Cincinnati's rental market soon will be one of the hottest in the nation

Increases of 5.2 percent rival Seattle, Portland
Posted at 7:00 AM, Oct 24, 2016

CINCINNATI -- Cincinnati will have one of the hottest rental markets in the United States in 2017, with projected rent increases of 5.2 percent -- on par with big West Coast cities, according to a recent Bloomberg report on data from real estate startup Zillow.

The median rent in Cincinnati is currently $1,239, according to the Zillow Rent Index, which shows six years of rental data for the 50 biggest U.S. markets. That's a 35.7 percent increase since Nov. 2010, when the median rent in the Cincinnati area was $913. The Queen City is still one of the more affordable cities in the country -- the national median rent is currently $1,405, meaning that half of all rents are above that figure, and half of all rents are below that.

With Cincinnati rents rising by 5.2 percent next year, the only cities with bigger projected increases are Seattle at 7.2 percent, Portland at 6 percent and Denver at 5.9 percent. By comparison, San Francisco rents are projected to increase by just 4.9 percent in the next year.

Of course, the median rent in San Francisco -- $3,406 -- is already much higher than in Cincinnati and makes even Over-the-Rhine prices seem like a steal.

Even Zillow was surprised by the Queen City's ranking, but the cause of the increases is pure economics.

"A bunch of demand in these cities isn't being met by enough supply," says Svenja Gudell, Zillow's chief economist. "Every other one of these cities is having supply issues and a lot of demand for rentals. A lot of these are strong job markets that are attracting talent rapidly."

Across the Cincinnati metro area, rents can vary widely.

These are the five most expensive ZIP codes to rent in, and the five least expensive ZIP codes to rent in:

Five most expensive Tri-State ZIP codes to rent in

  • 45040 (Mason): $1,843
  • 45140 (Loveland): $1,722
  • 45244 (Dry Run): $1,697
  • 45069 (West Chester): $1,693
  • 45066 (Springboro): $1,666

Five least expensive Tri-State ZIP codes to rent in

  • 45225 (North Fairmount, East Westwood and Camp Washington): $787
  • 45205 (Price Hill): $790
  • 45214 (West End and South Fairmount): $793
  • 45204 (Lower Price Hill and Riverside): $799
  • 45207 (Evanston): $839

These are the ZIP codes with the biggest year-over-year increases, and the biggest year-over-year decreases.

Five biggest rent increases in the past year

  • 45227 (Madisonville, Fairfax and Mariemont): 5.87%
  • 45215 (Wyoming, OH): 5.27%
  • 47060 (West Harrison, IN): 5.19%
  • 45212 (Norwood): 5.08%
  • 45054 (Oregonia, OH): 4.36%

Five biggest rent decreases in the past year

  • 41074 (Dayton, KY): -21.06%
  • 41073 (Bellevue): -14.02%
  • 41071 (Newport): -12.81%
  • 41001 (Alexandria, KY): -7.81%
  • 47018 (Dillsboro, IN): -7.14%

What's behind the rise in rents? Cincinnati's population hasn't vastly increased, so the big driver is desirability.

"It's not that there are a ton more people, but the places they're moving to don't have a lot of places to rent available, so the places that are nice are higher priced," Gudell said.

The housing market in Cincinnati is comparatively calm. The Zillow Home Value Index pegs the average cost of a home in the Cincinnati region at $145,000, for the first time topping the pre-recession prices of 2006 and the highest it's been since 1996, the start of the ZHVI. The average home value had dipped to a recession low of $128,000 in 2012. Home sale prices are expected to increase in Cincinnati by about 2.8 percent in the next year, putting us on the lower end of the growth spectrum.

"The market to buy is solid," Gudell says "It's not crazy, but not lagging behind. It's in step with what you see in the U.S. -- stronger than what Cincinnati is used to historically, but not outrageous.

"Rents tend to be higher as housing prices grow. People are having an increasingly hard time saving up for a down payment and actually finding a home they can afford. Specifically for Cincinnati, on the (home) inventory side, it's down 16 percent from a year ago, so that also figures into what stock is available to rent."

The rise of renters

More than 35 percent of Americans now rent rather than own their homes, according to the Joint Center for Housing Studies at Harvard University. The number of renters has increased by 9 million in the past decade, the biggest rise on record.

"Nationally there's more of a push toward renting with millennials, and that is going to put some pressure on the available rental stock," says Christopher Auffrey, associate professor of Planning at the University of Cincinnati. "Even though some may have looked at ownership, they prefer to live in these hip neighborhoods and rent."

Cincinnati has seen slow but steady growth over the past five years, according to the U.S. Census Bureau's annual population estimates.

It's likely that the increased interest in renting itself is driving up rents. But wages are not necessarily keeping up with the increases in rent. The Joint Center for Housing Studies says the number of American households spending more than 30 percent of their income on rent rose by 3.6 million from 2008 to 2014, to 21.3 million. The number paying more than 50 percent of their income on housing is now at a record 11.4 million.

So along with rents forecast to rise by 5.2 percent next year, housing affordability in the Cincinnati metro area is already the worst it's been in four decades. After hovering around 19 percent for decades, the average renter spends more than 25 percent of his or her income on housing.

Median income wages in the United States are finally rising after being sluggish for 15 years, Gudell says, but that has created a growing gap between wages and rents.

"There's been that disconnect that lands us in the pot of rental affordability looking pretty bad across the country," she says. "The fact that incomes are now starting to rise is good news and helps you keep up with rental increases, but you have a lot of ground to make up."

An issue Cincinnati will have to grapple with in the coming years is how to ensure that neighborhoods in redevelopment have rental options for all incomes. There is a kind of dead zone between "market rate" apartments built by developers looking to profit on a neighborhood's hotness and the subsidized housing for very low-income individuals.

"There are people who have jobs and can't afford Over-the-Rhine, so they go to Westwood or wherever or end up getting roommates," Auffrey says. "If there's not some careful planning or thought about it, you can really drive some people away from certain areas. Some areas can become very exclusive for the rich."

Planning for Cincinnati's bright future isn't easy.

"It would be nice if we got ahead of the curve," Auffrey says. "It's not easy -- planning is trying to forecast the future, which is always going to have risks of accuracy. But, nonetheless, the alternative is just to sit back and do absolutely nothing."

The big buzzword in his field right now is resilience. In urban planning, resilience refers to the idea of being able to maintain a system in the midst of change -- whether it's a natural disaster, a population boom or decline, a changing economic environment.

"It's thinking ahead of time, 'How do we build in the ability to withstand a shock to the system?' " Auffrey says. "Developers have to think about the long-term consequences."