Rents Versus Incomes, Take Two

Back to the topic of local rents and their relationship to incomes, I found some historical data on San Diego’s median household income at the Census Bureau website.

The median household income is better than per capita income, which I used in the prior article, because it is a median while per capita income is an average. A median is the middle value in an ordered set of data, and unlike an average it is not thrown off by extreme outlier values (per the “Bill Gates problem,” in which Mr. Gates walks into a dive bar and the average net worth of all bar patrons skyrockets into the millions). So the median makes for a better indication of what the typical San Diegan household, and especially the typical San Diegan renter household, earns.

The Census site also had data on the median San Diego rent, which is also good. The downside is that the Census data only goes back to 2001 and is current through 2007. So we don’t get the same long-term view as in last week’s article, but it’s worth taking a look at this alternate set of numbers.

With all that said, here is a chart of the median rent as a percentage of median household income for San Diego:

As the chart indicates, rent as a percent of income hasn’t changed dramatically over the time period in question. To put some numbers on it, the 2007 value was 22.7 percent, up from 21.6 percent in 2001 but down from 23.0 percent at its highest in 2004.

The 2007 number represents a 4.9 percent increase over the 2001 figure, so rents have definitely risen in terms of incomes over the timeframe in question. But bear in mind that as of 2001, we were just coming out of a period of unusually cheap rents. In an attempt to illustrate this point, I have highlighted the 2001-2007 time period on the long-term rent to per capita income chart from last week:

There is a good chance that rents got more expensive compared to incomes in 2008. In the prior writeup, I estimated the 2008 ratio by using that year’s California-wide 2.1 percent income growth and the 4.5 percent increase in the San Diego CPI rent component. Using these numbers, the 2008 rental percentage would rise to 23.2 percent — the highest percentage for the decade to date, but not by a whole lot.

Even assuming rents got a bit more expensive in 2008, the above charts don’t offer much indication that San Diego rents are substantially out of line with their historical relationship to incomes.

I still have to follow up on the next questions: whether there is a glut of housing supply that would cause rents to become sustainably cheaper, and whether incomes themselves became unsustainably high as a result of the housing bubble (and, if so, whether incomes have now returned to normalcy). We’ll hit these topics after next week’s festival of resale and foreclosure data.

— RICH TOSCANO