Wednesday, March 9, 2016

Housing: Part 124 - Incomes After Rent

Some of this will be a repeat of previous posts, but this is a sort of primer on the difference between median income growth and median income growth after rent over the past 30 years or so.

This graph compares median incomes before and after rent in Boston, Dallas, and the US.  We can roughly divide this into three periods.
  • Until the late 1990s, gross incomes were a decent proxy for income growth after rent expenses.
  • From the late 1990s until the end of the (mislabeled) housing bubble, constricted housing in the most productive cities became a binding constraint, so disposable income growth after rent expense did not rise as quickly as gross incomes, especially in constrained cities like Boston.*
  • In 2007, we killed the mortgage market, so now housing supply is constrained across the country, and income after rent is stagnant across the country.
This graph probably understates the problem somewhat, because there has been net migration of high income households into the constrained cities and low income households out of the constrained cities, so some of the relative positive trend in income in Boston is due to compositional effects.  I have more work to do on that topic to quantify it, but the pattern looks like it could be significant.

Some of the financial pressure might be ameliorated by rent control policies.  But, having a landlord who resents your presence and is unmotivated to make your tenure satisfying is hardly a recipe against class resentment.

* Total housing units per adult has been falling, generally, since 1990.  Comparing this graph to the graph above, the rise and fall in total housing units per adult matches pretty closely with the relative cost of rents.  More housing units means higher incomes after rent, and vice versa.  How can there have been a decline in relative housing units during a period regarded as a bubble?  This is because everyone was watching the sharp rise in new single family home sales.  But, that was mostly rising as a replacement for owner-built homes, manufactured homes, and multi-unit housing units, which were all at much lower levels than they had been in the past.  We thought we were watching the measure of overbuilding, but we were really watching the replacement of single family homes in Dallas for the multi-unit homes that we can't build anymore in Boston.  First I doubted that there was a housing bubble.  Now, I don't even think there was a boom.

1 comment:

  1. Great graphic. Great post. We are booming our way to less housing per resident.