Avoid being house poor in South Florida? You’ll need to earn this much money

You’ll need to make nearly $112,000 a year in South Florida or risk being “house poor.”

That’s among the housing-affordability challenges recently identified by researchers at Florida Atlantic University, Florida Gulf Coast University and the University of Alabama.

The typical South Florida household — which could constitute a single renter, a young couple or a budding family buying their first home — must rake in $111,914 a year, otherwise their incomes are almost completely swallowed by housing expenses, or they are paying more than the widely recommended 30% of their income in rent.

“That means on average, you’ll have more difficulty paying for things like homeowners insurance, renter’s insurance, automobile and health care insurance,” said Ken H. Johnson, a real estate economist at FAU’s College of Business. “You’ll have difficulty saving that nest egg to make that purchase.”

According to the United States Department of Justice, Florida’s median income is $60,429 for one earner, $74,131 for two earners, $83,396 for three earners and $100,476 for a family of four, all of which fall less than the $111,914 salary figure required for a comfortable living situation in the Greater Miami area.

“That number is a big number,” Johnson said. “My gut feeling is most people are going to be feeling a very big economic pinch for renting the average unit in Southeast Florida.”

The study also did determine rent growth is normalizing, with the Greater Miami area seeing a year-over-year increase in rent prices of 2.83%. Johnson has expected that rents would rise by about 3% to 5% for the next few years.

Housing demand outpaces supply

The residential unit supply, or “inventory,” has been low across the entire tri-county area. According to the Miami Association of Realtors, the monthly historical average of existing inventory, excluding new construction, is higher than the current inventory in each county.

In Miami-Dade County, the monthly historical average of existing inventory is 20,302 units, but the current inventory is 9,467. In Broward County, the monthly historical average of existing inventory is 15,411 units, but the current inventory is 7,528. And in Palm Beach County, the monthly historical average of existing inventory is 16,196 units, but the current inventory is 6,953.

“I think supply will grow to meet the demand. Just right now, we’re at a particularly interesting spot where we’re short of units to own, either existing or newly built,” Johnson said. “Will there be a time where we’ll be building enough units? The answer is yes. But that’s probably not in the near future because economic conditions just aren’t dictating that right now.”

Facing higher interest rates

Part of the supply problem lies in high interest rates for both the developer and the tenant, Johnson said. This barrier stops many homebuyers from financing new homes, and it spikes developer production costs because they often borrow money to build units.

“The high mortgage rates are hurting the demand side, but the high interest rates are also hurting the supply side from the developer because they aren’t working with a pot of gold somewhere in their organization,” Johnson said.

Alex Platt, a principal agent at the real estate company Compass, said everyone is getting “squeezed,” especially because the economy is tightening, wages are not rising considerably and the cost of living has soared. He said he feels shortages in housing supply will persist for a long time.

“It’d be nice if there was more lower middle-income housing, so that people who wanted to move into a new rental could do it, but there’s just a shortage of it,” he said.

Another problem is people becoming “gridlocked,” Platt said, meaning they want to sell their home and move somewhere comparable in the region but cannot do so without losing money.

“If you’re in a three-bedroom house, and you want to move up to a four-bedroom house, it’s going to cost you so much more,” he said. “If you’re in a four-bedroom house and you want to sell it and move into a three-bedroom house and downsize, you might put a little money away, but it probably won’t be the same quality of living that you’re used to and it’s going to cost you the same amount.”

Johnson and the other researchers remain optimistic about the state of South Florida’s real estate market despite the constraints faced by many residents. Still, relief in prices likely won’t come soon.

“Some people may end up leaving the area due to these costs, but it won’t be enough to balance out the influx coming into the state,” said Bennie Waller, a real estate expert at the University of Alabama’s College of Business, in a statement about the study. “Florida has a vibrant, expanding economic base that will continue to draw people in, most likely preventing rents from falling.”

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