(WJBF) — The dream of buying a home is becoming increasingly out of reach for millennials due to low inventory and the growing gap between wages and housing affordability, including rentals.
Analysts say the housing and rental market is starting to cool, but all the data shows that making housing affordable enough for millennials, whether they rent or buy, may not be enough.
Stagnant wages and purchasing power
Living wages haven’t increased much in decades for most average Americans. Wages have only increased by 6% since 2014 according to the United States Bureau of Labor Statistics.
A study by the Pew Research Center, however, shows that the rich got richer while the poor stayed poor. The top 90th percentile of Americans saw their pay rise while everyone else stayed the same. Since 2000, those at the top have seen their salaries rise by more than 15%, five times what a low-income American would earn. Those at the bottom have barely seen a 3% increase in their wages in 22 years.
The National Low Income Housing Coalition says renters need to earn an average of $21.25 an hour to afford a modest one-bedroom apartment, which isn’t good news if you’re earning less than that. Georgia’s gross minimum wage currently sits at $5.15 an hour and has been for decades (although most employers are subject to the Federal Fair Labor Standards Act and the current Federal Minimum Wage i.e. $7.25 per hour).
While Americans’ wages are higher than they were 50 years ago, data shows purchasing power has remained largely the same. So, although Americans are making more money, the decades-long rise in the cost of everything has widened the affordability gap, and now a dollar doesn’t stretch as far as it once did.
Rising rents and housing shortage
While hourly wages haven’t kept pace with rent, Zillow shows that the median rental price has more than quadrupled since 2014. Data shows that millennials are most affected by this.
Data compiled by Filterbuy shows that even before a recent spike in rental prices, “the gap between the cost of a typical rental and what the typical worker can afford based on their income has widened” .
The COVID-19 pandemic has not been kind to tenants. Additionally, rising costs and inflation as the country tries to rebound from a shutdown at the start of the pandemic has pushed millennial homebuyers further away from homeownership. Rising mortgage interest rates and a lack of housing inventory have caused millennial renters to compete with families for rental units who for one reason or another cannot buy or afford to rent. to buy a house.
ApartmentList says that although millennials are “the biggest generation in the country”, they have the lowest rate of ownership and the “pressure is trickling down to the rental market”. Rent prices have increased by almost 18% since the start of the pandemic, and “the rapid growth in rent prices is a key driver of overall inflation”.
In 79 of the 100 largest cities in the United States, rents are rising month over month.
Unaffordable housing and postmen
With homeownership out of reach for most millennials and Gen Z adults, studies show that homeownership is now less important to both generations than it was to their predecessors.
A December 2021 survey from ApartmentList shows that just 34% of millennials considered homeownership important to their personal success, and Gen Z even less than that at 23%. This was compared to 41% for Gen X, 45% for Baby Boomers and 43% for the Silent Generation.
And affordability remains the biggest issue for millennials. ApartmentList found that more than 70% of millennials surveyed said they couldn’t afford to buy a home right now, and nearly 80% of them said that not being able to afford a house would mean they would rent forever.
The National Association of Realtors reports that the median home price in July 2022 was $403,800, up nearly 11% from the same time last year, when the median price was $364,600 and saw declines. year-over-year increases every month since 2012.
Data also shows that millennials have the least savings to pay a down payment on a home. More than two-thirds of respondents, or 66%, have no savings for a down payment. This was compared to only 16% who had more than $10,000 and only 18% who had less than $10,000.
Another factor, according to CNBC, that rising student debt may also factor into millennials’ inability to afford homeownership, as it directly affects their ability to save.
Unaffordable cities and metros
Some of the largest metropolitan areas in the country had the biggest gap between rent and income, making it even more impossible for millennials to afford to rent a one-bedroom apartment.
CNBC found eight areas to be the least affordable for millennials, including Los Angeles, Miami, San Diego, Orlando, San Francisco, New York, San Jose and Riverside, California. The majority of towns where millennials cannot afford rent are along the west coast and in coastal areas.
Nashville, Denver, Seattle, Sacramento, Tampa, Boston and Portland are other areas where there was a significant wage gap among renters.
Georgia and South Carolina
Despite an increase in rental prices, the millennial rent-to-income ratio in Georgia and South Carolina is still not very bad compared to other parts of the country.
The wage gap for millennial renters is larger in Georgia than in South Carolina. The largest metropolitan wage gap is in the Atlanta area, while Augusta is at the low end.
We must preface, however, that the graph below uses data from two years ago when the US Census Bureau conducted the 2020 census and released its 5-year estimates. It hasn’t factored in inflation and rising rental costs since then.
Nearly 25% of millennials in Augusta in 2020 were renting, with their median salary being $28,000. To afford a modest one-bedroom apartment in Augusta in 2020, you would only need around $30,000 per year. The median price for a 1-bedroom apartment in Augusta in 2020 was $765.
Of course, rising rent costs and inflation mean millennials need more than estimated to afford a basic apartment here in Augusta. According to Rent.com, the average rent in Augusta unsurprisingly exceeded the five-year estimate put in place by the US Census Bureau in 2020.
Currently, as of August 2022, the average cost of a 1-bedroom apartment in Augusta is $1,022, up 8% since 2021. Rent in Augusta ranges from $969 for a studio to $1,249 for an apartment 3 bedrooms on average.
But, as historical data shows, it’s likely that the median salary hasn’t increased much, if at all, over the past two years.