With apartment costs appreciating faster than home values, the lack of income growth, and unaffordable housing markets in popular metropolitan areas, the up-and-coming millennial generation does not have a surviving chance for living in the most desired places.
According to real estate data provider, Zillow Group Inc., rental costs increased by 4 percent this year at the end of April, bypassing home properties by 1 percent. The data further supports what Stan Humphries, Zillow’s chief economist, calls the “rental crisis.” Renters are put in a difficult position to save money as they are expected to shell out 30 percent of their income on monthly expenses, compared to house owners who spend about 15 percent on their bills.
“There are tremendous incentives to get into homeownership these days: Mortgage access is improving, interest rates are low, and home values remain below prior peaks,” Humphries explained. “But it will be increasingly difficult for many renters to realize these benefits as this country’s growing rental affordability crisis continues to worsen.”
The crisis is clearly taking shape in 13 housing markets, the better half of which are located on the West Coast.
Here’s an abbreviated list of the top five cities that are slowly becoming the dream home getaway (data is sourced from Bloomberg):
San Jose, CA
The hub of technological revolutions and the site of Silicon Valley, San Jose’s home affordability gap is more than $80,000, meaning that the figure is the difference between the median income for 18-to-34 year-olds and the minimum salary required to invest in a home. Unless you’re a talented developer or have the entrepreneurial spirit to start a successful technology company, it is probably inadvisable to move here.
San Francisco, CA
Next on the list is the second densest city in the U.S. Like San Jose, which is also part of the Bay Area, San Francisco’s claim to modernity lies in its tech culture, and the term “tech” is not meant to be limiting. It encompasses anything from the Internet, computers, electronics and data to digital media, social networks, crowd-sourced funding and new business designs. The appeal of the aspirational city only grows as it becomes more aloof to millennials. They will need to earn an additional $60,975 to afford a home.
Los Angeles, CA
Always pitted in debates against its east coast counterpart, the city of LA has much to boast about – its downtown urban revival, entertainment industry, weather, racial and cultural diversity and its economic fortitude. AT Kearney’s Global Cities Index ranks Los Angeles in the top ten based on “business activity, human capital, information exchange, cultural experience, and political engagement.” LA beat out other global cities like Chicago, Seoul and Brussels. It is unfortunate that millennials face an affordability gap of $45,761.
San Diego, CA
Historically known as the birthplace of California, its population of 1.3 million will probably not experience any sort of exponential growth in the near future. Ron Burgundy’s classy city comes in at number four with a gap of $36,084. San Diego does not have much of a singular identity that runs through its towns, except for its SoCal mediterranean-esque climate. Millennials can continue fantasizing about spending time in year-round breezy sunshine.
Sacramento, CA
The capital of California finishes off the top five. Listed at an affordability gap of $6,636, the city shows a large drop off from the number four spot. It seems like a reasonable difference when you realize that the size of its metropolitan area is behind the others on on this list. Well, at least millennials making above the median income can likely say Sacramento is the largest West Coast city they can live in.
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You might be thinking to yourself, “where the heck is New York?” It’s actually sixth on the list, with a home affordability gap of $6,550. It seems a little low for a notoriously expensive and most sought after city to live in. Bloomberg, however, explains that New York’s metropolitan region exceeds that of the Manhattan island.
“Almost 80 percent of New York’s millennials reside in three counties: New York County, Queens County and Kings County, where Manhattan, Queens and Brooklyn respectively are located. Using the average median home value for those three boroughs ($749,596) and the 2015 estimated earnings for millennials living there ($49,193), the affordability gap comes out to a whopping $52,262.”
On the brighter side of the things, there are 37 other large metro areas that a millennial’s earnings befits the minimum income required to purchase a home. Some of the most affordable cities include Memphis, Detroit, and Pittsburgh. It may not sound as alluring as New York or San Francisco, but these real estate markets give millennials a chance to start building some long-term equity.
