Rental picture complex in the Queen City

Renting is on the rise in the United States as the cost of homeownership goes up.

Mortgage rates have climbed 90% since prepandemic levels, according to real estate brokerage Redfin. Nationwide, homeownership has dropped 2.3 percentage points from its recent high in the second quarter of 2020 to 65.6% in Q2 2024, according to data from the Federal Reserve Bank of St. Louis.

In an analysis of U.S. Census Bureau data, Redfin reported this month that renter households are growing at the second-fastest pace since 2021.

Here in Springfield, numbers tell only part of the story, with rent rates that are low by national standards and salaries that appear to be able to sustain them.

August data from the rental marketplace Apartments.com puts Springfield’s average rent at $825 per month – a 2.7% year-over-year increase – for an average size of 672 square feet. That's 46% below the national average of $1,536 per month.

With the general guideline that no more than 30% of monthly income should be paid on housing expenses, the website states Springfieldians need to earn $33,000 per year to live comfortably in the city.

A housing study commissioned by the city of Springfield and released in October set the city’s median household income at $37,491 with a poverty rate of 22%. It pointed out a current homeownership rate of 42%.

Various proposals, both local and national, take aim at the issue, but some housing sector activists worry that the issue is not being prioritized.

A renters’ town
Alice Barber, policy and governance lead for tenants’ rights organization Springfield Tenants Unite, said the city does not have a lot of affordable housing, and the stock it has is in bad shape.

“This is consistently a poor and working-class renters’ town,” she said. “Yet when you look at city ordinances that get passed and what the city prioritizes, you don’t see the needs of renters and poor and working people being prioritized.”

The U.S. Census Bureau’s 2020 American Community Survey designated Springfield the poorest city in Missouri with a population over 25,000. Springfield’s average home is worth $122,200, it says, compared to the average Missouri home value of $163,600.

Officially, housing is a Springfield City Council priority, declared by council at its May 20 meeting. The written priority declares the city’s dedication to increasing access to quality housing options by promoting home ownership and improving rental housing conditions through code enforcement.

At a July 22 meeting, council voted against naming housing as a specific priority for a proposed three-quarter cent sales tax as representatives of the housing sector, including the STUN organization, had urged. Instead, they decided to stick with language recommended by its Citizens Commission on Community Investment and use the Forward SGF comprehensive plan – which also prioritizes housing – as a guidepost.

Barber said the 5-4 council vote against adding the word “housing” to the tax measure is telling.

“The fact that five of the nine council members decided that housing was not enough of a priority for them to make that clarifying amendment makes me question whether their heart is really in it,” she said.

Barber said the city’s renters encompass a wide variety of people with different lifestyles and incomes, but an overwhelming number find homeownership beyond reach.

“Lots and lots of people in Springfield are living paycheck to paycheck,” she said. “It’s hard for a lot of folks to save up even enough for emergencies, much less to save up for a downpayment on a home.”

STUN advocates a healthy homes guarantee that would require regular inspections of rental properties as well as licensing for landlords.

Annexation impact
Brent Brown, founder and CEO of Entrust Property Solutions LLC, is president of the board of the Springfield Apartment and Housing Association, whose members own 20,000 apartment units in the city.

Brown said Springfield’s colleges and universities, with some 33,000 students, skew the numbers when it comes to the percentage of city residents who rent.

Another factor in the high rate of renters is the city’s failure to annex outlying areas into the city, he said. He noted many neighborhoods are located outside city limits.

“If you look at a map and the history of annexation, there’s been a lack of grabbing these additional areas surrounding Springfield proper for a very long time,” he said. “As we start to do so, those numbers are going to change.”

He noted that Forward SGF prioritizes annexation. That’s going to make a difference in the renter/homeowner balance.

“Before we start trying to fix a problem that may or may not be a problem, let’s make sure we’re looking at things the way they are,” he said.

Meanwhile, stakeholders are working together.

“We are having some really important discussions within the city right now, and what’s really important is that the stakeholders are participating – everyone from SAHA to STUN,” he said.

He added that SAHA supports inspections and permitting, which he called a reality for any business.

“There are good landlords and there are bad landlords,” he said. “The bad landlords need to be held accountable for issues that are affecting life and safety.”

He added that he sympathizes with STUN, as the city has notable repeat nuisance property offenders. Out of 43,000 rental units in the city, there are only 200 have been identified as repeat offenders – just half a percent.

“We’re absolutely not in opposition that these issues are very real issues,” he said. “I wish their landlords would allow us to help them with best practices and fair housing and the things that we operate on.”

Housing supply a factor
Don Davis, senior portfolio manager with Commerce Bank, said there is a strong correlation between the rise in renting and the rise in housing and borrowing costs.

Since March 2022, interest rates and financing costs have risen, he said.

“Throw on top of that the supply shortage as far as new homes and starter homes and the higher cost of building homes, and it’s a perfect storm,” he said. “The general affordability of housing has gotten more expensive, and that has always meant a rise in the number of renters.”

For years, conventional wisdom has held that millennials don’t value homeownership and instead prefer to spend their money on experiences, he said.

“Now we’re starting to see those same millennials starting to think in that direction,” he said.

Unfortunately, this demographic now faces a much more expensive market.

“When they had the chance, if they had been so inclined – maybe they could have borrowed money from their parents or grandparents or whatever – they forewent the opportunity, and now they can’t,” he said.

He added that he himself benefits from a 2.6% mortgage rate, and there are hundreds of thousands of people in the same position.

“You have to drag me out handcuffed before I’ll relinquish my home and the mortgage that’s attached to it,” he said. “I have no incentive to pay that down or get rid of the home.”

It’s a factor that feeds into lack of supply in the home market, he said.

“Ordinarily, there would be an annual freshening up of supply, and that’s just not there,” he said.

Federal proposals
In this U.S. presidential election season, both major party candidates offer proposals to ease pressures on American families.

On Aug. 16, Vice President Kamala Harris outlined a four-year plan that includes the construction of 3 million new housing units to ease a national housing supply shortage with an expansion of an existing tax incentive for businesses that build affordable rental housing. A $40 billion fund to spur innovation in housing is also included.

Former President Donald Trump is running under a GOP platform that seeks to lower the costs of housing and reducing mortgage rates by targeting inflation. Homeownership would be promoted through tax incentives and support for first-time buyers and the elimination of regulations that raise housing costs.

In July, President Joe Biden proposed that Congress pass a national rent control measure, requiring landlords to either cap rent increases on existing units at 5% or lose federal tax breaks.

Davis expressed some doubt about the effectiveness of national rent control.

“The market has a way of finding equilibrium eventually,” he said.

He added that the artificial measures undertaken since 2008 to correct the market created their own set of problems that are still being dealt with today.

“Corrections in the market, while painful at the time, are oftentimes very healthy. They clean out excesses,” he said. “I’d like to see them a little more often.”