Spiking rents in Kansas City threaten new real estate bubble that’s hardest on the poor

This was nuts. Lisa Miller’s rent was jumping a third this summer, to $600 from $450 — more than she could possibly bear.

What the Kansas City home caregiver didn’t know was that the whole central city has been going nuts. But she was about to find out.

Miller stepped into an alarming rental “bubble” that is rising over the Kansas City metro area, in both apartments and houses.

Rents have been rising at an accelerated rate over the past year — by double-digit percentages in some poorer ZIP codes — even though household incomes and developers’ costs have remained flat with inflation.

“This is a bubble and it can’t go on forever,” said Kirk McClure, a professor of urban planning at the University of Kansas. “The arithmetic doesn’t work. This is a system that is going to break.”

The rising rents strain many household budgets, but they are brutalizing families and individuals earning lower incomes.

Miller figured she would take refuge in the City Union Mission’s women’s and family shelter for the month of July and give herself time to save up a deposit for a new apartment and find a rent she could afford on her $8.82 hourly wage.

The shelter provided her a list of low-cost rental properties so she’d have phone numbers to call. The list was old — from 2014 — and it included some of the rents from that time.

In her notes, she struck a line through the old rents and scribbled the new ones she was hearing over the phone:

A $350 single-bedroom apartment was now $500.

A $350 studio, now $436.

Another $299 single bedroom was now $530.

Miller smirked. “I could’ve found a place in 2014,” she said.

Data collected by Zillow show that Kansas City area rents in multifamily buildings in 2016 overall are up 5.3 percent from a year ago, compared with a nationwide increase of 3.4 percent.

But the data by ZIP code show that renters in parts of Jackson County and Clay County are shouldering the brunt of increases, while rents in most of Johnson County have remained unchanged or even declined slightly.

The rising rents are likely driven by several factors, analysts and developers say.

There’s more demand for market-rate apartments, especially in midtown, the Crossroads and downtown, as a millennial generation heavy in renters stays closer to the central city.

Some of the rising rents are making up ground from when the area lagged behind national growth coming out of the Great Recession.

But what is distressing many neighborhoods is that ZIP code areas from Kansas City’s Northeast neighborhood down through the central core east of Troost Avenue have been hit with double-digit increases.

The neighborhoods where incomes and rents are the lowest saw average rates rise by as much as 14 percent since June 2015 — an average of nearly $90 a month in the hard-hit ZIP codes. Where rents had been depressed, building owners are taking what the market will bear.

The rising rents support new developments. But the bubble is a threat particularly in neighborhoods with older building stock and new developments; if it bursts, developers in those neighborhoods may default on loans if they are dependent on $900 rents.

Fewer and fewer of the rental properties are accessible to lower-income renters, said Gloria Ortiz-Fisher, executive director of the Westside Housing Organization, and families waiting for federal housing vouchers to get into market-rate buildings “have to wait for years.”

“The sad part,” McClure said, is that because incomes aren’t rising with the rents, a market with plenty of vacancies has still created a shortage “for the poorest of the poor.”

“The truth is, it’s hard to provide a good-quality unit you can rent for under $500,” he said. “And the truth is there are a hell of a lot of poor people.”

‘It’s a madhouse’

Bridget Hughes keeps two old wooden baseball bats just inside her apartment door.

No, she concedes, she and her husband, Demetreius, don’t feel safe here with their four children in this cramped, two-bedroom apartment near 13th Street and Benton Boulevard.

But at least they like their new landlord, she said. He was able to put them into this building on short notice at $475 a month, not including utilities, just when their panicked search for a place to live in December was about to make them homeless.

The last time they were looking — before they moved into the basement of her parents’ rented house in Independence three years ago — “you could get a four-bedroom house for $500, but it’s $675 now,” she said. Or more, much more.

Stories like theirs came like a flood this summer when federal and local officials began holding community meetings to build a new regional fair-housing plan.

Stories like that of Richard Eiker, who drives with his engine warning light on, hoping the car will continue to get him from his inexpensive basement apartment in Raytown to his $11-an-hour job at a McDonald’s in Kansas City, and not add a car repair he can’t afford.

And Santesha Gray, who has to allow an hour and a half for her bus ride from her far south Kansas City rental home to her downtown grocery clerk’s job because she and her three children could no longer stand the nightly fears living in the apartments they could afford closer in.

It was startling how many people came to the meetings to share their grief over “skyrocketing rents,” said Brian McKee with MORE² — the Metro Organization for Racial and Economic Equity.

