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Is there any correlation between housing supply and rent? Or is it basically like flipping a coin.
Is there any correlation between housing availability and rent? Plus we’ve got the latest rental numbers across the seven cities. As always, if you like this work consider supporting us here to help keep it free. We are entirely donor funded.
In June, the average asking rent across all units was $1,855 / month. The median was $1,760. The breakdown by unit type:
Studios:
Average Rent: $1,357 | Median Rent: $1,400
1 Bedroom:
Average Rent: $1,578 | Median Rent: $1,579
2 Bedrooms:
Average Rent: $1,780 | Median Rent: $1,737
3 Bedrooms:
Average Rent: $2,235 | Median Rent: $2,181
4+ Bedrooms:
Average Rent: $2,668 | Median Rent: $2,600
You may have seen a recent report circulating on why young people, especially those in their 20s and 30s, are leaving Hampton Roads. Unsurprisingly, the cost and availability of housing tops the list of reasons millennials and Gen Zers are leaving town.
Actually, that is kind of surprising. 20 and 30-year-olds make up a large contingent of renters in the region. If they’re behind a net migration outward, shouldn’t we see rental options increase? And with more housing available, shouldn’t that mean lower rent?
Let’s say we buy the idea that as the housing availability goes down, rents go up. This is basically the idea adopted by most housing pundits. If it's true, do we see rent go up proportional to housing supply constraints?
Not in Hampton Roads. The availability of housing has an almost random relationship with rent.
Take a look at this chart. It shows the changes in vacancy (housing supply relative to demand), construction, and median rent for every Hampton Roads city between 2014 and 2022. The bottom (left to right) shows how much housing supply has dropped. The left axis (bottom to top) shows how much monthly rent has increased. The bubble size and color show the number of new homes built— the more yellow and bigger the bubble, the more new builds.
Data: US Census/ACS/CityWork
If we buy the idea that rents are dependent on supply and demand, we could reasonably expect to see cities that had the biggest drop in housing availability would have the biggest rent hikes. And cities that had the smallest drop in housing availability would have the smallest rent hikes.
But we don’t see that at all. Hampton had the biggest drop in housing availability and relatively low new construction. Yet, rent in Hampton only went up by $240 from 2014 to 2022. That’s only the fourth highest rent growth.
Suffolk’s rent hikes far outpaced Norfolk and Newport News, despite having similar levels of new construction and drops in housing supply.
Curiously, Portsmouth has roughly the same amount of housing available now as it did in 2014, yet rents increased almost as much as in Norfolk and Newport News, where housing availability fell by around 2% and 2.7% respectively. If rents are closely tethered to supply, Portsmouth rents should not be behaving like Norfolk’s.
So what gives? If this sounds like it’s all kind of randomness, that’s because it kind of is.
If we just look at the change in vacancy rate compared to rent increases, we should see some indication that there’s a correlation between declines in housing supply and rise in rents. But, we don’t see that.
This is basically the same chart as above but without new construction. Visually, you can probably tell there’s no clear trend line between these points.
To get statistical for a moment, the relationship between changes in housing availability and rent has an R2 value of 0.05 and a p-value of .62. Which means there’s no statistically significant relationship between the two features. At the risk of oversimplifying, the weak relationship we see could easily be due to random variations rather than any actual underlying relationship.
Granted, this is a small dataset over a short timeline and runs the risk of painting too simplified a picture. But when taken in context with our previous report on how housing affordability dropped as availability increased from 2007 to 2022, the picture starts to become clearer. Rent depends on a whole lot more than supply and demand. Of course, there are many forces at work in the housing market: age of housing stock, proximity to cultural hubs, unscrupulous landlords, etc…And that’s precisely the point. Rather than defaulting to the anesthetic of supply-and-demand policy that tinkers at the margins of a housing market we believe will ‘sort it out’, we should engage the complexity of housing in our cities.
Because “build more housing” has as much chance of solving our problems as flipping a coin.
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