Tag: renting

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Renting Surpasses Buying In Homeownership Affordability

Photo by Tierra Mallorca on Unsplash

Traditionally, the cheapest option for those seeking homeownership is to buy instead of rent. However, this is no longer the case for those in Memphis.

Ryan Miller, senior investment portfolio strategist at First Horizon Bank, said historically Memphians favored homeownership over renting since interest rates were reasonable, and payments were able to be divided over long periods of time.

However, in 2021 prices of houses began to drastically increase in a short period of time, with interest rates increasing as well. These factors create higher mortgage rates. While rent has gone up, Miller said it hasn’t gone up as much as these prices and rates.

“It is very unaffordable to try and buy a home for most homebuyers in Memphis — especially first-time homebuyers,” Miller said. “Seventy-two million millennials are entering the housing market while supply from 2018 to 2020 decreased 52 percent.”

A number of factors have contributed to this revelation, such as the rise in median home pricing, median wage not keeping pace, and the national rank of housing affordability being lower.

Miller recently spoke at the Affordable Housing Symposium in Memphis back in May. During his research, Miller found that as of 2023 Memphis has a housing gap of 16,341 units and an affordability gap of $14,018.

“There are 569,954 units, but the need is 586,295,” Miller said, explaining where this “shortcoming” comes from. 

For those who can’t buy homes because of this shortage, their next option is to rent; however, in the city the median rental comes in at $1,224 a month. According to Miller, an individual would need to make $44,064 per year to qualify, while the median income in Memphis is $30,046.

“Basically, the median income in Memphis would have to rise by 52 percent in order for a renter to go rent a house with a ratio of just 33 percent of their overall income,” Miller said. The U.S. Department of Housing and Urban Development classifies those who “pay more than 30 percent of their income for housing” as “housing burdened.”

Miller said one solution is rehabilitation. He said an answer to affordability is having builders who are focused on affordable and starter homes as opposed to “McMansions.” He said between 2018 and 2022, the housing supply shortage increased from 2.5 million units to 3.8 million units.

In comparison, 40 percent of homes built in the 1980s were starter homes, compared to 2019 where they only made up 7 percent. 

“You need investors to go in and buy up housing in areas where the homes are aged and rehabilitate them so that they can be put back into the affordable housing inventory,” Miller said.

In 2021, finance company Freddie Mac concluded that while the overall share of aging housing stock is less than 60 percent, an “overwhelming majority of the census tracts in the city center have shares of aging housing greater than 80 percent.” 

Areas that have houses whose best options are rehabilitation include Frayser, East Memphis, Whitehaven, parts of Midtown, and more. Miller said rehabilitating homes in these areas would help the affordability issue.

To help cope with this issue, Miller said people should have a pooling of assets — having friends and family rent together. He also said education is a vital part of this as well.

“There’s a direct correlation between education, whether it’s at an educational university for traditional studies or a vocational school,” Miller said. “Education in one way shape or form allows somebody to get the job to have a higher income to bridge the gap for affordability.”

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Opinion Viewpoint

Renting in Memphis by the Numbers

A porch in Memphis (Photo by Jenni Kowal on Unsplash)

I began my search for a rental home roughly three months ago, sometime in March 2022. My (soon to be, and from here on out referred to as ex) husband and I were in the beginning stages of our blessedly amicable divorce. The first prospective landlord I spoke to on the phone was obviously eager to get his property, a unit in a Midtown quadruplex, rented as soon as possible, simply to stop the incessant flow of inquiries. “Past evictions, credit, I don’t care about any of that,” he told me. “If you pay, you stay, that’s my philosophy.” He said he would be at the property in about 30 minutes if I could make it there by then, though he mentioned someone else would be viewing it before I did. I wondered if finding a place could actually be that easy. Then I got the call that it was rented. I had been beaten to it. It would become a familiar experience.

So began the long, arduous process of constant rejection. That could be the title of an epic poem summing up finding a rental in Memphis, Tennessee, in 2022. “A Long, Arduous Process of Constant Rejection.” If that seems overly dramatic, here are some numbers for you to consider. In the three-ish months that I searched, I looked at, inquired about, or saw roughly 115 rental properties. I say “roughly” because this doesn’t count the messages I deleted, the countless internet rabbit holes I went down, or all the phone calls I made. I arrived at the number 115 by looking through my inbox, message chains, notebooks, and Slack threads. My coworkers, my family, my ex-husband’s coworkers, my friend’s online mom-messaging board, my friends of friends of friends — a veritable army of kind, helpful people have been looking on my behalf as well. 

