How 2020 Changed Housing Affordability

Over the last year:

• Three out of four Americans living in counties with a median annual income below $65,000 saw rents increase
• Six out of ten Americans living in counties with a median annual income greater than $100,000 saw rents decrease
• Rents in suburban and rural counties outpaced rents in urban counties by about 7% on average
• Expensive cities saw rents decline while more affordable cities saw rents climb

Introduction

As of March 2021, a full year has passed since the coronavirus pandemic hit the United States. An overwhelming amount of evidence has shown that the pandemic and subsequent recession were defined by inequality. Those towards the bottom of the income distribution faced adverse outcomes such as higher rates of infection and unemployment. Meanwhile, those towards the top have remained relatively unaffected.

Housing is another facet in which the pandemic has disproportionately harmed lower income Americans. The country currently faces a looming eviction crisis. An estimated $33 billion was owed in back rent by 6 million Americans as of March of 2021 according to Moody’s Analytics– an average of about $5,300 per person. There is plenty of evidence that this enormous sum of back rent is disproportionately owed by less affluent Americans and racial and ethnic minorities. According to the latest Household Pulse Survey from the Census, 20% of households earning less than $30,000 were behind on rent payments, while only 12% of households earning $30,000 or more were behind. Additionally, 20% of Black and Hispanic households were behind on rent, compared to only 11% of White households.

The Biden administration’s recently passed American Rescue Plan contains $21.6 billion to help cover back rent and utilities. But an approximate $11 billion of owed back rent would persist after this federal assistance, and it will likely continue to accumulate in the coming months. This owed back rent will likely still lead to an eviction cliff in the near future despite the nationwide eviction moratorium recently being extended to the end of June.

This all paints a drastic picture for American renters and housing affordability in 2021. However, the pandemic likely affected housing affordability in another way- through rental prices. With a year’s worth of data on rents, the rest of this article discusses how rental market trends brought on by the pandemic likely had an adverse affect on housing affordability in the US.

A Brief Recap

Soon after the pandemic hit the US in March 2020, the labor market crashed and the economy entered a recession. Additionally, many employers limited in-office gatherings and expanded work from home policies in an attempt to limit the spread of the virus. As a result, a significant number of people moved out of expensive, urban markets due to either financial hardship or the ability to work remotely. The most popular destinations these urbanites moved to were cheaper, less-urban, neighboring locations. These destinations saw substantial increases to housing costs due to the influx of new demand. Meanwhile, the urban markets that people left saw substantial housing cost decreases.

In the rental market, the more expensive a city’s pre-pandemic rent was, the more likely it was to decrease. Inversely, the cheaper a city was pre-pandemic, the more likely rents went up. This relationship can be visualized by comparing median rent prices in each city right before the pandemic (February 2020) to the growth in those median prices since the pandemic. The chart below shows this relationship for the 100 cities tracked in the Zumper National Rent Report.

2020 Rental Market Trends Likely Decreased Housing Affordability

The above chart shows that the most expensive parts of the country saw significant decreases to rental prices, while historically cheaper places saw rents rise. However, rental prices are highly correlated with income so expensive cities where rents dropped the most are also some of the most affluent cities in the country. Conversely, cheaper cities where rents increased have less affluent populations in general. Thus, 2020 gave rise to a divergence between rents and income, which likely led to an aggregate decrease in housing affordability in the US.

This divergence can be seen by comparing rent changes and incomes across the country. The chart below shows changes in 1-bedroom median rent compared to median household incomes at the county level in 2020. Data for all counties in which Zumper had sufficient coverage (at least 50 listings in February 2021 and February 2020) are included. The result is a sample of 410 counties, which represent about 70% of the US population. Zumper’s listings skew toward urban areas, so many less populous, rural counties are missing in the data. However, a vast majority of Americans are represented since there is ample coverage in populous counties, and a significant amount of non-urban and rural counties represented in the data as well.

The above plot provides some interesting insights into how housing affordability changed in 2020.

First, there was a clear inverse relationship between income and rent growth in 2020- less affluent counties tended to see rents grow while more affluent counties tended to see rents decline. Fitting a trendline to this data weighted by each county’s population results in a slope of -1.6% per $10,000 (p<0.001, r2=0.09). This implies that for every $10,000 increase in a county’s median income, rent changed about 1.6% less, on average. This trend is denoted by the dashed line in the above plot. 

Secondly, the extremes of this trend paint a somewhat alarming picture. Consider the differences between Santa Clara County, CA and Wayne County, MI- two regions with populations of a similar size. Santa Clara County- fueled by an exodus of people out of the Bay Area– saw one of the largest rental price decreases in 2020 at -21%. However, Santa Clara County is part of  Silicon Valley, and is one of the wealthiest counties in the country with a median household income of $133,000 in 2019. Wayne County, MI, home to Detroit, is substantially less affluent with a median household income of $51,000. However, rents increased 22% from a year ago in Wayne County- almost the exact opposite amount from Santa Clara County. Despite falling on opposite ends of the income distribution, rents went down dramatically for wealthy Santa Clara County but increased dramatically for less affluent Wayne County. 

