Despite high rents and the shift to remote work, jobs, amenities, and density continue to attract young people to cities. It has never been more expensive for young people to live in a big city. True, every generation feels like they had it harder than anyone else. The first week that I moved to New York in 2000, I went to a party where a woman five years older than I said that the city had "priced out young people trying to start their careers." She had paid $800 a month for a studio apartment when she moved to the city in the mid-1990s, but by 2000 that rent had grown to more than $1,000.
If she could only imagine what people are paying today! The figure below shows the median rent for a studio in four boroughs and the rent the average New Yorker can actually afford (average annual income divided by 40). This is similar to The Economist's Carrie Bradshaw index (named after the main character of HBO's late 1990s/early 2000s comedy series, Sex and the City), which tracks the cost of living alone across the country. Wages have risen over the past 24 years, but rents have gone up far more. After the pandemic rent spike, even a studio in the Bronx is barely affordable for the average earner, while Manhattan and Brooklyn are completely out of reach.
Source: streeteasy.com, Bureau of Labor Statistics
Based on The Economist's estimates, New York City is an outlier when it comes to unaffordability, but about half of the cities the magazine considered charge more rent for a studio than the average person can afford.
It's a striking trend, and it suggests that something is not working. Wages should be rising with rents; otherwise, people would presumably move out, thus bringing rents down. While cities with higher rents do tend to pay higher wages, the correlation is not that strong, and most high-rent cities don't pay nearly enough for a single person to live alone.
The reason: the housing market is distorted by limited supply and inelastic demand. Zoning restrictions and other regulations on housing keep prices high and prevent enough small apartments for singles from coming onto the market. Even Texas cities are becoming unaffordable, though much less so compared with coastal, more supply-restricted cities. New York City is especially unaffordable because pervasive rent controls further warp the market and drive-up rents on market-rate housing.
But constrained supply is not the only reason for high prices. Another is an insatiable demand to live in some cities. New York, for all its problems, remains such a place. Research from economist David Albouy indicates that people are willing to pay a large premium for proximity to amenities like density, entertainment, and good schools–provided they can count on a reasonable level of safety. The biggest discrepancies between rent and wages tend to be found in the most amenity-rich locations: New York, Boston, Miami, and cities in Southern California. Urban density or access to a beach increases the odds of a city being unaffordable. Most affordable cities–like Wichita, Kansas or Lincoln, Nebraska–have neither.
Cultural amenities and density are not everything though. Detroit is an affordable city that offers both–but it does not offer opportunity, another large component of demand. If you're young, being house poor (meaning that you pay a large portion of your income on housing) can be a good investment in your human capital, at least for white-collar jobs. Living in a city means access to better jobs that expose you to people and skills that can pay off for the rest of your life, even if you move somewhere else eventually. A few years of living with roommates, or in a tiny unaffordable studio apartment, means higher wages later. This is why housing in cities like San Jose with big creative clusters is so expensive. Upwardly mobile but currently low-paid white-collar workers end up competing for housing with other low-paid workers.
Still, it's remarkable that rents went up in American cities after the pandemic, despite the rise of remote work. The shift to working from home should make proximity to good jobs less valuable, as well as making demand more price sensitive. So far, though, workers still appear willing to pay up to live in desirable cities.
Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.