Examine the Median When Calculating High Rents
OPINION
by Fred Schnaubelt
Stooping to sob-sister journalism, a television newscaster among other things said, “Landlords who raise rents are colder than a witch’s heart.”
Pow! Bam! Slam! Take that, landlords! Powerful language, even when sanitizing a clich & #233;. Another newscaster reported that the average rent in San Diego is now $1,100 per month and additionally, only 20 percent of the people in the region can afford a median-priced home costing $339,000. Egads!
While confusing “average rents” with “median income” and “median home prices” is grossly misleading, it seems like nearly all reporters do this every month when the home sales stats are made public. A fair reporting of the news, you’d think, would acknowledge that half the renters in San Diego pay $753 or less per month if one looks at median rents rather than average rents.
Rents of $300 to $753, of course, don’t give rise to the same sensationalism nor excite the same emotional juices as $1,100 per month. Why? Well, the county reports a family of four defined as very-low income can afford $710 per month (including utilities). In this context, rising rents are not much of a sob story, and landlords hardly seem colder than a witch’s heart.
It’s appalling that newscasters don’t know the difference between average rents and median rents, and report the news predicated on an ignorance of the difference. By using “median” family income affordability as the basis of a story, then smuggling in “average” rents, rather than using “median” rents, creates the false impression that renters are being gouged. In stating this, I’m not implying however, that there are no renters struggling to make ends meet.
When reporters misrepresent the news, they may inadvertently be creating the justification for some rental owners to raise their rents in trying to achieve what they are being told is the average (fair) rent. This disinformation by the media could result in some renters paying 46 percent more rent than might otherwise be the case, 46 percent being the increase between median and average rents.
Due to a construction boom in luxury apartments with premium rents of $1,500 to $2,500 a month, the “average rent” in San Diego is skewed upwards. By using the median rent, however, you get a better indicator of the real rental market.
A median rent is the amount that divides the rent distribution into two equal groups , half paying rents above the median, and more importantly, half paying rents below the median. The median rent from Jan. 1 through Sept. 30 of this year using information from the actual sales of more than 12,000 apartments is $753. (This is information the county assessor requires when a sale is recorded).
Where are these rentals, half of which charge less than $753 per month? Well, they tend to be in smaller complexes, typically fewer than 25 units per project, and therefore unlikely to have microwave ovens, pools, saunas, Jacuzzis, recreation rooms, gyms, pool tables, lush landscaping, waterfalls, security gates, garages and other amenities found in larger complexes. Affordable apartments typically are older, more modest units and have less soundproofing while still meeting all health and safety standards.
Regardless of whether you use average rents or median rents, many housing activists want the government to institute price controls, claiming that due to a shortage of apartments, rents are out of control. The facts prove otherwise.
For the 11 years from 1990 until the beginning of 2002 (data provided by CoStar COMPS), rents did not keep up with inflation as measured by the U.S. Bureau of Labor Statistics Consumer Price Index (CPI). Only this year have they risen above the CPI. In 1990, the median rent was $522 per month. In the first three quarters of this year, the median has increased to $753 per month.
Do The Math
A family with a median income of $45,733, using the criteria that no more than 30 percent of income should be spent on rent, can afford $1,143 per month rent. (How I arrived at that figure: $45,733 divided by 12 = 3,811 x 30% = $1,143). According to the Census, there are more than 159,000 households (65 percent of all renters in the city of San Diego) paying less than $1,143 per month.
The San Diego Housing Commission reports it is assisting about 13,400 of those families paying less than $1,143 per month. Contrary to what our elected officials may believe and keep telling us, Census data indicate that the private sector, provides more than seven times more affordable housing than government in the $300 to $499 rent category and 55 times as much in the $500 to $749 category. Free the free market, and you’ll get even more affordable units in these categories.
Politicians throughout the county have decided that protecting various species of flora and fauna that very few people have ever seen or heard of, protecting uneconomical farmland and “saving” the backcountry from development are a thousand times more important than affordable housing. Unfortunately, good intentions have a price, and that price is capitalized into the cost of all homes and apartments (new and used) in San Diego County, making it one of the least-affordable places to live in the U.S.
Politicians need to recognize that rents and profits from rental ownership determine how many new apartments will be built each year and that rents will have to virtually skyrocket in order to pay for the never-ending stream of requirements mandated by government. Unlike Peter Pan, politicians cannot remain children forever, believing everything they desire can be provided free.
Schnaubelt is a real estate broker and former San Diego city councilman.