Affordability has long been a relative term, but housing affordability is a complex issue. One the one side, rising rental rates are good for business, and the real estate and development communities in the Twin Cities, particularly in Minneapolis, point to higher rents as reason enough to keep building downtown high rises and renovating older buildings into chic new apartments.
The other side of the coin, of course, is the fact that higher rents force some potential renter further from the downtown core, and many people just entering the job market find that they cannot afford to rent anywhere near their places of employment. It's a sad fact, notably in major urban centers like San Francisco, Boston and Austin, Texas. It's also becoming so in the Twin Cities, unlike how the commercial real estate market in the region is burgeoning.
The national rule for affordability grew out of the ruling that total housing costs should not consume more than 30 percent of income. The standard dates to about 80 years ago, even though when first used, it was set at 25 percent. Modern analysts suggest that combining housing and transportation costs into one figure, and then upping the limit to 45 percent of income, is more realistic.
Data shows that, in Minneapolis, the "average" for a moderate income family is about 44 percent, confirming the city's "affordable" status against other cities, including Houston and Detroit. St. Paul clocks in at 43 percent.
The trouble with averages, however, is all too apparent. Taking a closer look at available statistics points out some interesting facts:
- Using the older (flawed) 30 percent metric, the percentage of Twin Cities residents who have difficulty making their rent payment has actually declined over the years between 2011 and 2016, from 35 percent to 28 percent.
- Cost-burdened households in Minneapolis fall into distinct groups, and 4 out of 5 in the lowest-income group, those earning less than $20,000 annually, are considered cost-burdened.
- Housing affordability has declined substantially for one income group. Those earning between $20,000 and $34,999, over the same five-year period, saw their inability to afford housing rise from 66 percent to 72 percent.
Apartment Price Realities
Although many explanations for the discrepancies have been advanced, again the facts are relatively clearcut. The Great Recession created additional rental households. Many of those are still renting, and income growth has not been sufficient to keep up with rent increases, potentially pushing households out of the metro area and further into rural Anoka County or elsewhere. Income growth, however, has created households who demand newer rental housing with more amenities, creating another market for higher-rent development.
In some neighborhoods, cost-burdened households have been evicted to make way for even higher-rent new development, according to a story reported by the Minneapolis Tribune in August 2017.
In short, according to Chip Halbach, executive director of the Minnesota Housing Partnership, there is more demand, which accounts for a kind of self-perpetuating spiral. Some of these "demanding" renters might become first-time buyers if there were a larger supply of affordable starter homes on the market. But housing hasn't yet rebounded from its own crisis, even though interest rates remain low, and new starts are up.
So, what's the answer? It's possible that minimum wage increases, and an improving overall economy that includes job growth and a healthy construction market will have a beneficial effect. Until then, however, the one thing that is certain in the Twin Cities is that rental rates for both older apartments and new construction will most likely continue to climb. The average rent increased from $907 in 2009 to $1,046 in 2015. By the third quarter of 2017, that figure had reached $1,210 for a two-bedroom apartment, according to Marquette Advisors' third-quarter review of rental properties