Some of the metros with the best job prospects are also the ones with the least affordable housing, making it difficult for new residents – especially renters – to get a toehold in the housing market. But even within these very expensive metros, pockets of relative affordability do exist at a city level, offering some hope for new residents and would-be job seekers.
Some of the metros with the best job prospects are also the ones with the least affordable housing, making it difficult for new residents – especially renters – to get a toehold in the housing market. But even within these very expensive metros, pockets of relative affordability do exist at a city level, offering some hope for new residents and would-be job seekers.
By now, everyone knows the story: Throughout the recovery, home values rebounded strongly and income growth (until very recently) has been weak at best – leading to a housing affordability pinch for many, particularly renters unable to take advantage of historically low mortgage interest rates. This is particularly true in many of the nation’s larger, coastal metros that are generally experiencing faster growth and offer more opportunity than other areas.
The trend holds at a city level. Over the past few years, residents of smaller areas that have experienced strong employment growth have also seen a larger share of their income going towards housing (figure 1). This may discourage many from chasing after jobs in some of the hottest employment markets around the country.
Often, this growth is concentrated in a subset of cities within a metro where high demand for jobs and desirable local amenities causes housing costs to grow at a pace far beyond growth in incomes. For example, in the San Francisco metro, employment grew at 3.8 percent annually in 2015. Most experts advise spending no more than 30 percent of income on housing costs, but in many of the central and primary cities in the region, including the city of San Francisco itself and the nearby city of Berkeley, renters and homeowners alike should expect to spend more than half of their household income on housing costs.
But that trend isn’t uniform. In Livermore, California, roughly 45 miles away from San Francisco, the typical household would expect to pay just around 30 percent of income on housing (30.3 percent on rent or 27.9 percent on mortgage payments). In fact, there are a number of cities nationwide offering both excellent job prospects and relatively affordable housing (clustered in the lower right-hand corner of figure 2). For example, in 2015 the Seattle metro experienced considerable annual job growth of 3.1 percent. While many cities in the Seattle area required the typical renter to exceed this threshold, a few cities hovered below the benchmark, including Kirkland, Marysville and Auburn.
Similarly, the Denver metropolitan area boasted jobs gains of 3.6 percent in 2015, but the share of income needed to afford rent in five of its large cities remained below the 30 percent barrier. In Highlands Ranch, the typical renter spent 25.4 percent of his income on rent. In Broomfield, Centennial (both 28.3 percent), Thornton (29.2 percent) and Westminster (29.7 percent), rents were slightly higher, but still decently affordable.
Select cities within the fast-growing Austin, Texas, market also offer an illustration of the trend. In 2015, the Austin metro experienced large employment gains of 4.6 percent. And while typical renters in the city of Austin itself should expect to spend almost 34 percent of their income on rent, in the cities of Cedar Park (22.5 percent) and Round Rock (26.1 percent) income spent on rent was well below the 30 percent mark.
By contrast, there are U.S. cities where rents are unaffordable, consuming more than 30 percent of the typical renter’s income, and job opportunities are scarce. This includes many of the usual suspects – the large, primary cities of major metropolitan areas that have experienced relatively low job growth in recent years – as well as a few pricey suburbs. In the city of Boston itself, employment grew at an annual rate of 1.9 percent, but the typical renter spent more than 50 percent of his income on housing. The city of Chicago experienced employment growth of only 1.7 percent, but the typical rent in the Windy City ate up 39.5 percent of the typical renter’s income in 2015.[1]
But not every city that fits this bill is a large or central one. In New Bedford, Massachusetts, closer to Providence than Boston, jobs grew at an underwhelming rate of 1.3 percent, but the typical renter spent 39.8 percent of his income on rent each month.
Still, as many central cities become prohibitively expensive, the more affordable suburbs are looking increasingly attractive, even for stereotypically suburb-averse millennials. In fact, these suburban locales are likely an attractive option for any individual looking for solid job opportunities in hot metros and hoping to stretch their dollar – particularly younger residents, as they climb out of student loan debt and save for potential marriage, homeownership and families (figure 3).
[1] There are still affordable opportunities in central cities, however. For example, Charlotte, NC remains both affordable (27.4 percent of income went towards rent in 2015 for the typical renter) and has strong employment prospects, experiencing job growth of 3.7 percent in 2015.
