When Monyroor Teng was living in what is today known as South Sudan, there were no jobs and no easy way to get a college education. Joining an army to fight in the civil war seemed to be one of the few options for young men at the time. But there was one good thing: Teng didn’t pay any rent to live in his family’s village.
Now, Teng lives in Manchester, where he was relocated as a refugee in 2004. For the past eight years, he’s lived in a second-floor, three-bedroom apartment with his wife and kids on the West Side. And he says $1,200 of his roughly $1,600 monthly income goes straight to paying rent.
“Where am I going to find the money to pay electric and car insurance?” Teng said. “I’ve never been to any vacation because I cannot afford it.”
He says he occasionally turns to friends and his church community to help make ends meet and provide things like summer camp for his kids or crucial car repairs.
What Teng is experiencing is not unique. Experts say rents in the greater Manchester area are higher than in most places in the country, and a pending housing report suggests the problem is getting worse. Meanwhile, most of the jobs available to unskilled workers don’t pay enough and experts say more people are struggling to get by than poverty rates suggest.
Rent is high
The median monthly rent for a two-bedroom unit in Hillsborough County is about $1,278 including utilities, according to the New Hampshire Housing Finance Authority. That’s up 5 percent from 2015, when the rent was $1,219. Two-bedroom units are the most common and are generally priced closest to the overall rent.
Price increases were higher in Manchester. The Housing Authority placed Manchester metropolitan area rents for two-bedroom units at $1,174 in 2015 and $1,275 in 2016, an 8.6-percent increase.
Two-bedroom units in Manchester ranged from $700 to $1,785 in 2015, according to the Housing Authority.
That’s roughly (HUD rent figures don’t compare perfectly to NHHFA figures since they calculate utility costs differently) in line with data from the U.S. Department of Housing and Urban Development that was used in a cost of living analysis done by the Economic Policy Institute, which compared nearly 620 communities nationwide.
“If you compare [Manchester] to other communities … greater Manchester is more expensive than about 75 to 80 percent of U.S. communities,” said Greg Bird, an economist with the New Hampshire Fiscal Policy Institute.
Bird says rent in the Manchester area is one of the main factors driving up living expenses, the second greatest being child care.
Over the past decade, rents in Hillsborough County have risen faster than in the rest of southern New Hampshire at a rate of 12 percent. And in 2015, county rents were higher than the statewide median of $1,157 for two-bedroom units.
While rents in the HUD-defined Manchester metropolitan area may not be as high as Boston’s or New York’s, they’re higher than those in regional metro areas like Worcester’s ($1,128 for two-bedroom) and Portland’s ($1,181 for two-bedroom) and even major cities in other regions like Las Vegas, Chicago, Detroit or St. Louis.*
Why rents are so high
Everyone seems to agree: The rent is too high. But how did it get this bad?
The short answer is a rental housing shortage.
Over the years, construction of new units has not kept up with regular demand, making what units we have a hot commodity that landlords can mark up in price.
The 2016 Rental Cost Survey, which is due to come out in mid-July, will show rental rates have increased in Hillsborough County, while vacancy rates have gone down.
One sign of low supply is when vacancy rates fall below five percent. In 2015, the vacancy rate for Hillsborough County was 2.3 percent. This year, it’s fallen to 0.9 percent — the lowest it’s been in 14 years, according to Bill Ray at the Housing Authority. That tells him there’s virtually no room at the inn, since vacancy rates at or below 2 percent are usually just a sign of turnover.
In 2014, the American Community Survey estimated there were about 150,000 rental households out of about 158,000 available units.
But Ray says the pressure on supply is now being met with increased pressure on demand due to a rebounding economy.
“The general economy in the southern part of the state in particular has improved more rapidly than we thought it might. That puts demand on housing, in effect,” Ray said. “There’s clearly a need for people and jobs are there. The question is, can people afford to live here and then move here?”
The greatest demand is likely in two-bedroom units as they have the lowest vacancy rate, 1.46 percent, followed by one-bedroom units at 2 percent.
A large problem preventing a growth in new, affordable apartments is the cost-benefit analysis for housing developers. Land and construction costs are high right now, so to be profitable, Ray says, they have to build units at the high end of the market. That means more luxury apartments and townhouses and there’s a growing market for these as older homeowners choose to downsize from a house to a townhouse.
“They’re looking for the same amenities that they had when they owned a house,” Ray said.
While the industry is aware of that phenomenon, it’s anyone’s best guess how many downsizers there are.
