Buying US property is now cheaper than renting it, as low supply pushes up rates for tenants.
Rental affordability is now "as bad as it's even been", warns Zillow's latest report. Indeed, with not enough new units to meet demand, the private rented sector is becoming increasingly expensive for those who are already struggling to afford to buy.
The Zillow Rent Index jumped 3.4 per cent year-over-year in February to $1,355, while the Zillow Home Value Index rose 4.9 per cent year-over-year to $178,700.
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 per cent to 9.6 per cent currently, according to the U.S. Census Bureau.
Renting costs have risen so high, in fact, that it is now cheaper for buyers to purchase a home than rent. US renters can expect to spend 30.1 per cent of their income on rent, while homebuyers can expect to spend about 15.3 percent of their monthly income on a mortgage payment.
The least affordable housing markets are those where new housing permits have not kept up with population growth. Affordability is best, on the other hand, in places that either have slow population growth â such as Detroit â or have met new growth by building new units. Chicago, for example, permitted 906 new housing units in 2012 and 2013 for every 1,000 new residents between 2013 and 2014ii. Chicago renters can expect to spend about 31 per cent of their income on rent, while homebuyers there can expect to put 13.9 per cent of their income toward house payments.
San Francisco is highlighted as one of the country's least affordable housing markets: Zillow's analysis shows that for every 1,000 new residents, there were just 193 new housing units permitted. As a result, residents of the San Francisco metro can expect to spend 44 per cent of their income on rent, or 39.2 per cent on a monthly mortgage payment.
"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," says 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."