The surprisingly high price of living in ProvidenceMay 16th, 2011 at 7:00 am by Ted Nesi under Nesi's Notes
Why is it more expensive to live in Providence than in Boston?
That’s the question I had after seeing this chart in the new Rhode Island economic forecast released by Moody’s Economy.com as part of the Revenue Estimating Conference. It shows the change in consumer prices – that is, inflation – since 2000 for Providence, Boston and the U.S.:
For the last decade (at least), the cost of living has been rising faster in Providence than in nearby Boston or nationwide. While the cost of some individual item may be lower here, prices overall have increased about 33% since 2000 in Providence, compared with 27% in Beantown. Why would that be?
Probably because of rents, according to Zach Sears, Economy.com’s new Rhode Island analyst.
“Providence has had a relatively low [rental] vacancy rate, meaning a tighter market, and this would push up rents,” Sears told me in an e-mail. “This was particularly true in the first half of the last decade, when demographics were more positive and the housing stock was not growing much. This dynamic changed in the second half of the decade, as out-migration turned negative and the housing stock started growing faster, easing these pressures, and vacancy rates increased.”
That makes sense. Rhode Island saw the second-largest increase in the cost of renting a two-bedroom apartment over the last decade, behind only Hawaii, according to a study released earlier this month by the National Low-Income Housing Coalition. A household needs to make $39,853 a year – $19.16 an hour – to cover the $996/month fair-market rent for a two-bedroom in Rhode Island, the study said.
Sears’ analysis is also worrying because the rental vacancy rate in Rhode Island has dropped sharply since 2009, and a tighter market could mean higher rents, as I mentioned back in February. And the same trend is expected to be seen across the U.S., Bloomberg News reported last week:
Apartment rents and occupancies are likely to continue to rise as the U.S. home and labor markets remain depressed, economists said at a conference sponsored by investment-advisory firm Bentall Kennedy. …
U.S. apartment vacancies dropped to the lowest in almost three years in the first quarter as the weak homebuying market fueled demand for rentals, according to Reis Inc. …
An estimated 4 million to 4.5 million people per year in their 20s and early 30s are entering the housing market at a time when 28 percent of American homeowners with mortgages owe more than their houses are worth, Poutasse said yesterday at the conference in Vancouver. So-called echo-boomers desire mobility and see properties with negative equity as a hindrance to selling and moving elsewhere, he said.
“This generation isn’t going to behave the same way with housing,” Poutasse said.