Providence Ranked One of the Most Expensive Places to Rent, Adverse Effect on Long-Term Wealth
Tuesday, July 30, 2019
The implications of growing the American “renter economy” are playing out in Providence.
A new study ranks Providence poorly for rental affordability -- and the implications are significant for Rhode Islanders trying to build wealth.
“One reason this is such an important decision financially is that rental prices have soared over the years, jumping 2.7% in the past year alone. And with demand for affordable housing exceeding supply, more than one-quarter of all renters – 11 million people in total – spend more than 50 percent of their income on housing. They are classified as 'severely cost-burdened' by federal housing agencies as a result," according to WalletHub.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTProvidence's Apartment Complex
Rhode Island's policy has been to invest heavily in apartments -- higher-priced apartments like the recently opened River House which received more than $10 million in Rebuild incentives, tax breaks from the state and a tax stabilization agreement from the City of Providence. River House is just one of a number of high profile apartment projects to receive millions in incentives and carry rents at $1,500 to $3,000 a month.
Homeownership rates for younger Americans -- Gen-Xers, Millennials and below -- have dramatically fallen since the “Great Recession,” reports the Wall Street Journal.
“The median age of a home buyer is 46, the oldest since the National Association of Realtors began keeping records in 1981. Economists, policymakers and mortgage lenders expect the trend to extend to younger generations. The decline illustrates what for many Americans is the real legacy of the financial crisis,” reported the WSJ.
High Rental Costs in Providence Consume Income
Providence’s rental prices are among the most unaffordable — Providence ranks the 37th most unaffordable city on the list.
And a second study released this month by Zumper finds that a one-bedroom rental in Providence is now $1,430 on average — up two percent month over month.
And a two-bedroom is now $1,580 — up 3.9 percent year over year.
Providence rentals are more expensive than Philadelphia, Orlando, Dallas or even Austin. Further adding to Providence’s rental unaffordability — is the proximity to Boston.
According to Zumper, Boston is the 4th most expensive rental market in the U.S. with one-bedroom rents at $2,450 and two bedrooms rents at $2,840.
Boston workers are living in Providence and commuting to Boston. With Boston salaries, the commuters can rent at a higher price point driving the Providence costs up.
Much of Providence’s new rental product — projects like the recently opened River House - have rents at nearly $2,000 a month. Apartment.com lists rents for the property Studio – 1 Bed $1,895 – $2,240.
Renters Struggle to Build Wealth
The implication of the “renters economy” is the inability to save for a down payment, own a home and build equity.
“Lower homeownership for young adults means lower economic growth,” said Sam Khater, chief economist of mortgage-finance giant Freddie Mac. “That’s it in a nutshell.”
“Millennials aren’t making up for lost home equity in other investments. The median net worth for young families plunged by nearly a third from 2001 to 2016 after adjusting for inflation, according to the Federal Reserve,” reports the WSJ.
One of the factors for homeownership is the wealth of the parents. As an example, a three-bedroom house of the East Side of Providence on Sessions Street near Nathan Bishop Middle School and across from the Brown football stadium is price at $489,000.
A similar 4 bedroom home on Catherine Street in Elmhurst is priced at $359,000.
“Homeownership stability matters. Young adults with stable homeowner parents are most likely to be homeowners. This result is particularly concerning for black families, as the homeownership rate among black households headed by 45-to-64-year-olds (who are most likely to be parents of young adults ages 18 to 34) significantly dropped over the past 15 years,” reports the Urban Institute in a study titled, “Intergenerational Homeownership, The Impact of Parental Homeownership and Wealth on Young Adults.”
“Homeownership rates for young people are near their lowest levels in more than three decades of record-keeping. About 40% of young adults, ages 25 to 34, were homeowners in 2018, according to federal data analyzed by Freddie Mac. That is down from about 48% in 2001, when Gen X-ers were young adults. Some economists calculate the decline is actually even steeper,” reports the WSJ.
