Why Miami is the hardest hit by the rental housing crisis in the United States

K. Brown, a middle school English teacher at Miami-Dade Public Schools, rents a one-bedroom apartment 20 miles from his job in downtown Miami and costs him $1,370 a month — about half of her net salary – and she shares her single bedroom with her teenage son.

She is grateful, however. People who sign new leases at the same complex pay between $1,500 and $1,700 a month, she said.

“When he was little, it was perfect,” the single mom said with a sigh. But now her son is 14 and still sleeping in a metal loft bed above his queen bed. The room is cramped by shelves and Target storage bins.

“He’s getting old,” Brown said. “I need to move.”

Rising rents: why prices are only going up

Across America, nearly 60% of renters have faced rent increases in the past year, with about a third facing price increases of 10% or more, according to a Freddie Mac survey released. in August.

Yet only 38% saw their wages increase, and of these, 32% said the increase was not enough to cover their increased rent. In Miami, the median household income is $44,581. Yet rents in South Florida rose 24.61% between July 2021 and July 2022, to an average of $2,841, or $34,092 year over year. RentCafe found that 97.6% of apartments in Miami-Dade County are occupied and that each vacant unit has 31 potential tenants competing.

Buying is out of the question for many – the median asking price for a home in Miami is $600,000. In late June, US Housing and Urban Development Secretary Marcia L. Fudge declared the city “the epicenter of the housing crisis in this country.”

Brown, who spoke on the condition that her full first name not be used, hopes that by next year she can find a two-bedroom apartment in Miramar, north of the Miami-Dade county line. If not, she will consider moving to the West Coast of Florida or Atlanta.

Mortgage rates exceed 6% for the first time since 2008

“I just hope they start thinking of the teaching profession as a real profession, and start paying teachers and treating them differently,” Brown said. “They’re going to lose all the residents.”

The current rent crisis is the product of several forces converging on Miami.

South Florida is limited by land between the Atlantic Ocean and the Everglades, with scarcity driving up the prices of available plots. The city has long been an investment magnet for Latin Americans from politically unstable countries who would rather put their money in real estate than in banks back home; recent elections that swung to the left in Chile and Colombia have triggered a new wave of buyers.

In recent years, Miami has attracted an influx of high-profile financiers lured by Florida’s lack of income taxes as well as people who relocated during the pandemic from other parts of the country, lured by prospects remote work. Meanwhile, construction costs are rising and insurance prices are skyrocketing.

But while there is a huge demand for middle-class housing, these combined forces make it difficult for private developers to build housing.

“It’s like a perfect, perfect storm is happening in Miami right now,” said Masoud Shojaee, a real estate developer whose company, Shoma Group, has been active in Miami since the 1980s, developing everything from single-family residences to commercial properties.

As Florida home prices rise, middle-class residents wonder if they can afford to stay

While developers have tried to add housing supply, he explained, they face some constraints.

On August 1, the company completed an apartment building called Shoma Village in the traditional, working-class Latino neighborhood of Hialeah.

“We really wanted to give this city something for the [young adults] – so that they stay in the city,” said Stephanie Shojaee, wife of Masoud Shojaee and president of the Shoma Group.

Rents in Shoma Village hover around $2.90 per square foot, with studios starting at $2,060 per month.

Normally, Shoma attracts tenants to properties by paying commissions to brokers and offering tenants a free month’s rent. In today’s market, this isn’t necessary, and the company has had to bring in additional rental teams to handle demand.

Rents need to be set around the market rate to allow developers to secure tens of millions of dollars in financing to construct a building, Masoud said. “You have to show a return. If the return is too low, it’s very difficult to get a loan because the lender will say, “Well, I’m risking so much”. If something goes wrong, you have no leeway to do anything.

For Salim Chraibi, managing director of Bluenest Development, a small company that builds homes for low- and middle-income buyers, the problem comes down to land.

His company builds homes that sell for up to $352,000 for buyers who earn 80 to 140 percent of the area’s median income.

Although the program, which works with the county, is a boon for eligible buyers – buyers only need to put down a 1% deposit and receive assistance with closing costs – it has not. much to drive down prices in the rental market, he said.

The program works “as long as it’s their first home and they live there. So they can’t rent them.

Ian Brice Eichner, who developed perhaps South Beach’s most recognizable building, the Continuum, agreed that unless governments provide goods or other incentives, the private sector is unlikely to find itself solutions to the crisis.

“It’s not even a question of ‘Can you make money?’ Can you just ask a lender to write or make a loan?” he said. “If the land is a bloody fortune and the density is [low] and interest charges are fixed, you don’t have to go to Harvard Business School to know it can’t work.

Rents are rising everywhere. See how much prices are up in your area.

Albert Milo Jr., senior vice president of Related Urban Development Group, which focuses on affordable housing, said his company uses tax-exempt bond financing, low-income housing tax credits, city ​​and county grant programs, etc. “These transactions, they require four or five layers of financing to be done. They are quite complex,” he said.

And while Florida has a trust fund that’s supposed to be used for affordable housing, lawmakers have taken about $2 billion out of it since 2003 and directed it to other uses.

As supply catches up, maybe demand will drop?

Ryan Shear, managing partner of Property Markets Group, says that’s unlikely.

PMG has several projects underway, including a Waldorf Astoria condo development, where 85% of the units have already been sold and the remainder starts at $4 million. But he also developed apartment buildings at a lower price, such as X Miami and Society Las Olas, where individuals could rent a bedroom and bathroom in a shared unit.

“Our original thesis there, seven or eight years ago, was, ‘Hey, rental rates are getting pretty expensive across the country. Let’s create a product where a three-chamber [has] three individual leases for one lease.

The model has worked so well that PMG is developing similar projects in Nashville, Atlanta and Orlando.

“Florida is not going to fall,” he said. “I would be the first to tell you if we saw him. We can see it on the front lines, just by the number of people entering the sales center. … [August] was crazy. And I just don’t see that changing.

About Gene Schafer

Check Also

Take advantage of the boom in the rental housing market with these 3 high-yielding REITs – Essex Property Trust (NYSE:ESS), AvalonBay Communities (NYSE:AVB)

With the national average 30-year fixed mortgage rate hovering around 6.43%, many homebuyers can no …