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The Reason Behind Your Soul-Crushing Rent

NYC apartment
NYC apartment

NYC apartment

 

Putting pen to paper has never been so excruciating. As you reluctantly etch “1,200” next to that bold dollar sign, a part of your soul dies. The concerts, day trips and happy hours that could have been flash before your eyes, leaving you with a studio apartment/closet and canned soup for lunch. You’ve just paid rent, and now you’re going to the bar.

If this sums up your first-of-the-month ritual, you’re not alone.

Rent prices have been creeping up in nearly every major city across the country. The average rent for an apartment rose by 3.4 percent in the second quarter of 2014, topping out at $1099 per month. This marks the 18th consecutive quarter of rent increases in the U.S.

Rising rent prices and flat income levels are making it that much more difficult for young professionals to achieve financial independence.

 

First, Some Background

 

As with stagnant wages and the rising cost of college, there’s a long and boring explanation for soul-crushing rents. Our hope is that a logical break down of rent prices will keep you from plotting your landlord’s death and fleeing to Antarctica.

We’ll start with the basic supply and demand.

According to a May 2015 report from the NYU Furman Center, over 50 percent of the population in nine out of the top 11 U.S. cities now rents. All nine cities (Miami, Boston, Washington, D.C., San Fransisco, New York City, Los Angeles, Houston, Chicago and Dallas) saw double-digit growth in the number of renters, with five cities experiencing a 20 percent boom since 2006. Blame the recession and coming-of-age millennials.

Unfortunately for college educated basement dwellers, supply was unable to keep up. Rental vacancies, or the number of for rent apartments on the market, decreased in seven of the nine cities, some by up to six percent since 2006. This imbalance is the main culprit behind your pilfering rent payments.

 

Adding Salt to the Wound

 

Spending $1,200 a month on rent would be manageable if your salary kept pace. But as you know, that is most definitely not the case.

Consider New York City and Los Angeles, the U.S.’s two largest rental markets. The median rent in both cities grew by roughly 10 percent from 2006 to 2013, while the median renter’s income remained unchanged or even declined. This is indicative of a larger trend plaguing America’s largest cities, with the exception of Boston.

Rising rents have weighed particularly heavy on young professionals and recent grads. Stubborn wages coupled with student loan debt and a lukewarm job market have made achieving financial independence easier said than done.

The majority of young renters even experience what economists call “rent burden.” Imprisoned by the rising cost of rent and stagnant wages, low- and mid-income tenants spend more than 30 percent of their monthly income on rent. Turns out there is a term for the hopelessness you feel when writing your monthly rent check.

 

Our Take

 

You have control over where you live, but not over the renter’s market. Although the advice “move elsewhere” does little to confront the issue, it’s just about all you can do to actively avoid rent burden and protect your bank account.

There is one shred of hope for city dwellers. Large urban centers typically enjoy higher income mobility than rural areas, meaning you have a better chance of jumping income brackets than those living the country life. Also, history and economic theory both say we should start to see more competitive wages as our economy improves. Fingers crossed.

To my fellow entry-level yuccies riding shotgun on the struggle bus, my advice to you is this: Hold tight, work your ass off and perfect the art of the side hustle.

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2 Comments

  1. Pingback: The Right Way to do a Post-Graduate "Gap Year" - GenFKD

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