In recent years, the plight of renters in a stagnant economy has been covered extensively. A book title incorporated the phrase “the rent is too damn high” (by Matthew Iglesias). The “Rent is Too Damn High Party” ran candidates in both city and state of New York elections. However, as bad as rent increases have been, more serious has been the escalation of house prices in the major metropolitan areas of the United States.
The Expected Nexus
Generally, a closely aligned relationship between trends in owner occupied and rented housing costs would be expected . This was certainly true until 1970 (Note 1). In 1949 there was a 135 percent difference between the lowest median household value and the highest in the major metropolitan areas (Note 2). There was a similar 114 percent difference between the lowest gross rent and the highest (Figure 1). The house value variation was 18 percent higher than the rent variation.
By 1969 median house values varied a maximum of 134 percent from the lowest figure to the highest, a slight reduction from the 135 percent difference across the United States in 1949. Median gross rents varied a maximum of 107 percent among the same metropolitan areas, down modestly from 1949’s 114 percent (Figure 2). The house value variation was 25 percent higher than the rent variation.
The close relationship between the variations in house value and rent was substantially broken in more recent decades. The 2015 American Community Survey shows that the variation among the major metropolitan areas in median house values is now a staggering 509 percent. The range between the least expensive and most expensive rental markets is a much smaller 158 percent (Figure 3). The difference in the variations between house value and rents across the nation rose to 222 percent, nearly nine times the 1969 figure.
Among the 10 metropolitan areas with the largest house price increases between 1969 and 2015, house values increases averaged 226 percent, nearly 350 percent more than the 65 increase in median rents, both figures inflation adjusted (Figure 4).
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