MORE² coordinated the public meetings for the Mid-America Regional Council, which is working with community agencies to develop the fair-housing plan required by the U.S. Department of Housing and Urban Development.

To tell her story now, Hughes has to speak over the summer play of children chasing blown bubbles in their sparse living room because it’s not safe outside.

“It’s a madhouse,” she says.

This is what you have to deal with when wages don’t keep up with rising rents, she said.

Her $8.90-an-hour fast-food job and her husband’s $9 wage at a convenience store combined can’t meet the family’s barest needs.

And you are powerless, she said, when your family lands in a dangerous building or meets a negligent landlord. She was remembering their place a few years ago near 38th Street and Woodlawn Avenue: broken appliances, a flooded basement and chipping, lead-based paint that went unrepaired despite plea after plea.

The Hugheses tried to hold back rent payments as leverage to compel the landlord to action. Big mistake. All that did was spawn a landlord complaint that got the family kicked off housing assistance.

Their refuge with her parents in western Independence ended abruptly in December. The house her parents were renting was going to go from $735 a month to $1,050 at the first of the year — an amount her parents would not pay.

Rents are up in Independence, too. And Sugar Creek. And the Northland. And Raytown, Grandview, Lee’s Summit and other places across the metropolitan area.

Even before the recent bump in rents, the “Out of Reach 2016” report by the National Low Income Housing Coalition showed that the Kansas City area was already facing the heaviest housing burden in the region.

The report determined that a renter would need to earn at least $17.17 an hour in full-time wages to reasonably afford a two-bedroom apartment in the Kansas City area market.

That exceeded St. Louis’ $16.15, Omaha’s $16.08, Wichita’s $14.27, Des Moines’ $16.23, Oklahoma City’s $15.21 and Memphis’ $15.90.

Counting people out

Mike Ivancic may not be your typical landlord dealing in affordable housing.

Rents are hard on people. They eat up half of some renters’ income or even more. So he scavenges estate sales for furniture, clothes and other things that might ease a family’s stress.

He’ll also give a renter with a past felony conviction a chance, he said, even coming out of a halfway house.

It’s rewarding, he said, to open doors to new homes. But it’s also a hard and sometimes dangerous business.

“I’ve got a concealed-carry (gun) permit,” he said. He has two Akita shepherds to help clear houses. “I’ve had someone try to knife me. It’s the whole package.”

As the CEO of Nitro Real Estate Services, Ivancic is mostly a manager of properties — some 150 — and the owner of about a dozen of them.

He’s had a close view of what has happened with rents. Property owners track trends gathered by online services, and they call on each other as well, he said.

Some of the increases underway are making up lost ground from years when rents were more stagnant. An increase in demand is also enabling higher rents.

“More people are renting today than ever before,” he said. “Millennials saw what happened to their parents (during the home ownership busts during the 2000s).”

When the market can hold higher rents, owners are going to head that direction, he said. It increases the overall value of the property. It makes more repairs and rehabs possible.

“But you have to have affordable housing,” he said. “Where you get the higher rents, you’re counting people out. You’ve got to have a community.”

The low-income housing market can attract more predatory owners, too, says the fair wage organization Stand Up KC.

Battered properties come cheaply, the group says, and profit-minded owners will do just enough preparation to fill it with renters, then limit maintenance and repairs.

The line for affordable housing “is pushing east,” said Jacob Bosch at Metro Lutheran Ministry in Kansas City, who helps families navigate this volatile landscape.

The 30 percent standard — which held that a household should spend no more than 30 percent of its income on housing — seems “antiquated” now, he said.

Anymore it’s a goal that stressed households might hope to get back down to.

A better barometer combines housing and transportation costs, he said, because higher rents and low wages are compelling people to travel farther and farther by public transportation — or by car, if they can maintain one — to find work.

It’s not easy without a car. Mid-America Regional Council research shows that while 41 percent of the metro area is linked to public transportation, the public transportation reaches only 9 percent of the area’s jobs.

“I’ve got families paying 70 to 85 percent of their income on housing and transportation,” Bosch said.

Who’s to blame?

This is not the housing mortgage bubble, McClure said, where many predatory lenders knowingly abused vulnerable buyers with inflated home values. He’s not criticizing rental owners who set their rents at what the market is bearing — even if the market itself in Kansas City “is not rational.”

“I don’t know what it will take for a reset,” he said.