Are incomes in San Jose keeping pace with rent?

Opp Now web editor Will Newcomb surveys the conflicting factual claims about housing affordability in Silicon Valley, and uses median income data to show that rent and income increases are broadly tracking each other:

One challenge has long been at the forefront of San Jose city’s agenda: housing affordability. A valuable method of analyzing housing affordability is to look into data comparing household income with monthly rent values over time. 

A quick review of different media shows that there is no published consensus on data that would lead to useful conclusions on the severity of housing affordability. Some media outlets suggest incomes are increasing at pace with rents, while some suggest an egregious gap growing between rents and income. This is primarily because different media outlets use different sources, and it all seems to be muddled. 

In this article, I will attempt to find a statistically fair way of analyzing data from valid sources on median income and rent in order to arrive at a clearer understanding of San Jose’s housing affordability. 

Let’s begin with an example to highlight the discrepancies. In February 2019, the Mercury News reported that “In San Jose...the median household income of $96,600 has grown 19 percent in the past five years” [1], a statistic the author pulled from GOBankingRates.com. However, data from the US Census Bureau indicates that within the same five year timespan between 2014 and 2018, the median household income per year in San Jose increased by 29.6% [2] as derived from the table below. 

In December 2019, the Mercury News furthermore reported that “in San Jose, the current average rent of $2,697 is 74 percent higher than in 2010” [3]. In comparison with a 47% increase in median household income for the same timespan between 2010 and 2018, the 74% increase in average rent may seem like a significant indicator of housing unaffordability because it yields a 27% higher increase in rent compared with income. 

However, data for average monthly rent inherently yields higher values than median monthly rent because the average dataset doesn’t adjust for exorbitantly high rental prices from a small minority of renters. Therefore, data analysis using average monthly rent is misappropriated for housing affordability because it skews the data analysis towards making the ratio between income and rent seem much more imbalanced than it actually is.

Looking at median values instead, between 2011 and 2018, the median household income per year in San Jose increased by 47.6% [2]. Within the same timespan between 2011 and 2018, the monthly median rental value in San Jose for Single Family Residence and Condo/Co-Op increased by 53%, according to Zillow [4]. The graph below provides a visualization of these two trends. 

The annual median rent amounts for Single Family Residence and Condo/Co-Op were generated by multiplying the monthly amounts from [4] by 12. 

As shown in the graph above, the 5.6% difference between respective increases in median income and rent over the 8 year timespan is much more comparable than the 27% difference between the average income and rental values referenced earlier from the Mercury News data. Moreover, the total increase in median income over the 8 year period is $36,242, while the total increase in median rent is only $14,088, which is less than half the total increase in median income. This indicates that although the relative increase in median rent is 5.6% higher than that of median income, the net increases in median income still far outpace the increases in median rent values at a respective ratio of $2.6 to $1. 

Nevertheless, supply will be the critical component in mitigating housing costs as demand in housing continues to increase in the near future. In order to avoid stagnation in generating new supply, the responsibility falls on the citizens and city government of San Jose to prioritize looser zoning restrictions and accelerated permitting processes for developers, while retaining both aesthetic appeal, environmental standards, and community benefits.

Will Newcomb recently graduated from Santa Clara University (2019) with a Bachelor’s in Bioengineering. He is passionate about getting involved in a range of projects including biomedical device development, sustainability and green technologies, and city resource and infrastructure research in order to help tackle medical, environmental, and civil challenges facing both our communities and our planet at large.

Follow Opportunity Now on Twitter @svopportunity.

References

[1] “In some Bay Area cities, making $200,000 a year means you’re middle class”, https://www.mercurynews.com/2019/02/22/in-some-bay-area-cities-making-200000-a-year-means-youre-middle-class/

[2] “MEDIAN INCOME IN THE PAST 12 MONTHS (IN 20XX) INFLATION-ADJUSTED DOLLARS)”, United States Census Bureau, ACS 1-Year Estimates Subject Tables

[3] “Here’s how much rent has gone up in the Bay Area since 2010”, https://www.mercurynews.com/2019/12/20/heres-how-much-rent-has-gone-up-in-the-bay-area-since-2010/ 

[4] “Monthly Median Rental Values in San Jose for Single Family Residence and Condo/Co-Op”, Zillow Rent Index (ZRI)