By Dr. Kelly Cullen
Recent numbers from the Department of Housing & Urban Development (HUD) report that fair market rents for apartments in the Tri Cities have jumped over 25% in the past year. Figures for FY2024 report that one-bedroom apartments are averaging $1,200 (from $955 in FY2023) while two-bedroom apartments are nearly $1,500 (from $1,200 in FY2023). While these fair market rent figures are used primarily by HUD to allocate housing vouchers to low-income clients, they are designed to reflect current market conditions This surge in rents that are certain to exceed the rate of increase in household incomes over the same time period, thereby adding to the housing cost burden for many households in the Tri Cities.
Having affordable housing, especially multi-family options, is important for a community’s economic development. When households become “housing cost burdened,” they may not be able to afford appropriate levels of health care or to be able to take advantage of educational and social opportunities. Financial stress can spill over into the workplace as well, reducing worker productivity.
According to the US Census, a “moderate housing-cost burden” is felt when housing costs exceed 30% a household’s income. A “severe housing-cost burden” is reached when housing costs are more than 50% of a household’s income.
A snapshot of housing-cost burdened renters
Benton-Franklin Trends 7.2.2 Total & Share of Renters Spending 30% of More of Household Income on Shelter Costs tracks the US Census American Community Survey (ACS) data for the Tri Cities. Data is available for both Benton & Franklin County as well as for Kennewick, Pasco & Richland from 2006 to 2022.
According to the ACS data from 2022 (the most recent data available), nearly half of all renters in the Tri Cities spend more than 30% of their household income on shelter costs. While this might sound alarming, it nearly matches the state and national averages. In 2022, the total number of households experiencing a moderate housing cost burden reached a historical high of over 15,500 – just surpassing the previous peak from 2014.
And for the individual cities? In Kennewick, 57% of all renters are moderately housing-cost burdened, with over half of those (nearly 30%) paying more than 50% of their household income towards shelter costs. Benton-Franklin Trends 7.2.3 Total & Share of Renters Spending 50% or More of Household Income on Shelter Costs provides data on the severely housing-cost burdened. While just over half of Pasco’s renting households spend 30% or more on their housing costs, only 16% are in the “severe housing-cost burden” category. Richland renters fare the best, with just around one-third moderately burdened and only 13% experiencing a severe housing-cost burden.
Rising incomes fail to keep pace
Rising rents may be offset by rising incomes. But when household incomes fail to keep pace with increases in housing costs, more families will become housing-cost burdened. In, Benton-Franklin Trends 3.1.2 Median Household Income, it is clear that incomes have been rising steadily, albeit not at the same rates within the two counties.
Median Household Income (MHI) across the combined counties was nearly $83,000 in 2022 – below the state average of $91,000 but well above the national average of $75,000. In Richland, MHI is higher at $89,000, while in Kennewick, renters face a lower MHI of only $74,000. While the income disparity is relatively large, the difference in average rents across the cities is not. This explains why Kennewick renters are more fiscally challenged.
Vacancy rates & the supply of housing
There is some good news to share in that there seems to be an adequate supply of housing options. The number of multi-family units has more than kept pace with increases in population growth in the Tri Cities. Since 2010, the population of the combined counties has increased 24%, while the number of multi-family units has increased 31%. Additionally, the rental vacancy rate of 5.7% across the combined counties is above both state and national averages.
Rental markets for multi-family units are closely tied with single family housing in a community. When housing prices are accelerating, some households are not be able to afford a mortgage and associated expenses find themselves choosing multi-family dwellings instead. While the Tri Cities did see a recent steady increase in housing prices, since 2022, the median home price has recently flattened, as seen in Benton-Franklin Trends 7.3.1 Median Home Resale Price.
However, in part due to relatively slower growth in household incomes, the local Housing Affordability Index, especially for first-time buyers, has fallen to a record low of 58. The HAI is an index where a value of 100 implies that a household just the right amount of income to support a mortgage and associated costs. At the end of 2017, the HAI for first-time buyers was 100 in the Tri Cities. A decade ago, the HAI for first-time buyers was 116, meaning that single family housing was more affordable then. By 2022, however, first-time homebuyers only had 58% of the income necessary to afford a “starter” home below the median home resale price. This relative shortage of homebuyers is contributing to a larger number of homes priced below $250,000 currently on the market. Check out Benton-Franklin Trends 7.3.4 Monthly Supply of Houses by Price Level, for more detail on the availability of single family housing as it relates to rental markets.
A call to action
Thus, the richness of housing and income indicators at Benton-Franklin Trends can shed light on the extent to which renters are feeling an economic burden. With rental costs rising at a higher rate than household incomes, more households will continue to face moderate or even severe housing-cost burden standards set forth by the US Census. With fair market rents continuing to be sticky and unlikely to fall much, to help alleviate some of the financial stress, attention should be given to supporting jobs in industries that provide strong wage growth. This strategy will allow renters to be afford their rent and have money left over and pay all of their other bills.