SEATTLE, WA - The least affordable housing markets are those where new housing permits have not kept up with population growth, according to a Zillow analysis of U.S. rental and mortgage affordability.
Affordability is best in places that either have slow population growth – such as Detroit – or have met new growth by building new housing units. Chicago, for example, permitted 906 new housing units in 2012 and 2013 for every 1,000 new residents between 2013 and 2014. Chicago renters can expect to spend about 31% of their income on rent, while homebuyers there can expect to put 13.9% of their income toward house payments.
It's easy to see how San Francisco has become one of the country's least affordable housing markets: Zillow's analysis showed that for every 1,000 new residents, there were just 193 new housing units permitted. Residents of the San Francisco metro can expect to spend 44 percent of their income on rent, or 39.2 percent on a monthly mortgage payment.
The short supply is no secret to policy-makers. The mayor of San Francisco has pledged to add 30,000 housing units by 2020, and a Boston city report made a similar recommendation to meet demand with 53,000 new housing units by 2030.
"As the economy continues to improve, more Americans are slowly moving off of their buddies' couches and out of their parents' basements into homes of their own, first likely as renters and then eventually as homebuyers," said Zillow Chief Economist Dr. Stan Humphries. "Unfortunately, the supply of affordable homes, especially affordable rentals, is insufficient in many areas to meet this growing demand. As a result, the competition for those homes that are available can often be fierce, driving up prices and contributing to worsening affordability. More construction will help ease the crunch, and getting a mortgage is also getting easier, which will help more current renters transition to homeownership and further ease rental inventory shortages. But these fixes won't happen overnight."
Since 2000, rents have grown at roughly twice the pace of incomes. Partially as a result, the percentage of Americans citing "cheaper housing" as a reason they moved to a different home has almost doubled since then, from 5.6 percent to 9.6 percent currently, according to the U.S. Census Bureau.
Over the past several years, renting – historically a budget-minded choice – has become increasingly less affordable. Meanwhile, recovering home prices, along with historically low mortgage rates, have made buying more affordable than it was historically, on a monthly basis. Zillow's February Real Estate Market Reports showed home values up 4.9 percent year-over-year to a Zillow Home Value Index of $178,700. U.S. rents rose 3.4 percent to a Zillow Rent Index of $1,355.