A recent report from CoreLogic showed that home prices increased 4% year over year in December, and projected the U.S. price index will rise by 5.2% by December 2020.
As home prices continue to rise nationally, it’s little wonder that Freddie Mac’s latest “Profile of Today’s Renter and Owner” found that the majority of current renters believe renting is more affordable than owning.
However, the percentage of renters who hold that belief has increased dramatically in the past year.
A whopping 84% of renters said they believe renting is more affordable than owning – an all-time high for the survey. For comparison, this number is up 17 percentage points from February 2018.
The survey also found that affordability issues affect the average renter more than a homeowner. Freddie Mac said there are 42% of renters who paid more than a third of their household income on rent.
This is compared to only 24% of homeowners who spend that amount on mortgage payments.
But there is good news for renters looking to own. Given current low interest rates, 40% of renters said they plan to purchase a home.
“The housing market is strong and, based on our survey, the low mortgage rate environment may inspire both renters and owners to make an educated move this spring,” said David Brickman, Freddie Mac CEO. “While Baby Boomers tend to be satisfied with their current housing situation, younger generations are still struggling to determine whether to rent or purchase a home, largely due to lack of supply and affordability constraints.”
And that lack of supply stretches beyond single-family housing. Last year saw record-high occupancy rates in multifamily housing with a shortage of supply. Naturally, this drove rent growth. Many of the renters surveyed by Freddie Mac voiced their worry in this area.
Almost 70% of renters said they are growing more concerned about their rent going up in the next 12 months, while 68% are concerned about not being able to afford their larger expenses. Even so, according to the majority surveyed, renting is still the more affordable option.
Renting is now only slightly cheaper than owning a home, according to a new study.
Median rent was $1,319 per month nationwide, while the median mortgage was $1,600 per month at the end of 2019. Compared to the previous year, rent rose 4%, while mortgage payments declined 1%, according to a new study by Realtor.com that analyzed housing costs in 593 U.S. counties with populations over 100,000.
“Lower mortgage rates really benefit the buy side of the equation. The fact that rates are down is really helping narrow the gap between buying and renting,” said Danielle Hale, chief economist at Realtor.com.
Monthly payments are cheaper for renters in 84% of the counties analyzed. In these counties, home prices were 260% higher than the national median price, while rents were only 79% more.
But the gap in renter-friendly counties is narrowing even faster than it is in the rest of the country. With rents in Brooklyn, New York City, and Santa Cruz, Calif. decreasing 24%, 20% and 18%, respectively — compared to the 2.8% decrease nationally.
“In these areas, the markets are so large and well established that, for the most part, buying comes with a huge premium. These tend to be markets that attract not only homeowners and investors but international investors, too — like New York and California,” said Hale about these counties, including Santa Barbara, Calif., Monterey, Calif., San Mateo, Calif., and San Francisco, Calif.
Monthly mortgage payments were actually cheaper for buyers compared to renters in 16% of the counties analyzed, up from 12% of counties the year prior. In those counties, like Clayton, Ga. and Baltimore City, Md., homes were 53% cheaper than the national median of $300,000. Rents in those areas were only down 11% from a year ago.
“In these areas, there are a lot of homes available for homeownership and not a lot of rental inventory. The country is facing limited building and a lack of housing availability, but these areas don’t tend to have those issues,” said Hale, referring to those counties, which include Cumberland, N.J., Richmond, Ga., and Vigo, Ind. More than 25 counties, including Cleveland, Bronx County, N.Y., Indianapolis, and Columbia, S.C., joined the list of buyer-friendly locations in 2019.
Sarah Paynter is a reporter at Yahoo Finance. Follow her on Twitter @sarahapaynter
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Ashley Shannon can fit all her earthly possessions into a suitcase and a duffel. The 23-year-old got rid of nearly all her stuff when she moved from Kansas to Los Angeles after college.
“I feel so good without it,” Shannon said of downsizing her wardrobe and book collection. But she’s held onto some sentimental items, like “Harry Potter and the Sorcerer’s Stone,” the first chapter book she read as a kid. Today, she keeps the boy wizard on a shelf near her bed, in the few square feet of personal space she has.
For much of the past year, Shannon has lived at an upscale hostel called PodShare, paying $1,000 a month ― less than half the average cost of a one-bedroom apartment in the city ― for a bunk in a large room occupied mostly by other young people. For that, she gets free utilities, basic toiletries, coffee and food staples like peanut butter and ramen noodles.
Staffers living onsite clean up after guests and even cook meals with them. And the guests come from all over ― New York, Venezuela, Japan. They share bathrooms, a kitchen and common rooms.
There’s not much in the way of privacy ― and sex is pretty much banned in the bunks. But some of them do fall in love. One former PodShare resident, LaDavius Carson, met his now-wife there last year. On their wedding day, in July, they returned to PodShare to pose for photos on the couch where they had their first date.
This is not a lifestyle in which everyone would thrive, but it works for Shannon, who earns $40,000 a year, roughly 30% below the city average, as a personal assistant to a hypnotherapist. She likes living with a rotating cast of people and she doesn’t feel like she’s throwing away her money.
PodShare, which rents 220 beds across five LA locations and one in San Francisco, is one of a growing number of new “co-living” spaces: where people have their own tiny bedroom or sleep in a larger shared room in properties usually controlled by a management company.
As the housing crisis intensifies in booming coastal cities, these co-living spaces are emerging as an alternative for people who want to live near urban cores but are otherwise priced out. They appeal especially to young professionals building their careers, who often have paychecks too small and student debts too large to buy a house or afford skyrocketing rents.
