Cincinnati leapfrogs Nashville, Austin and Seattle for nation’s fastest-growing rents

CINCINNATI (WXIX) - Rents are rising in the Tri-State faster than anywhere else in the country, according to new report from Redfin.

June data showed Greater Cincinnati’s median asking price up 5.9 percent since May and 39 percent since June 2021. Those increases put the region’s rent growth ahead of Seattle, Austin and Nashville—the only markets it trailed in last month’s report.

The Queen City, long considered affordable, appears to be bucking a national trend of tapering rent growth. After a torrid start to 2022, median asking rents were up just 14 percent in the U.S. compared to last June, the smallest annual increase in nine months. Rents rose nationally just 0.7 percent from May, the smallest monthly gain of 2022.

Redfin Chief Economist Daryl Fairweather attributes slowing rent growth to renters feeling the pinch of inflation. “With the cost of gas, food and other products soaring, renters have less money to spend on housing,” Fairweather explained.

In Greater Cincinnati, the median asking price of $1,815 remains about $200 below the national average. It’s 38th overall among the 50 most populous metropolitan areas.

But the region’s rents remain above those of regional peer metros like Indianapolis ($1,499), Columbus ($1,689), St. Louis ($1,553) and Kansas City ($1,434). Year-on-year rent increases in those places were also comparably modest.

The only peer city with higher rents is Nashville, where the median asking price hovers at $2,176, a year-on-year increase of 30.5 percent.

Meanwhile, the region is 11th out of its 14 peer cities in housing production, says Chamber President and CEO Jill Meyer.

A lost decade of housing

The U.S. real-estate market today is a reflection of housing trends that go back more than a decade. National housing construction never fully recoverd after the Great Recession due in part to rising construction costs, according to report from the Cincinnati USA Regional Chamber of Commerce.

Since 2005, the national average of construction costs for single-family homes grew 40 percent while costs for multi-family construction ballooned more than 80 percent, the report says.

A shrinking labor market also contributed. In Cincinnati, 40 percent of all construction jobs disappeared in the years following the housing market crash of 2008, exceeding the national average of 25 percent. Cincinnati is still missing about a quarter of those workers, per the Chamber report, leading to higher labor costs.

Those costs were shouldered by homeowners and renters. Tightened lending standards also meant fewer new mortgages approved. Production decreased, constricting supply of new units across the affordability spectrum. Prices rose as the Tri-State produced only enough homes to accommodate its modest population growth, as shown by Census Bureau data. The region’s housing supply and population grew in step at 0.3 percent in the decade preceding 2020, during which it added 80,000 residents and 30,000 units.

The city itself lost 4 percent of its housing units over the same span, likely a result of aging housing stock, according to a 2022 report commissioned by Cincinnati City Council. By 2019, the region had turned from a housing “surplus” market to a housing “shortage” market, reflecting a deficit of 10,245 housing units overall, according to a New York Times analysis of data from Up For Growth.

The missing middle of market stagnation

Nor was there much incentive for private firms to build in the region. A 2019 report from the City of Cincinnati’s Department of Community and Economic Development found rental incomes weren’t enough to offset rising construction costs and ongoing maintenance costs. New construction required ad-hoc incentives or tax abatements to remain viable, and those are often inequitably distributed, according to the City Council report.

Hence the region grew but its housing landscape remained inelastic, with little slack across the affordability spectrum. That sort of inert real-estate market had real-world impacts.

Housing market research, including a 2019 paper from the W.E. Upjohn Institute, highlights a process called “filtering” where new market-rate construction begets housing turnover. Rent growth is suppressed across middle- and low-income sections of the market as a result.

But filtering only happens in markets with significant elasticity. Markets like Cincinnati’s pre-pandemic, where new construction strained to keep up with population growth and many housing units lapsed from age, experience less filtering and become ever-less affordable.

Compounding matters, Cincinnati’s housing market made it a prime candidate for investor purchases of single-family homes. Nearly 20 percent of all home sales in the city today are to investors rather than buyers who intend to occupy the home, according to an Enquirer analysis of Redfin data. One company owns more than 3,100 houses in Hamilton County.

Investor-owned homes mostly become rentals, further constricting the housing supply and forcing many potential first-time buyers to remain renters. According to the City Council report, home ownership declined 8 percent over the decade, and Cincinnati now has one of the highest shares of renters—62 percent—in the country.

