Why Miami is hit the hardest in America’s rental housing crisis
“When he was little, it was perfect,” the single mom said with a sigh. But now her son is 14 and still sleeping in a metal loft bed above her queen bed. The room is cramped by Target bookshelves and storage bins.
“He’s getting older,” Brown said. “I need to move.”
Across America, nearly 60 percent of tenants faced rent hikes in the past year, with about a third facing price increases of 10 percent or more, according to a Freddie Mac survey released in August.
Yet only 38 percent saw wages increase, and of those, 32 percent said the raise isn’t enough to cover their rent increase. In Miami, the median household income is $44,581. Yet rents in South Florida rose 24.61 percent between July 2021 and July 2022, to an average of $2,841, which works out to $34,092 over a year. RentCafe found that 97.6 percent of apartments in Miami-Dade County are occupied, and every vacant one has 31 prospective renters competing for it.
Buying is out of the question for many – the median asking price for a home in Miami is $600,000. At the end of June, U.S. Secretary for Housing and Urban Development Marcia L. Fudge declared the city “the epicenter of the housing crisis in this country.”
Brown, who spoke on the condition that her full first name not be used, hopes that by next year, she can find a two-bedroom in Miramar, north of the Miami-Dade county line. Otherwise, she’ll look at moving to the west coast of Florida, or Atlanta.
“I just hope that they start looking at the teaching profession as an actual profession, and start paying teachers and treat them differently,” Brown said. “They’re going to lose all the residents.”
The current rent crisis is a product of several forces converging on Miami.
South Florida is land-constrained between the Atlantic Ocean and the Everglades, with scarcity driving up prices for available parcels. The city has long been an investment magnet for Latin Americans from politically unstable countries who would prefer to park their money in real estate rather than banks in their homeland; recent elections that tilted left in Chile and Colombia set off a new wave of buyers.
Over the past few years, Miami has drawn an influx of high-profile financiers attracted by Florida’s lack of income tax as well as people who moved during the pandemic from other parts of the country, drawn by prospects of remote work. Meanwhile, construction costs are rising and insurance prices are skyrocketing.
But while there’s a huge demand for housing for the middle class, those forces combined make it challenging for private developers to build it.
“It’s like a perfect, perfect storm right now is happening in Miami,” said Masoud Shojaee, a real estate developer whose firm, Shoma Group, has been active in Miami since the 1980s developing everything from single-family residences to commercial properties.
While developers have tried to add housing supply, he explained, they face certain constraints.
On Aug. 1, the firm completed an apartment building called Shoma Village in the traditionally working-class, Latino neighborhood of Hialeah.
“We really wanted to give that city something for the [young adults] — so that they would stay within the city,” said Stephanie Shojaee, Masoud Shojaee’s wife and president of Shoma Group.
Rents at Shoma Village run about $2.90 per square foot, with studios starting at $2,060 a month.
Normally, Shoma lures tenants to properties by paying brokers commissions and giving tenants one free month rent. In the current market, that’s not necessary, and the firm has had to bring in extra leasing teams to handle the demand.
Rents have to be priced around market rate to enable developers to get tens of millions of dollars in financing to construct a building, Masoud said. “You’ve got to show a return. If the return is too low, it’s very difficult to get a loan because the lender is going to say, ‘Well, I’m risking so much. If something goes wrong, you don’t have any room to do anything.”
For Salim Chraibi, chief executive of Bluenest Development, a small firm that builds homes aimed at low- and middle-income buyers, the problem comes down to land.
His company builds homes that sell for up to $352,000 for buyers who make 80 percent to 140 percent of the area median income.
While the program, which works with the county, is a boon to eligible buyers — purchasers only have to make a 1 percent down payment and receive help with the closing costs — it has done little to ease prices in the rental market, he said.
The program operates “on the condition that that’s going to be their first home and that they’re going to be living there. So they cannot be renting them out.”
Ian Brice Eichner, who developed perhaps the most recognizable building on South Beach, the Continuum, agreed that unless governments provide property or other incentives, the private sector is unlikely to find solutions to the crisis on its own.
“It’s not even a question of, ‘Can you make any money?’ Can you simply get a lender to write or to do a loan?” he said. “If the land is a bloody fortune, and the density is [low] and interest costs are set, you don’t have to go to Harvard Business School to know it can’t work.”
Albert Milo Jr., a senior vice president of Related Urban Development Group, which is focused on affordable housing, said his firm uses tax-exempt bond financing, low-income housing tax credits, city and county subsidy programs and more. “These transactions, they require four or five layers of financing to do. They’re pretty complex,” he said.
And while Florida has a trust fund that’s supposed to be used for affordable housing, legislators have taken about $2 billion from it since 2003 and directed it to other uses.
While supply is playing catch-up, then maybe demand will go down?
Ryan Shear, managing partner of Property Markets Group, says that’s unlikely.
PMG has multiple projects in the works, including a Waldorf Astoria condo development, where 85 percent of the units are already sold and what’s left starts at $4 million. But he’s also developed apartment buildings at a lower price point, such as X Miami and Society Las Olas, where individuals could rent a bedroom and bathroom in a shared unit.
“Our original thesis there, seven, eight years ago was, ‘Hey, rental rates are getting kind of expensive across the country. Let’s create a product where a three-bedroom [has] three individual leases versus one lease.”
The model worked so well that PMG is developing similar projects in Nashville, Atlanta and Orlando.
“Florida’s not going down,” he said. “I would be the first to tell you if we saw it. We get to see it on the front lines, just by the amount of people that walk into the sales center. … [August] has been nuts. And I just don’t see it changing.”