Many co-living companies say they have deeper aims, too, claiming to be fostering friendships and community, something PodShare’s founder Elvina Beck calls “anti-loneliness.” They’re onto something: A recent poll found that 30% of millennials are lonely ― higher than any other age group.
Shannon said she formed such close bonds with other PodShare renters that two months after she moved into her own studio apartment earlier this year, she broke her lease and returned to the bunks. “It’s a great network [of people],” she said. “I missed it so much when I moved out.”
Starcity, another well-known co-living brand, renovates old hotels and office buildings in LA and San Francisco and offers private rooms that range from $1,300 to over $2,000. “Those numbers might sound high,” CEO Jon Dishotsky told HuffPost, but they’re well below the average rent on a studio apartment in these pricey cities. Dishotsky says Starcity designs the layout of its co-living spaces so that people congregate and socialize in the shared kitchen and living room areas instead of heading straight for their bedroom.
And Common, which operates 30 buildings in six of the country’s largest cities and offers apartments at 15%-20% below the average monthly rent, advertises itself as “built for community.”
But for all the “win-win” tone of the marketing, critics say the new trend for co-living is simply a new way of repackaging a very old concept of shared housing in order to take advantage of the housing crisis and people’s growing sense of disconnection. “Co-living is purely a new way for developers to squeeze profit from an already broken housing market,” Hannah Wheatley, a researcher on housing and land at the New Economics Foundation, told The Guardian.
Co-living companies may sell these experiences as a new kind of minimalist lifestyle, but shared living is nothing new. In the 19th and early 20th centuries, workers could rent a cheap space in a residential hotel, boarding house or rooming house. Some of these dwellings were dingy and dirty, others resembled simplified versions of modern co-living developments ― the major difference is that they were mostly run by individuals or families, while today’s are increasingly managed by national brands, said Alan Durning, founder of the think tank Sightline Institute.
“The gig economy and venture capitalism have made this kind of disruption seem exciting, new and trendy,” he said. “We have co-working, and now we have co-living.”
And this trend is clearly divisive. When LA Controller Ron Galperin visited one of PodShare’s locations in early September and tweeted about it as an “innovative solution” to the city’s housing crisis, he received a flood of negative responses. Many balked at the idea of paying $1,000 a month for a bunk with minimal privacy; a few likened it to a dystopian nightmare. CNN Business featured a video piece on the company in July and received similar comments.
$1,000/28 days for a bunk bed is not “affordable”
— Fix Your Hearts or Die (@Sarcasmorator) September 9, 2019
Beck stands by her business model, saying that PodShare’s prices are dependent on the rents the company has to pay on the building. “We all know housing is unaffordable, but we also know that we need many options,” she said in a YouTube video in response to the backlash. “Because rent is so high, people are having to come together.”
There is no firm count of all the co-living units in America, but a 2019 report by real estate firm Cushman & Wakefield identified 3,000 beds at seven large, venture capital-backed co-living companies. Actual numbers are likely much higher, since this analysis did not include boutique operations like PodShare or Upstart Creative Living, which rents rooms for under $900 to creative professionalsin LA.
The study did include Common and Starcity, as well as other brands such as the East Coast-based company Ollie; the German brand Quarters; London-based The Collective; and the luxe WeLive, a byproduct of the troubled co-working giant WeWork. All have locations in at least two major cities and, combined, plan to add another 16,730 beds in the next couple of years, per the report.
Most of these brands say they aim to create affordable housing, but even so, the rates are often still out of reach for many low-income renters. Other co-living spaces specifically aim to attract higher-earners. In New York, WeLive’s Wall Street location, for example, offers rooms for $3,000 a month.
There are early-stage efforts to make co-living more directly accessible to low-income renters, however. Last year, New York City’s Department of Housing Preservation and Development launched a pilot program asking private developers to submit ideas for nontraditional apartments ― including micro units and co-living arrangements ― that would cater to low-income people while offering some of the amenities and community activities of upscale facilities. The affordable housing agency hopes to draw on the success of residential hotels and boarding houses of the past, as well as the rise of co-living spaces in expensive neighborhoods across the city.
“There’s a demand out there for different living situations,” Leila Bozorg, deputy commissioner for neighborhood strategies at the agency, told HuffPost. The agency hopes to announce its selected plans this fall.
For her part, Beck says that her company is more accessible to less-affluent people than her competitors. Though PodShare’s San Francisco location exclusively houses people who work in the city’s high-paying tech sector, Beck told HuffPost that the majority of people at PodShare’s LA locations are not well-off.
One PodShare renter, who spoke to HuffPost on the condition of anonymity, said she’s living day to day, unemployed and at risk of sleeping on the street. She dreads checking into a homeless shelter. In March, the 41-year-old lost the apartment she’d been renting and, before learning about PodShare from a friend, spent huge amounts of money on hotels and motels.
“One hotel I stayed at was $175 a night. Ridiculous,” she said. A single night at PodShare is $50. It’s $40 a night if she books for the whole week.
She was surprised to learn that a place like this exists. “I thought a hostel was somewhere you stayed when you’re traveling,” she said.
She’s been renting at PodShare on and off since May. It feels safe there, she said. People are respectful. She can do laundry and cook nutritious meals for herself. Her bunk is comfy. It all makes her long days of job searching easier.
“What I have right now is basically a normal life,” she said. She plans to stay until she gets a job and can move into her own place.
“We don’t have to force people into our model of a single-family home with a white picket fence. That model is not environmentally sustainable, and it doesn’t fit everybody’s life,” said Shamus Roller, executive director of the National Housing Law Project. But, he cautioned, co-living is not a perfect solution for everyone and it shouldn’t be thought of as a magic bullet for the housing crisis. “It’s a good idea that shows just how deep the problems are with the housing market as a whole.”
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