) The funny thing about people highlighting wealth inequality is that those in the middle exploiting the crap out of each other for their own gain don't get the huge role they are playing in the over-all outcome. Meanwhile, it's those at the top who are making the lion's share of the profit while the dummies below eat each other. Of course, this eventually ends in tears but myopia causes one to ignore that and get what you can while the good is still gettin'. Bay area landlord "I heard your salary went up.. Your rent has just went up too" A true zoo.. and to think what American society would be like if we were trying to elevate each other as opposed to coming up with creative ways to exploit and keep others down. Instead of focusing on academic or economic interpretations, the biggest thing manifesting is : greed/selfishness/lack of comprehension of a greater whole

zardo 11y ago
We also set up regulations to make building truly dense affordable housing impossible. Where it is possible, it offers lower returns than low density luxury housing.
- pc86 11y ago
  > [affordable housing] offers lower returns than low density luxury housing. Not true - as a RE investor you're always looking for around 1% of the property's value per month as rent ($1 in rent per month for every $100 the property is worth). Much below that and you're not going to have sustainable cash flow. It is much, much easier to get $1k per month in rent from five $100k properties than it is to get $5k per month from a $500k property. Especially in areas with high property values (California), you're lucky to break 0.4-0.5%, which is not going to support any meaningful level of investment, only speculation. Which in turn helps drive a cyclical market, which helps pump up the higher end home values, which further hurts cash flow, etc etc. Lower value housing may offer lower returns in an absolute sense but as a far as ROI it's much easier to make it on the lower end of the scale.

sliverstorm 11y ago

My unproven suspicion is this is the consequence of the much-celebrated flight from the suburbs and return to the city. - Take a large population spread over a big area. - Consider that they are used to 2,000sqft homes and not the 300sqft apartments of decades long past - Squish them all into cities Boom, you've got yourself runaway prices.

staticint 11y ago
I agree with you entirely. I read recently that the population growth of downtown Toronto has tripled in the past five years. Assuming that is a trend consistent with most major North American cities, the cost of housing has to compensate.
- wj 11y ago
  I don't read this site very often but did read this article about renting vs. buying using Toronto as an example. With his math you come out way ahead by renting in a new building downtown vs. buying a house in the suburbs. http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/ http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/ Of course, you might not agree with his math.
- kevin_thibedeau 11y ago
  It isn't. Toronto has been building new housing at a rate higher than any other North American city. The city is filled with cranes everywhere. The growth is just from people filling up the newly created space. Something that isn't happening elsewhere on such a scale.
hardcandy 11y ago
Thanks to zipcar, uber, postmates etc it's becoming easier than ever to survive without a car. That's traditionally been a huge expense. Now those dollars can be redirected to housing instead.
- sliverstorm 11y ago
  To what end though? Housing prices are just a bidding war to allocate desirable real estate. More and more wealth becomes trapped in real estate. It's an effective market-based method for allocating scarce resources- a classic tactic. But I'm beginning to wonder. America's real estate is worth ~$25T. Suppose property was simply assigned. An unfair system, probably vulnerable to corruption and nepotism and such, but on the other hand that's $25T that can be invested in other pursuits. What might that additional liquid $25T do for us? A gross oversimplification to be sure, and perhaps completely wrong-headed. But it seems like the key difference from many other bidding wars is the money doesn't leave the system. When I sell my house, I probably take the proceeds to buy another house. The seller of that house takes his proceeds, to buy another house, and so on. It seems rare that anyone downsizes houses, and takes the proceeds out of the market.

gglover 11y ago

I miss the super saturated double gradient Bloomberg used to have on their banners and feature images after the redesign.

dharma1 11y ago

not just in America, I think we are seeing the same in many major economies of the world - London, China, Australia, Brazil (house price vs income ratio being significantly higher than before) Good for those of us who own property but not so great for the rest, and makes you wonder whether it's sustainable.

jazzyk 11y ago
Of course it is not sustainable and will end in tears. Governments around the world have been (re)-inflating asset prices by keeping interest rates artificially low (far below even the official inflation rates, never mind the real ones). This causes an ultimately speculative stampede into assets (stocks, real-estate, etc)

hellofunk 11y ago

It wasn't explicitly mentioned, but I assume they are referring to a percentage of gross income, not net (after taxes) income? 50% of gross is gigantic, which would be a much higher percentage of your take-home pay. I remember as a student in NYC many years ago, some friends would spend about 70% of their take-home pay on rent, which on average would probably be half their gross, give or take. So I guess the numbers make sense, but that is still hard to imagine.

iamthepieman 11y ago

I think this is caused by a couple of things. Artificially low interest rates (insofar as the fed rates are artifical) Banks less willing to loan money to anyone that doesn't fit a narrow financial profile. Individuals and business with access to existing capital can get money extremely cheaply (see points 1 and 2 above) This creates a stratification that makes it difficult for one group of people to enter the real estate market and easy for another group to enter and speculate in it. The group without access to loans obviously must rent even if they would like to buy. This inflates the demand for rentals thus raising their price. The group with capital/access to loans can buy real estate with the express purpose of renting it taking homes off the market (decreasing supply, raising prices and further pushing up the bar for home ownership). This is even more attractive because of the increased demand and price for rental units. Of course by increasing the supply of rental units this should counteract rental prices but under the current circumstances I think there's a feedback loop that favors rising rental prices and entering/expanding the landlord business.