A separate Enquirer report found that rents for single-family homes are driving rental increases, with those rents growing nearly four times faster than apartment rents in the Cincinnati metro area.

COVID enters the chat

Cincinnati’s inert real-estate market likely contributed to its relative housing stability 2020-21. While rents cratered in larger coastal cities during the pandemic’s early days, the Tri-State was one of the few metros to get through it without ever seeing a decrease in median rents, according to Realpage data.

But the early-pandemic shock eventually gave way to a buying frenzy across the U.S., with surging demand among remote workers even in cities long thought affordable.

Rents rose as more people chose to live alone, and rising mortgage interest rates froze more would-be homebuyers out of the housing market, according to Redfin Deputy Chief Economist Taylor Marr.

Now, after a 15-year span bookended by a housing collapse and a pandemic, places like Cincinnati—perhaps Cincinnati uniquely—no longer appear as affordable as they once did.

Difficulty with density

Developers are taking notice. Greater Cincinnati saw a 124 percent annual increase in multifamily construction permits in the year ending March 2022. Census data show the region’s new apartment supply is expected to set a record this year.

The market will see more than 3,500 new units in 2022, compared to about 1,000 new units in 2021. The gains will be spread out as well, according to RealPage. Seven of the Tri-State’s nine submarkets will get at least 300 new units.

More dense housing is a good thing, according to the Chamber, whose 2020 report made the case for housing density as a catalyst for population growth. The report noted nearly half of all permits issued in rapidly growing cities like Columbus, Minneapolis and Austin are for dense housing rather than single-family homes. By contrast, 74 percent of all housing units permitted in Cincinnati in 2020 were for single-family construction, a percentage that roughly corresponds to the share of land in the city zoned for single-family homes.

“The bottom line is clear: the strategy to increase our regional housing production to catch up with other regions must include more dense construction,” the report reads.

Housing policy experts, public officials and others agree. In an Enquirer op-ed published last week, Cincinnati transit advocate Brad Thomas offered modified parking minimums as one solution.

“Parking minimums add additional costs to housing, make in-fill more difficult and encourage driving. Removing parking minimums will help us repopulate the city,” Thomas argued. “This wouldn’t prevent parking owners from providing parking, but it wouldn’t obligate them to do so either. At the very least, we should reduce or eliminate parking requirements around high-frequency public transportation.”

The topic of parking minimums comprises part of a national debate about restrictive zoning practices. The Biden administration signed on to reform efforts in a Housing Supply Action Plan announced in May. Redfin’s Fairweather has singled out Minneapolis as a city that successfully modulated its zoning code to create more multi-family housing.

“To combat soaring rents, more cities should follow Minneapolis’ lead,” Fairweather said. “Minneapolis eliminated single-family zoning in 2018, and last year got rid of a rule that required residential developers to include parking spaces. Now builders can replace parking spots with more housing units, which increases supply and therefore releases some upward pressure on rents.”

Minneapolis’s rental market shows signs of being the most renter-friendly in the nation. In the year preceding June 2022, the metro saw a year-on-year rent price decline of 7 percent despite landing seventh in most multi-family construction permits issued, according to June data from Realpage.

Cincinnati City Council recognized the problem of the city’s constrained housing supply last year. A proposal sponsored by councilmember Liz Keating and backed by the city administration, the Chamber and the Port Authority would have removed provisions in the city’s zoning code that limit the number of housing units able to be constructed per unit of land area.

“Cincinnati needs more housing in all areas at all levels, and much of that housing will need to be rental housing,” Deborah Collins of the Real Estate Investors Association of Greater Cincinnati said in support. “Our members welcome this as an opportunity to serve our customers; the proposal would allow renovation of older buildings and construction of new rental housing in Cincinnati. This is an important first step in solving our housing shortage.”

Said Chamber President and CEO Jill Meyer, “Cincinnati should rightly be proud of its many vibrant business districts. These districts support neighborhood-based economies and build stronger communities, and many of the business owners in these districts are women, immigrants and minorities. Facilitating the addition of dense housing in our city’s business districts, which is where this ordinance is focused, will strengthen existing small businesses and provide opportunities for new business growth.”

The ordinance faced significant public pushback. Opponents cited the potential for small living spaces, gentrification, parking scarcity and infrastructure limitations. An Enquirer op-ed derided Keating’s ordinance as “one-dimensional thinking.” It died in committee by a 5-2 vote.

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