Since these high-end units have higher rents, the more of these come online in the greater Manchester area, the higher the average rent figures go up. But there’s still demand in the low and middle segments that isn’t being met so long as developers focus their attention elsewhere, and that scarcity drives up those prices as well.
Property taxes are a factor as well. Economists at the Tax Foundation believe the full property tax bill is passed on by landlords to renters, but what that bill is will vary a great deal. Using the example of a typical three-family apartment building on Howe Street in Manchester, about $150 of a unit’s monthly rent is from taxes.
Meanwhile, incomes in the area aren’t keeping up. In fact, the state’s median hourly wages were $18.19 in 2015 and they haven’t returned to the pre-recession level of $19.51 yet.
According to data from the American Community Survey, median household income in Manchester is $55,306 before taxes. Household income doesn’t take into account household size. And the Housing Authority says the median gross income among renters in Hillsborough County is $48,482. Manchester area rents would be about 30 percent of those incomes, which is what virtually everyone defines as affordable, but median numbers can belie a deeper drop in incomes among the bottom half.
Manchester has the largest share (57 percent) of households that qualify for the Free and Reduced Lunch program through the public schools of any major school district. Households qualify if they have incomes at 185 percent of the federal poverty limit. To put that in perspective, about 28 percent of households qualify statewide.
Household income at 185 percent of the federal poverty limit is about $37,000 annually for a three-person family.
The median two-bedroom rent in the Manchester area would be more than 40 percent of that. And the less money people make, the worse the problem becomes.
Ray says that about 70 percent of renter households in the state making half of the median family income are paying more than 30 percent of it toward rent. And nearly 45 percent of renter households at that level are funneling more than half of their hard-earned money into rent. He estimates about half of all the renters in New Hampshire pay above the 30 percent mark.
In Hillsborough County alone, only 15 percent of all two-bedroom units are affordable to median-income renters.
For some like Bird, affordability might be better defined by a more complicated calculation the EPI does to determine a basic family budget in a given cost environment. In the Manchester area, a couple with one child would need a gross household income of roughly $62,680 based on EPI math. That’s 300 percent of the federal poverty limit.
Only about two-thirds of available jobs in the state pay enough for a sole breadwinner to reach this income level and just 56 percent pay enough individually for two working roommates.
To put it in perspective, people in some of the more common jobs such as retail salespeople, restaurant wait staff, office clerks and cashiers earn median incomes of between $18,680 and $24,200.
So, while officially 9.2 percent of state residents were in poverty in 2014, Bird says the true number is much higher when you take things like rent in the Manchester area into account.
“You hear a lot of news about [how] the economy improved and it’s in good shape, and there is truth to that, [but] it’s more nuanced and really what the kicker is, there’s many more of our friends and neighbors that are struggling to make ends meet,” Bird said.
At the individual level, residents earning 30 percent of the median area income qualify for the federal Section 8 voucher program, which directly pays landlords a portion of the rent.
The obvious solution to the rental shortage and subsequently high prices would be to build more affordable rental units. But Ray says that would require lowering costs for developers. There’s not much that can be done to lower labor or material costs, but Ray says communities can move zoning lines to make potential residential areas less scarce in an effort to bring land costs down.
Costs are so high right now that virtually all the “workforce” housing developments are funded with federal subsidies with rent ceilings attached. That money goes to both new construction and rehabilitating old houses. But Ray says there’s not enough money for us to subsidize our way out of this problem.
Lowering land costs may only benefit the developers if it’s in a “hot” market as they’d be just as likely to charge higher rents, so another way Ray says communities can help get more affordable units built is with ordinances that allow developers to exceed unit-to-space ratio caps by mixing affordable units into larger market-rate complexes.
But with little movement forthcoming to lower rents or build low-rent units in the state, policy makers are starting to look at the other side of the affordability coin: income.
If people could be trained up for better-paying jobs, it would help to solve not only the housing problem but the labor shortage problem for employers as well.
“You have this weird dynamic where you have labor shortages but you also have people struggling,” said Greg Bird with NHFPI.
Bird says one example of this is the Gateway to Work initiative starting to get rolled out by Gov. Maggie Hassan’s office. The plan would spend unused welfare dollars already allocated to the state on education and job training with the help of the community college system, nonprofits and state agencies. Afterword, a worker will ostensibly have better job prospects.
“They’re not going to be a computer programmer at $120,000 a year, but maybe they can get to a mid-level position,” Bird said.
The state hopes to have the contracts in place by July 1 to begin implementation. It’s currently pending with the Joint Legislative Fiscal Committee.