Recently while at my favorite Denver watering hole, I was again reminded of the prevailing unease around housing costs. It all started with a random comment and the subsequent conversation with the woman next to me at the bar which yielded a not-so-surprising revelation: that we’re both from the same hometown of Columbus, Ohio. After engaging in the ceremonial mantra of Ohio State alums which involves beginning and ending each sentence with ‘Go Bucks,’ I learned that she was a newly minted transplant to the Mile High City. She went on to note that her excitement around the rich opportunities available for mountain hiking expeditions, skiing and other outdoor activities here had been tempered by something that caught her completely off guard when she moved here. She said:
“I had no idea that housing was going to be this expensive when I relocated here. The substantial raise that I received from my employer with this promotion and transfer is now gone!”
Frankly I wasn’t all that shocked to hear this common refrain because Denver’s meteoric population growth has led to a corresponding rise in housing costs. Home prices aside, rental apartments rates are hotter than the blistering rays of the high altitude sun. And for those scrambling to locate a new abode, it’s been all-out war as anxious bidders compete with one another for available units in the tight rental market.
Like many cities, Denver is in the midst of an unprecedented construction boom as builders burn the midnight candle in an attempt to mitigate the swelling demand. In fact, the city has more than 86 projects under construction, and is currently poised to build more apartment properties than at any point over the past 40 years. Since the end of 2009, rents have soared by about 40%.
The unfortunate reality for many renters, not only in Denver but in other parts of the nation, is that rental prices have increased at roughly twice the pace of average hourly wage growth, which has hovered at a paltry 2.1% over the past year. Millennials are taking the full force of this hit, according to findings by Harvard University’s Joint Center of Housing Studies, which found that a shocking 46% of renters ages 25 to 34 (the epicenter of the millennial cohort) is coughing up more than 40% of their income on rent, up from 30% a decade ago. It should be noted that the housing industry generally regards a figure above 30% as being financially burdensome.
Back to the bar just for a moment. My conversation with the fellow Ohioan seated next to me sent my mind off to random thoughts about my own housing situation. Much of this has been informed by previous accounts shared by friends about their travails in locating suitably priced places. One common theme seems to be landlords who tour several rental suitors at once in a manner akin to a group date on the show The Bachelorette. Listening to reports back from friends who have experienced this, it quickly becomes clear that the spoils often go to those who have a wad of upfront cash.
Following a fresh round of drinks, states like Texas, Idaho and Indiana came to mind as being places with reasonable housing costs. I found myself confronted with an interesting question, namely, whether it was better to live in a low cost-of-living city with low pay or a high cost-of-living city like San Francisco where you can make bank. Ahhhh, I thought, I’ve had one too many margaritas so its best to set that question aside until I can approach it with a clear head.
In pure economic terms, housing costs are fundamentally about supply, demand, and location. The point here is that low housing inventories in a particular geographical market allow rental companies and landlords to jack up rates to levels which ensure a maximum return on their investment. An example of this is in the toney Cherry Creek North area of Denver where I had the opportunity to view a luxury apartment right in the heart of this very desirable district. After a brief walk through the 850 square foot unit situated in a high-rise building boasting majestic mountain views, I gathered my wits and inquired of the rental agent about the price. She retorted, “It’s only $5,500 a month,” with a gleam in her eye which confidently suggested that I was the ideal candidate for this unit. “And I’m excited to tell you,” she continued, “that it includes a parking spot, which is a rare amenity here in Denver.” My reaction? Let’s just say that I damn near soiled my pants as I responded with “it seems like a great place. But it’s really not a good match for me at this time.”
Perhaps the most tragic piece in this housing cost conundrum is that home ownership rates are shrinking mightily, and have been on a downward trajectory for years. A number of recent housing studies suggest that Americans are waiting longer than ever to purchase their first home, with young Americans the ones being most affected. This is indicative of the financial challenges facing Millennials amid low wage employment opportunities which make it virtually impossible to save for a down payment. In addition to being cash poor, many are unsettled in their careers and their lives with milestones like marriage or children being relegated to an afterthought.
As an aside, just this morning as I was preparing to write this article, I crossed paths with another stranger, this time over coffee. On cue, after I asked him how his morning was, he began rambling on about the challenging rental housing market here in Denver and his solution to the problem. “It’s called government rent controls, just like they have in New York,” he blurted out for all in the coffeehouse to hear. After I gathered my thoughts over a sip of my exquisitely brewed coffee, I responded: “Just want you know that I respect your solution. But honestly, I personally believe that private property owners have a right to charge as much as they damn well please. At the same time, we as renters have a choice as to where we live and who we choose to rent from, based on price and other mitgating factions. That my friend is the beauty of free will and free markets”.
With an obvious look of frustration on his face, he reluctantly winked and nodded in agreement.
“Hey,” I said, “you’re not alone!”
Michael Scott is a Denver based writer specializing in feature stories on the intersection between free markets and social and economic freedom He can be reached on Twiiter @biz_michael