Lee Schafer: High rents reflect shift in living patterns

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: July 22, 2014 - 9:00 PM

The William apartment in the new Nic on Fifth building is what’s called an alcove, meaning it’s a bit more than a studio but doesn’t really have a ­bedroom, either.

One of the units, in a gleaming downtown Minneapolis tower nearing its grand opening, will cost “from $1,395” a month. Under the rough standard of no more than 30 percent of income for rent, it would take a $56,000 annual salary to afford to live there.

It would be a bit cramped, too, and the only pet had better be a goldfish. That’s because a William unit is all of 563 square feet.

Admittedly, this tower was designed with luxury in mind, yet a 563-square-foot home that takes a $56,000 salary is emblematic of what’s happened in the Twin Cities apartment market.

It’s not just a story about rising rent; it’s about a developing shift in housing patterns that could change the lives of thousands of people.

Higher rents by themselves would hardly be news if there were proportionally higher salaries to pay them, but there’s been a raft of studies and reports that have shown that’s not the case.

Nationally, about half of all renters were spending more than 30 percent of their income on housing a couple of years ago, according to a big study produced by Harvard University. “Working full-time is no antidote,” the authors wrote. “In fact, the increase in burdens has been especially dramatic among full-time workers.”

Rents have been increasing faster than pay in all of the 25 largest U.S. rental markets, according to Trulia, an online real estate search engine company. The Twin Cities is only 19th on its list, but rents are rising quickly here, too.

The average rent for apartments of all types reached $1,000 for the first time in the first quarter, according to a closely watched report from Marquette Advisors. That’s even with 1,011 new units coming on the market.

Another recent analysis calculated that it would take wages of $14.54 per hour, or about $30,000 per year, to rent a one-bedroom apartment and have it cost no more than 30 percent of income.

That means, based on recent census data estimates, that perhaps one in five Twin Cities households can’t really afford a median-priced one-bedroom apartment.

Those in the real estate business have several explanations for the surge of demand that’s driving rents higher. More younger people than 10 years ago prefer renting to owning, and a wave of foreclosures swept many people out of the ranks of homeowners.

Attorney Mike Vraa runs a renter hot line that takes about 15,000 calls a year from renters seeking advice in how to deal with their landlords. “Almost to a person,” he said, “they have all been foreclosed on.”

But people who have been bounced from their houses are not the target market for much of the new development in the Twin Cities. Most of the new projects were designed from the foundations up to appeal to college-educated professionals, located near amenities like transit lines and restaurants.

It’s easy to imagine a good life living in these buildings, although it would take a wildly successful garage sale to enable the contents of my house, with teenagers, dog and 30 years of accumulated possessions, to fit into five apartments the size of the William.

But as urban enthusiasts here describe an ideal future, it’s a seductive vision, with a highly educated workforce connected by transit to great-paying jobs and living in dense communities in or near the central cities.

There are places in the country like that right now, of course. But it’s worth pointing out that not everybody who lives there is happy about what’s happened. A case in point is San Francisco.

It may seem silly to draw lessons from a city built on a crowded peninsula of just 47 square miles, but in many ways San Francisco is the 21st-century American success story. Nearly 62 percent of the adults hold at least an associate degree and the economy is powered by the engine of Silicon Valley right outside San Francisco’s front door.

But boy oh boy, is the rent ever high.

The median rent for a two-bedroom place in San Francisco is up 13.8 percent in the past year to $3,550 per month, or about 48 percent of the median household income.

It’s not just fast-food workers who find themselves priced out of the city where they work. A lot of middle-class resentment is directed at the industry that made the region rich, in Silicon Valley.

The tech industry awards, the Crunchies, drew a raucous crowd of demonstrators earlier this year. Protests also have broken out at public bus stops when Google sends its white, Wi-Fi enabled coach buses to fetch employees for the drive down the peninsula to Mountain View in Silicon Valley.

It’s a bitter culture clash, but it’s not what Americans have come to understand when they hear that term. It’s not conservative vs. liberal. It’s urban liberal vs. urban liberal who can afford the $3,550 in rent.

There’s no reason to predict rents that high here any time soon, not with square mile after square mile of buildable land still within a comfortable drive from the central cities.

But there may be a change underway in who can afford to live in the city, what Minneapolis author, professor and development consultant Peter Brown described this week as an “inversion.”

At the risk of oversimplifying his point, it means the housing patterns of the late 20th century could be reversing. Instead of affluent professionals living in the suburbs, they prefer to come into the central city, and they can afford places like the Nic.

Asked where people earning $14.54 per hour will live, Brown said, “they’re going to move to older housing stock in the suburbs. The big challenge for them will be balancing housing costs with … transportation costs.”

That’s because there’s no gleaming coach bus coming for them. Not at that wage. They will be on their own.

lee.schafer@startribune.com 612-673-4302

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