by Brian Kennedy and Dr. Patrick Jones
If you have recently been searching for a rental unit in Walla Walla County you might have noticed that prices have been growing considerably. Depicted on Indicator 5.1.10, fair market rents have been growing at rates faster than some of the larger, more urban nearby cities over the last ten years in the local community. Let’s consider the forces of supply and demand to understand this increase.
Fair Market Rents are used to determine payment amounts for many federal housing assistance programs such as Section 8, and Housing Choice Vouchers. Their calculation can be a little nuanced. The U.S Department of Housing and Urban Development (HUD) uses latest released estimates from the American Community Survey (ACS) to obtain data on the gross rent paid by renters, where gross rent includes standard rent costs plus utilities. The estimates are then adjusted to account for rents paid by recently moved renting households in order to capture new rental rates, as renters who have not moved recently may be locked into a lease with lower rent than current market rates. Then the estimates are inflated from the ACS base year to match that of the current year, using the consumer price index.
The monthly fair market rent in Walla Walla County calculated in this way by HUD for a one-bedroom apartment was $735 in 2019, up over $250, or 57%, since 2008 where it was just $469. Following a similar trend, fair market rents for two-bedroom apartments grew by over $350 over that same time period, increasing from $619 to $972.
Neighboring Benton County, offered as a benchmark for this indicator, hasn’t seen growth rates as Walla Walla has. While fair market rents in Benton County did grow by $250 and $300 since 2008 for one and two-bedrooms respectively, their percentage change falls 10 percentage points lower than those of Walla Walla County, or roughly 47% cumulative increase for both sizes of units.
As fair market rents are used by the federal government in order to determine many housing assistance programs, household income is another key variable. Indicator 5.1.11 tracks the annual income required to afford the fair market rent in Walla Walla, where affordability is based on the HUD’s definition of rent not exceeding 30% of a household income. Here the trend follows the same trajectory, with incomes required for one- and two-bedroom apartments sitting at $29,400 and $38,888, respectively, in 2019. To put that in perspective, the most recent median household income data for the Walla Walla metro area, taken from the ACS, puts incomes at $36,207 for renting households; falling above the one-bedroom but below two- or more bedroom units.
One contributing factor to the high growth in Walla Walla rents rests on supply side forces. The U.S. Census compiles statistics on the number of residential building permits issued by the number of housing units in the structure. In the last five years, from 2014 to 2018, only 80 additional multi-family units were permitted, with none permitted in 2017 or 2018. With so few added in recent years the rental supply hasn’t appeared to keep up with demand.
Contributing to demand side pressures is the high concentration of students in Walla Walla. According to the National Center for Education Statistics’ Integrated Postsecondary Educational Data System (IPEDS), there were 7,189 students enrolled in the fall of 2018. This accounted for just over 10% of the total population in Walla Walla County. The high share of college students in the county population, with their lower incomes and temporary housing status needs, and competing for a scarce supply of multi-family units, contributes to the upward pressure on rents.
However, it’s not just the rental market that is experiencing high price increases in the community. The median home resale value, laid out on Indicator 5.1.1, shows the home prices from the second quarter of 2009 to the second quarter of 2019. Here the data track a similar trend to that of fair market rents. From 2009 to 2019 home prices jumped 53%, or from about $175,000 to $267,000. This rate of increase has likely priced many prospective homebuyers out of the market, leading to longer renting tenure and increasing competition for the low number of rental units.
Walla Walla’s rising fair market rents can be summed up by classic forces of supply and demand. Demand from students and outpriced potential homebuyers impact prices, and coupled with low supply, is creating a rate of price increases that rivals Walla Walla’s geographic counterparts. Unfortunately, Walla Walla permitting data, a forward-looking indicator used in forecasting, show that the pressures on the supply side won’t be easing anytime soon.