In general, this systematic disconnect between income and rent growth in 2020 across the country likely resulted in an aggregate decrease in housing affordability. 

However, rents did not increase for all lower income Americans and decrease for all higher income Americans. Another effect at play is the divergence in rent change between urban and non-urban places. Counties where rents declined tended to skew more urban while counties where rents increased tended to skew less urban. There were a cluster of counties with median income levels below $70,000 that benefitted from urban price declines in 2020 such as Cook County, IL ($69K, -4%), Miami-Dade County, FL ($55k, -7%), and Bronx County, NY ($41K, -4%). Similarly, there were some very wealthy suburban counties that saw rents increase, such as Loudoun County, VA ($152K, +8%) and Suffolk County, NY ($106K, +6%).

Even when comparing counties of the same level of urbanization, the relationship between rent growth and income is still strong. “Controlling” for urbanization yields a trendline of -2.1% per $10,000 increase in median household income (p<0.001, r2=0.23). The implication is that rents increased more in less affluent urban areas as well less affluent rural areas.

Additionally, outliers to the relationship between rent growth and income can be explained by the “neighboring cities” effect. This effect is a 2020 migration pattern where people who moved out of hyper-expensive regions generally moved to nearby places that were relatively cheaper. The neighboring cities effect in New York City, for example, explains two significant and opposite outliers to the above trend: Kings County, NY and Nassau County, NY. Kings County is essentially the borough of Brooklyn while Nassau County is the wealthy, suburban portion of western Long Island that borders Queens. Kings County, in line with the rest of New York City, experienced a large outward migration in 2020. A significant amount of people that left NYC moved to suburban places like Nassau County that had relatively cheaper rents, despite incomes being higher there, on average. The result is that people abandoned an expensive, urban, less wealthy area (Kings County), for a cheaper, suburban, more wealthy area (Nassau County).

Despite these additional phenomena, the takeaway from the above plot is clear: a large portion of lower income Americans saw their rents go up in 2020 while many more affluent Americans saw their rents go down. Below is a table showing data points at the extremes of this trend- where rents rose or fell the most in 2020:

This Housing Affordability Shift is Unique to 2020

Typically, percentage rent change and income have no relationship because rents grow at a constant percentage on average, or the trend is reversed in times when rents have grown faster in higher income, urban areas. In 2019, for instance, the relationship between percentage rent change and income was flat, or non-existent (-0.3%, p>0.1, r2=0.007).

In 2020, the unique migration patterns brought on by the pandemic caused the relationship between income and rents to change, resulting in a decrease in housing affordability.

Rents Increased in the Suburbs and Rural Areas

As mentioned above, rent growth in 2020 differed in urban and non-urban areas. Many people moved out of dense, expensive, urban areas to relatively cheaper, neighboring locations. In addition to cheaper prices, popular destinations also typically offered more space per dollar than places that people left. The increased demand for more space at a lower price was likely related to expanded work from home policies, particularly in urban areas. As employees started commuting to workspaces less and began both living and working in their residences, they searched for living spaces that would accommodate these new needs.

In general, this coalesced as a migration to the suburbs and more rural parts of the country, which caused rents in these regions to significantly outpace rents in urban areas. In the chart below I show average annual rent changes across counties of varying degrees of urbanization using the National Center for Health Statistics (NCHS) Urban-Rural Classification Scheme for Counties.

The takeaway here is clear- rents grew substantially in suburban and rural regions while rents stagnated in urban areas. This largely also explains the inverse relationship between income and rents in 2020. Rural areas experienced substantially more rental growth than urban areas, but also are substantially less affluent.

In California, for instance, rents decreased in the affluent counties that make up the San Francisco Bay Area and the Los Angeles area. Meanwhile, rents increased in most other counties outside these wealthy areas. Growth was most highly concentrated near the Tahoe area in Placer County (+29.8%) and El Dorado County (+19.6%), Fresno County (+20.5%), Santa Cruz (+15.0%), and regions outside of Los Angeles including Kent County (+15.6%) and San Bernardino County (+12.8%). These counties all include at least one urban area in some sense, but they are also large counties that include swaths of rural California.

The county level map below shows annual rent changes in California for all available counties:

Conclusions

The coronavirus pandemic and subsequent recession had a much higher impact on lower income Americans than it did on higher income Americans. Housing has become less affordable for lower income Americans and communities of color due to unemployment and financial hardship. However, the pandemic also left lower income Americans worse off by systematically altering rent prices across the country- leaving more rural and suburban renters facing substantially higher rents.

The recent rental and unemployment assistance in the American Rescue Plan and previous assistance from the Cares Act will go a long way to lift this burden- but it may not be enough. 2020 shifted the field in regards to cost of living, and that shift will likely be felt by lower income Americans in 2021 and beyond.

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