Why Are Boston Rents So High?
Rents in Greater Boston are higher and it’s a trend that happening in cities across the country.
According to a report from Trulia, it takes 43% of the average wage in Boston to be able to afford a two-bedroom apartment. In San Francisco, it’s up to 51%, and in Miami, at the top of the list, it takes 62% of the average wage to be able to afford a two bedroom apartment.
The report says the median rent for a 2 bedroom apartment in Boston is now $2,300.
We saw this same thing happened during the last housing boom when people started spending even over 50% of their income on their mortgage. When mortgages got too high, a credit bubble got created, then eventually burst, and many went into renting. Now the very same thing is beginning to happen with rentals. Many renters are realizing that buying is now more affordable than paying rent. Interest rates are currently at their lowest point in six months, For instance, at the current interest rates, the monthly payment on a $350,000 home would be $1,712, 26% cheaper than the average monthly rent in Boston.
Why is This Happening?
There has been a continuous increase in demand for both regular and luxury apartments in Greater Boston. There are more baby boomers downsizing and moving into the city, and more young professionals moving into the area due to the influx of high-tech jobs. With such high demand, there is a lot of new construction of luxury apartments in the area.
Homeownership in the U.S. is Down—But This Won’t Last
The homeownership rate in the U.S. declined to the lowest in almost 19 years for the first quarter of this year, according to the U.S. Census Bureau.The report said 64.8% of homes in the U.S. are owner-occupied, which is the lowest since the second quarter of 1995. So when homeownership is down the amount of renters is inevitably up. More renters equals more demand and more demand drives up the rents. This is why rents have been going up for four years as the homeownership rate goes down. We think that the homeownership rate has probably bottomed out or is close to it. Two things will happen over the next few years that will bring make rents more affordable again:
- More supply- developers are building and planning to build large apartment complexes all over Boston and the country. As more supply comes on it will eat up the demand.
- Less demand- Now that renting is becoming more expensive than owning many renters will be buying which will decrease the demand.
Most Affordable Areas in Greater Boston
There are some areas in Greater Boston that are more affordable and very desirable for renters. Watertown is one of them. There has been a boom in new apartment construction along the Pleasant Street Corridor in Watertown. The apartments in these complexes are less expensive than similar units in Boston and start at $1,950. Two of these complexes, The Watertown Mews and Alta at the Estate, are also currently accepting applications for more affordable units. These affordable units would cost $1,182 a month for a 2 bedroom unit. Apartment rentals in Quincy are also below the average rents in Boston. The average rent for a 2 bedroom unit is $1,735 and Quincy has several stops on the Red Line. North of Boston, Medford apartments are also affordable and has access to the Orange Line. The average rent in Medford is $1,941.
Source: U.S. Census Report