Declining rents due to rising vacancies around the country hold a lesson for Minnesota policymakers

Economists are often accused of being abstract thinkers and for a good reason. But now and then, a real-life example of economic phenomena presents itself, bridging the gap between theory and reality.

I have written recently about one such example. Namely, during the pandemic, there was a decrease in the housing supply as people moved less, and construction plummeted. At the same time, working from home and other factors increased the demand for housing prices. This pushed housing prices up.

It appears the opposite is happening in rental markets. Declining demand for rental units has lessened competition for rental homes. Prices are falling in many cities. As Reason summarized,

San Francisco has also seen the largest price declines. Rents for studio apartments there have declined by 31 percent year over year there, according to a new report from Realtor.com. Rents for one- and two-bedroom units declined by 24 percent and 20 percent respectively.

….

Nearby San Mateo and Santa Clara counties have seen price declines of 12 percent for one-bedroom units, and around 10 percent for two-bedroom ones.

It’s not just California, either. Other dense urban areas have seen steep price declines as well. King County, Washington (which contains Seattle) has seen rents fall 12 percent for studios and 10 percent for one-bedroom units.

In Manhattan, rents have declined by 15 percent for studios and 10 percent for one-bedroom apartments. Washington, D.C., and Boston both also report double-digit rent drops.

The trend, if not the individual figures, matches reports from other listing websites. A recent report from Apartment List found median rents had declined 20 percent year over year in San Francisco, 12 percent in New York City, and 9 percent in Seattle.

A lesson for Minnesota policymakers

Minnesota housing is relatively unaffordable compared to similarly situated states. This will likely be exacerbated by the COVID-19 crisis.

As these examples show, if Minnesota lawmakers want to address the lack of affordable housing, they need to address factors that prevent or delay housing development. This will likely spur housing construction, lessening competition on existing homes, which would put downward pressure on prices.

Government funding is not a sustainable solution to the housing problem.