The other way to look at this is apartment rental prices are merely "correcting" upwards to be less out of line with the housing prices.
A $1 million SF home has to charge $6000 in rent each month to break even, to cover cost of capital, taxes, and maintenance. Apartment rents cover utilities to varying degrees, as well.
A nice three bedroom apartment is the equivalent of a $600k or $800k condo, which "should" charge $4000+ per month. What is the going price for that rental? Across the bay area, the median is $2500. That makes sense in San Jose, but in other areas, not so much....
So is the issue that house prices are unsustainably high? Or is it the renters have gotten used to prices that lingered unsustainably low for a surprisingly long time?
IMO it is a bit of both. But we have probably under built rental units in some markets.
With a 4.8% mortgage rate, 20% down, 37% marginal tax rates, 3% inflation, closing/buying costs around 3%, 9% rate of return on capital and ~$700/month:
Buying a $600k place is break-even with renting at $2500/month after 4 years and buying is better thereafter. $800k is break-even at around $3300/month
There is government distortion playing in. The mortgage tax deduction (esp. in a state with high income tax rates) provides huge incentives to buy. $4,000 a month in rent is only equal to $800k buying if you are below the 15% income tax bracket.
A $1 million SF home has to charge $6000 in rent each month to break even, to cover cost of capital, taxes, and maintenance. Apartment rents cover utilities to varying degrees, as well.
A nice three bedroom apartment is the equivalent of a $600k or $800k condo, which "should" charge $4000+ per month. What is the going price for that rental? Across the bay area, the median is $2500. That makes sense in San Jose, but in other areas, not so much....
So is the issue that house prices are unsustainably high? Or is it the renters have gotten used to prices that lingered unsustainably low for a surprisingly long time?
IMO it is a bit of both. But we have probably under built rental units in some markets.