It’s getting increasingly difficult for renters to save money for their first home.
That’s according to a National Association of Realtors report released last month that found rental costs have outpaced wages in many cities. The study looked at 70 metropolitan areas from 2009 to 2014.
In St. Louis, rents went up about 10 percent during that period, while wages for 25-44 year-olds rose 9.5 percent, according the NAR study. Still, that was well below the leaps in rental costs experienced in New York, Seattle and San Jose, Calif. where rents rose by 50, 32, and 25 percent respectively, far outpacing wages.
NAR chief economist Lawrence Yun said when rents rise, it typically is a tipping point for well-qualified renters to consider home ownership. That isn’t happening right now.
"We have a situation where rents are rising too strongly and hence it could be eating into people’s savings," Yun said. "So it’s hard to save for a down payment and that hinders the possibility of converting into ownership."
Buying a first home
The picture is likely more nuanced, according to Charles Gascon, regional economist for the Federal Reserve Bank of St. Louis. He said young people are waiting longer to purchase their first home and following the recession, owning a home is not the key to financial security it once was considered.
"Home ownership can be a risky investment," Gascon said. "For some people maybe it’s a better idea to rent."
While rental costs have increased in St. Louis, Gascon said the NAR’s data only includes market-rate apartment buildings with more than 40 units. He said when single family home rentals and smaller apartment buildings are included, the increase is likely closer to 6 to 7 percent in St. Louis. Meanwhile, he said the average per capita income increase in the metro area for all ages between 2009 and 2014 was about 12.5 percent.
Still, Gascon said it’s true that rental costs have increased.
"The stories we’ve been hearing and reports I’ve read is, yeah, people are getting squeezed and they are putting a higher percentage of their budget toward rent," he said.
More new construction
The NAR’s solution to bring rental costs down is to start building more apartment buildings and homes. Yun said home prices are also rising faster than income, in part because there’s not enough housing stock.
"We’ve been at half the normal pace in new home construction for the past seven years and this accumulation of under production is beginning to show up in high rents and high home values," he said.
At least when it comes to apartment buildings, construction in St. Louis is taking off. New apartment projects such as The Standard in Midtown, and the Central West End Luxury Apartments by The Opus Group and City Walk on Euclid are under construction. Several other projects are on the drawing board elsewhere.
"There’s definitely momentum with new projects that are hitting the St. Louis market," said Matt Bukhshtaber, senior vice president at CBRE, a real estate investment firm.
Whether that will ease rental costs, Bukhshtaber said that’s hard to say.
"I think it’s so market-driven," he said. "I don’t think we’d be able to predict that."
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