How Does The Record Low Home Affordability Affect Businesses?

In this article, you'll learn:

• How record low home affordability is driving more Americans to rent rather than buy.
• Why southern states are attracting more residents and businesses due to lower costs.
• The significance of tracking American relocation patterns for business strategy.
• The broader implications of rental trends on commercial real estate and economic conditions.

Less than half of Americans expect to own a home one day. This statistic reflects the sheer unaffordability of the modern housing market, which has reached a complete crisis. The rising cost of homeownership, compounded by unrelenting interest rates has flipped the American dream on its head for average Americans.

What does this mean? More people are renting than ever before.

And not so coincidentally, Americans are more mobile than ever. 

So let's discuss what this widespread and unprecedented mobility means for businesses. But American moving trends are only a part of successfully navigating a post-pandemic commercial real estate market. Download your free copy of Surviving the Office Apocalypse today. 

American Housing Crisis

Over the last five years, the cost of homeownership, inclusive of home price and interest rates, have gone up 95%.

And this skyrocketing cost of ownership doesn’t exist in a void. It coincides with extremely high and unrelenting interest rates.

This is putting upward pressure on mortgages, which are at a high compared to what they were post the 2008 crash in 2010. But, it’s not even just interest rates. Because of rampant inflation, everything associated with owning a home has become more expensive. This includes home insurance which places more pressure on those considering whether to rent or buy. 

“The cost of home insurance is still increasing due to the impact inflation has had on the previous losses experienced by the insurance company, the elevated cost of building materials and the future risk posed by extreme weather,” according to Bank Rate. 

So with all these costs stacked against potential homeowners, is it really shocking that just 40% of renters expect to ever own a home one day? This is according to data from the New York Federal Reserve, and represents the smallest share since the bank started asking renters the question in 2014.

Renting vs Buying

With inflation as high as it is, everything has gotten more expensive, including renting. But in relation to the rising cost of housing, the divide is staggering.

The difference in cost between renting and buying is higher (over double) in California and NY than in the rest of the country’s 50 largest metros.

And while in New York City the median homeownership price has increased 74%, by comparison, the median rent has increased 32%.

On a national scale, the average divide in 2022 between median housing costs for homes with a mortgage and median gross rent was $563 a month.

Again, the disparity grows in metro areas, specifically in already-high-cost states like California and New York. According to Lending Tree, “The difference between the median monthly housing costs for homes with a mortgage and the median monthly gross rent in these metros in 2022 was $1,341, San Jose, $1,303 San Francisco, and $1,289, in NYC.”

What Does The High Cost of Housing Mean?

Americans are more mobile than ever.

Since the pandemic, over 50% of Americans still have the option to work remote, at lease on a hybrid scale. And as of 2023, 27% of Americans work remotely on a full-time basis. Without the need to be tethered to the immediate radius of an office, people moved. The reasons varied. Some took the opportunity to be closer to family, others fled from high-cost areas, taking their salaries with them to areas of lower living costs.

Now compound this newfound workplace freedom (which has never happened before) with the climbing homeownership costs. Not only are people free to move away from workplaces, but on a mass-scale, they are not even tied to property ownership.

Where are Americans Moving?

So, if everyone is moving, where are they going?

Not so surprisingly, a lot are moving south. The lower housing costs, reduced taxes, and overall affordability of daily expenses in business-friendly states in the South have become attractive factors for individuals and businesses alike.

According to the North American Relocation Services, the South dominated states with the most inbound migration. The top state destinations included South Carolina, North Carolina, Tennessee and Florida.

Simultaneously, we’re seeing this growth at the expensive of higher cost regions, predominantly in the North. New Jersey, Connecticut, New York, California, and Massachusetts saw the worst population loss out of the Northeast and were ranked among The States That Most Americans are Leaving.

But it’s not just statewide moves. There is a tide turning against metropolitan areas in general, in favor of more cost-effective suburban areas that also boast lower crime statistics.

It’s really not a coincidence that major businesses also happen to be relocating to these evolving hubs.

The number of high-profile businesses headquarter relocations grows by the day. Most often, businesses are making headlines by seizing the business-friendly environments of Texas and Florida.

Over 500 financial services moved to Florida post-Covid including Goldman Sachs, Citadel, Arch Investments, and Blackstone. At the same time Numerous household names have already relocated to Texas (already hosting more Fortune 500 companies than any other state). You'll probably recognize a few, including Apple, Oracle, Tesla, Hewlett-Packard, Amazon, ExxonMobil, AT&T to name a handful.

Takeaways for Businesses

Cut and dry: Americans will continue to predominantly rent over buy until interest rates drop precipitously, also lowering the overall cost of homeownership. This means that the country is increasingly mobile on an individual basis, and this trend will persist for the foreseeable future.

The point for businesses is that by keeping an eye on where Americans are relocating, you will receive invaluable insight into the industrial, political, and financial trends that will continue to develop and shape American culture.

It is powerful food for thought that can allow you to position yourself where growing talent bases are. Simultaneously, you can heed the warning signs and beware of dying locations marked by dwindling demand.

Understanding rental trends can help businesses anticipate fluctuations in the housing market and economic conditions that might affect commercial real estate values and rental rates. The shift towards renting can reflect broader economic trends such as affordability issues and income levels.

This knowledge aids in making informed decisions about leasing or developing commercial properties.

But the widespread inflation and American mobility are only two symptoms of a post-Apocalyptic office market. For businesses making decisions about their long-term commercial real estate, adapting to these trends is only the tip of the iceberg.

To stay on the cutting edge and optimize your CRE in this new era, there’s a lot more strategies corporate tenants need to safeguard their interests. Luckily, we wrote the handbook and wrapped up all the tips and tricks for busy C-Suite execs to digest. Download your free copy today.