Perhaps the most important number of all to consider throughout this process has been the number three, as in “you must make three times the monthly rent to qualify for this property.” According to the U.S. Census Bureau, the median household income for Memphis in 2020 was $41,864. The per capita income was $26,704. So, hypothetically, a single person making roughly $27,000 per year looking for a place to rent in this city would need to find, in order to meet the three times monthly rent qualification, a house or apartment for $750 a month. Keep in mind, we’re talking gross income here, so taxes haven’t been taken out yet. If a property manager wants to base these qualifications on net income, the number goes down to about $640 per month. Right now, at 3:01 p.m. on June 9, 2022, there are 33 results on zillow.com for rentals no higher than $650 per month. This is barring any other filters, like a place being pet-friendly or having more than one bedroom. 

But wait! Don’t forget: Some rental companies require four times the monthly rent. I won’t go through all those numbers, but suffice to say, a person living alone on an average Memphis income won’t be able to make that work. I have had the cynical thought — and it has been suggested many times to me by others — that the three-times rent qualification is nothing more than a thinly veiled discrimination tactic. And yet, even when I decided on multiple occasions to forge ahead and ignore the three times thing, I would be rejected. “Insufficient funds,” reads one email that I received after viewing and applying for a Midtown duplex. I made it halfway through one online application before realizing that it required past pay stubs. I’ve worked part time and been a stay-at-home-mom for the past four years. My circumstances are changing, but an online application doesn’t care about that. I understand that a landlord needs to protect their investment, but I can also wish the process of finding housing were an easier one to navigate.

Here’s yet another number to consider: five. As in, your credit score is going to drop about five points every time it’s checked. How about the number 40? As in, you’re going to have to pay a $40 application fee in order for us to check your credit — which will then drop — and then reject your application anyway for “insufficient funds.” Do I seem bitter? Frustrated? Finding a place to live shouldn’t feel like running a gauntlet. And this is coming from a white woman with good credit history and a verifiable source of income. I’m so privileged it’s disgusting. Where does this kind of market leave anyone working minimum wage? Or someone who doesn’t have established credit? A retiree? A single parent paying for childcare? 

The last number to become relevant during this search was one. As in, I was the first person to view a property. As in, only one landlord actually asked for my opinion on what I could afford instead of making the decision for me. I feel extremely lucky to be able to end this piece by saying that I now have a place to live. How many others are being left hung out to dry? 

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Living Spaces Real Estate

Your New Home: How Much Will It Cost?

Sometimes owning a new home instead of renting or living in an older home means adjusting our expectations to our incomes and dealing with hard financial facts even as we dream of the fantasy houses we see in glossy magazines. Many factors affect the cost of a new home, including financing, construction, and local regulations. But there are things you can do to help keep the price within your budget.

The down payment and monthly mortgage payments can often be the biggest hurdle new home buyers face, so shopping around for the right mortgage options can be an important way to save money. For instance, VA or FHA loans sometimes require no or low down payment. There are state assistance programs available for first-time home buyers. Sometimes, first-time buyers turn to parents or relatives for help with down payments. Also, adjustable rate mortgages can help keep monthly payments within your comfort range.

One way to keep the actual cost of a new home within your budget is to do some of the finishing work yourself. While structural construction is best left to professionals, some homeowners do their own painting and woodwork finishing. These jobs certainly are not easy but may be a way to create substantial savings. There is also a wide range of price levels for some materials, such as cabinets, carpeting, appliances, and bathroom fixtures. What people choose to put in their homes is as unique as each individual. The important thing is to weigh your options so your new home is comfortable, affordable, and meets your needs.

Another cost-saving tactic is designing a home so that rooms, such as additional bedrooms, can be added in the future. Some homeowners wait to finish their basement a few years after they move in, when it is financially easier to complete the work.

There are added costs for regulations that most homeowners never consider. Development fees and other construction charges can add more than $12,000 to the cost of a typical home. These fees include inspections and permits, re-zoning applications, wetland permits, access permits, grading, fire-retardant walls, setback requirements, and more. The costs vary from city to city, so the location of a new house may affect its cost.

With all these factors, the most important consideration is the quality of your home. It must be a sound structure that will provide years of worry-free living for you and subsequent owners. Finding a professional builder with whom you are comfortable is a basic requirement in building your dream house. Visit neighborhoods in which you want to live or where there are comparable houses. Talk to owners about their builders to see what their experience was. Professional builders are happy to supply references to prospective homeowners.

Every home buyer chooses the aspects of a new home that are most important to them. Having a home on a lake may be the dream of a boater. A traditional home with plenty of bedrooms and baths on a cul-de-sac in the suburbs: someone else’s dream. The excitement of easy access to the theater in the heart of a city may thrill another. Whatever your dream, thoughtful analysis of what is most important to your lifestyle and your budget will help ensure that the experience of buying or building your new home will be one of the most pleasant times of your life. ■

Keith Grant is president of the Memphis Area Home Builders Association.