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Birmingham residents have seen a shocking increase in the cost of living, especially renters.

According to a new report by Real Estate Witch (REW), a company determined to “demystify” the real estate industry, rent prices in the U.S are rising four times faster than income.

According to REW, homebuying rates and rent decreased by as much as 20% in some metropolitan areas during the COVID-19 pandemic. Now, rates are increasing at a 4% rate, doubling the 2% growth rate in 2019.

However, the Birmingham area saw rent prices rising four times faster than income during the pandemic.

According to Joe Bear Meadow, owner of Mortgageright, a multi-state service meant to streamline the homebuying process, the demand has far outstripped the supply in the Birmingham area.  

“There was an excess of demand and a decrease of houses available,” Meadow said.

“You had two factors for that. One is the millennial group had the largest number of household formations.” (Meaning millennials aged between 31 to 34 were buying their first house). “And, second, you had a reduction in (home) supply. It was the perfect storm.”

Rent price increases have exceeded home price increases in Birmingham since 2000.

Birmingham had the highest disparity amongst metropolitan cities that similarly had rent prices exceeding home prices. In Birmingham, rent hikes were 90% greater than increases in home prices, according to REW data.

Meadow claims that the statewide rent increases come because of increased property costs, combined with the effects of inflation on economies in general. The increased housing costs are not restricted to Birmingham or even Alabama; they are being felt across the nation.

According to Rent.com, Huntsville has an average rate of $929.50, up from a $877.50 average in June of 2021. All apartment and rental types have increased 9-12%, except for studio apartments, which showed decreased rates year over year.

Mobile has an average monthly rent of $1,199, up from $1,038.75 All other apartments have only seen moderate rent increases over the past year, while studio apartment prices have shot up nearly 70%.

Montgomery showed the lowest rent increase of all major metropolitan areas in the state, with rent increasing to $763.25 from $749.50 in June of 2021.

In April, the Federal Reserve imposed the first interest rate increase since 2018 and indicated this would be part of a series of interest rate hikes. The increases were touted as a way to settle down housing demand in the U.S and help control inflation.

Inflation jumped from 1.2% in 2020 to 7.5% in 2021 and currently sits at 8.6%, based on the most recent update.

According to Meadow, inflation will have massively adverse effects everywhere on the national housing and rental market, especially in metropolitan suburban areas.

Meadow also foresees an increase in defaults and bankruptcies due to housing costs, inflation, and increased prices in practically all household goods, especially food. 

Meadow said, “It’s going to be ugly, the coming food crisis combined with high mortgage payments: if the government doesn’t come in and save people again, you’re going to have a lot of landlords going bankrupt.

“It’s, unfortunately, going to get worse for the poorest. That’s what inflation does; it makes the poorest among us even poorer. If I can’t afford food, my housing doesn’t matter.”

The rise in interest rates can also mean increased overall costs for property owners and landlords, contributing further to rent increases.

The increase in property value and inflation has left many concerned since wages are not increasing at a comparable rate.

According to the REW data, in the 50 largest metros, renters making the median salary of $64,994 and paying the median rental rate of $1,136 would spend approximately 21% of their gross monthly income on an apartment in 2020.

From 1985 to 2020, rent prices increased 149%, while income grew just 35%.

There is no apparent end in sight for the current climb in rates.

According to the University of Alabama Center for Real Estate, there are consistently fewer houses on the market, and those houses are on the market for a far shorter time. Meanwhile, total housing prices have increased by 16% statewide.

In Alabama, landlords are not permitted to raise rates during a lease term. However, for some low-income housing, a tenant may be in a non-lease situation, paying month-to-month; this means a landlord could raise rates at the same rate, provided the tenant receives a 30-day notice.

Rent hikes act differently for section-eight housing, also called the housing choice voucher program, a form of government-funded rent assistance.

Meadow claims that the ever-increasing rent costs will massively impact housing availability for low-income families. When a hedge fund or other organization purchases a property, they have the option to remove its section-eight classification, an increasingly popular tactic since housing is so scarce and rent prices are so high. A landowner who operates rental properties outside of section eight can increase the rent by as much as they desire, allowing them to make a much greater profit than if they participated in the government program.

“If I’m a hedge fund, I'm not caring about housing for the neighborhood, I’m caring about getting a return on an investment,” Meadow said. “So, if I can get a 0.9% return by not doing section eight, then I’m going to do the 0.9% instead of the 0.65% I would get on section eight.”

Meadow further claimed that people who would traditionally not live in conditions synonymous with low-income housing are being forced to, due to availability and affordability.

“Because of the unavailability of housing, section eight is being squeezed,” Meadow said. “Now those places that nobody will live, people are having to settle for because they can afford it.”

According to the Department of Housing and Urban Development (HUD), section eight houses assist very low-income families, the elderly, and the disabled to afford safe and sanitary housing.

However, Meadow claims that a large portion of section-eight housing has living conditions that “no human being should live in.”

With outside interests owning a large portion of rental properties, as opposed to local ownership, Meadow believes the desire to turn a profit will negatively impact neighborhoods on the outskirts of metropolitan areas. The solution, Meadow believes, is when municipalities take control of outside property owners wreaking havoc in suburban areas.

“A neighborhood will never be as good with renters as it will with homeowners; it just won’t,” Meadow said. "So these municipalities need to step up and say, ‘okay, this property is not owned by a homeowner; not only are you going to have state and county taxes, but you also have to have a business license, you have an individual license for each property, and your property manager has to have a license per-property.’”

To connect with the author of this story, or to comment, email craig.monger@1819news.com.

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