RENT CONSUMES A LARGE PORTION OF AN ENTRY LEVEL WAGE EARNERS' BUDGET -
We've all heard the story over the last couple years: rents are increasing and wages aren't keeping pace. Those reports are often national or have a statewide focus. What is the story locally? And equally important, how is that balance of costs and income impacting newly educated individuals, fresh out of trade schools and universities? For those about to break into a healthy job market, are they facing tougher economic conditions while rent is consuming a larger portion of their household budget than for those who graduated ten years ago? Examining wages of entry-level jobs in relation to the median rent gives us insight to these questions and is exactly the intent of indicator 6.2.6.
Indicator 6.2.6 measures the annual median rent paid by renting households as a share of the average annual wage of entry-level jobs. Determining median rent is fairly straight forward. It's the midpoint value where exactly half of all renting households pay more and exactly half pay less. In this context, according to the U.S. Census surveys, rent refers not only to the market rent but also other shelter costs such as water, sewer, garbage, and electricity. For simplicity, the costs will be referred to as rents here. In the Wenatchee metro area (comprised of Chelan and Douglas Counties) the median rent in 2017 was estimated to be $852 a month, or 70% of that in Washington as whole, which sat at $1,216.
Wages for entry-level jobs is less straightforward because there are no direct data on wages pertaining to what might be classified an "entry-level job". In cases such as this, economists often turn to approximations. Here the average annual wages of individuals ages 22-24 are used as the proxy for entry-level job earnings. The data for the metro area are found in the Quarterly Workforce Indicator Explorer from the U.S. Census. This age group was used because it is the typical age individuals will be entering the job market, degree in hand from a university or tech school but often with little career experience. Locally, the average annual wage for an entry-level job in 2017 was $26,052, lagging behind the state average of $34,428, or by about $8,000.
Combining these two measures, we see that rent consumed about 39.1% of the average annual wage of entry-level jobs in 2017 in the two counties. Growing by a compound annual growth rate of 0.6%, this ratio is up 2.7 percentage points since 2005 when it stood at 36.4%. The Wenatchee metro area started off the series just 1.7 percentage points under the State, but by 2017 that difference had nearly doubled to 3.1 percentage points.
While over the entirety of the trend, the region has shown an increase in rents as a share of entry-level wages, in the last six years that share has started to fall. Shortly following the Great Recession (2011), the share peaked at 46.1%. This was one of only two years where the local ratio was higher than that of the state, which also peaked in the same year at 45.2%. Since then there has been a gradual decline both locally, by a compound annual rate of 2.3%, and statewide, by a rate of 0.9%.
This decline of rent to entry-level wages can largely be attributed to the growth in wages. In 2011 the average annual wage for an entry-level job was about $19,500 in the Wenatchee metro area. This grew by a compound annual growth rate of 4.3% to 2017 where it sat at about $26,000. Over this same period median rent grew by just 1.8%, compounded annually, increasing from roughly $750 a month to just over $850. Wages of this group in the metro area marched upward, largely on par with the state growth, at just 0.6 percentage points lower. The real difference lay with the growth rate of rents. Statewide, they more than doubled the local median, increasing by 3.9% since 2011.Simply put, local wages and rent prices have weathered the recovery relatively better than statewide estimates.
Other support for this assessment comes from indicators 6.2.4 and 6.2.5. The indicators represented here show the share of households that spend 30% and 50%, respectively, of their income on rental costs, defined as gross rent the same as above. By definition, these measures look at all renting households, setting aside their job level. Here too, Chelan and Douglas Counties are faring better than both the state and national trends.
In 2017, about 30% of renting households dedicated 30% or more of their income while 12.5% were paying 50% or more of their household budget to rental costs. In a state whose averages are largely driven by the high wage markets on the west side, rents still take a substantially larger portion of the household budget than observed locally. Statewide, 45% of renters are paying 30% or more of their income on rents, 15 percentage points higher than the Wenatchee metro area. Statewide, 21.2% of renting households fell into the category of paying 50% or more, or nearly 9 percentage points higher than the locally community. National trends have followed suit of that of Washington. While it might surprise, Chelan and Douglas County residents are spending less of their budget on rents, leaving them with more money in their pockets for other discretionary spending.
Up to now the focus has been on the rental market. What does that ratio look like for those wishing to be home owners? Indicator 6.3.1 pulls data from the University of Washington Runstad Center for Real Estate, and tracks the median home resale value. Taking an annual average of the 2017 data shows that the median home resale value is about $295,010 locally and $344,350 statewide. This is roughly 11.3 times the average annual wage for an entry-level job in the Wenatchee metro area and 10 times statewide estimates. However, this ratio has been growing since 2005, where it was at 9.3 times the entry-level wage. This trend diverges from the state which has shown a decrease since 2005, where it was 11.1 times the entry-level wage.
So while rents (or better, shelter costs) as a share of the entry-level wage seem to be on the decline after a brief run up to the Great Recession, the same scenario can't be said for homebuyers in Chelan and Douglas Counties. In the most recent years, wages for those new to the labor market are starting to increase at a rate fast than rents but home price appreciation is still outpacing them both. It's not surprising, then, if individuals are renting a bit longer, waiting for that next job promotion, in order to save up enough to purchase a home.
