Study Finds Rising Operating Expenses Lead to Rent Increases, Housing Costs Outpace Income Growth
- Oct 14, 2008
By Erika Schnitzer, Associate EditorWashington, D.C.–Rising expenses for multifamily owners may be causing rent increases, according to a new study by the Center for Housing Policy. The report, “Stretched Thin: The Impact of Rising Housing Expenses on America’s Owners and Renters,” is co-authored by Barbara J. Lipman, research director, and Maya Brennan, research associate, both of the Center for Housing Policy, a research affiliate of the National Housing Conference.The study found that, from 1998 to 2004, the consumer price index rose 16 percent, while the average cost of insurance rose 97 percent, taxes rose 25 percent, marketing costs increased by over 25 percent and administration costs increased by 34 percent.Lipman, however, believes that “the fundamentals are still there, especially on the rental side. We haven’t really increased our supply of rental housing stock since the beginning of the decade, and I do think there will be a strong demand for rental housing,” especially given the current economic crisis.Even before the latest spike in the cost of gasoline, the rise in transportation expenses has increased over 33 percent in the last decade. As a result, “there is renewed interest in demand for housing near transit,” Lipman tells MHN. “There is a cost to location, so I think building multifamily housing near transit is something that can be done to reduce to the cost to condo owners or renters.”Lipman notes that exurban areas, which primarily consist of single-family housing, have seen the highest transportation costs, as well as high clusters of foreclosures.Additionally, green building may play an important role in decreasing some operating costs, thereby reducing rents. It’s better for both owners and renters to make units more energy-efficient, notes Lipman. “If that curtails at least some of the [utility] increase, there might be a good marketing opportunity on some level, given all the interest in being green and energy-efficient.”For both homeowners and renters, rising housing costs are outpacing income growth. Between 1996 and 2006, homeowner incomes increased 36 percent while housing expenses–including mortgage payments, utilities, property taxes, insurance and maintenance–rose 66 percent. Specifically, mortgage payments increased 46 percent, utilities increased 43 percent, property taxes increased 66 percent and property insurance increased 83 percent. Meanwhile, renters’ housing expenses increased 51 percent, while their income increased by only 31 percent. For both homeowners and renters, the percentage of income devoted to housing expenses increased. For homeowners, this figure was 26.2 percent in 2006, up from 21.5 percent in 1996, while renters spent 29.4 percent of their income, compared to 25.6 percent a decade ago. Additionally, one in six households spent more than half of their income on housing in 2006.