According to the Biden administration, the United States is now facing “the great American comeback.” Its recent annual inflation rate was lower than the previous one, and its interest rates had the biggest cut for the first time in four years.
Unfortunately, many Americans aren’t seeing the benefits of Biden’s administration’s so-called “welcome progress.” This is particularly true in Central Florida, where people are suffering from generationally high mortgage rates and skyrocketing home prices. As of August 2024, its home prices rose to 13.2% higher than last year, selling for a median price of $400K.
In this article, we’ll discuss two main factors that caused rental fees to soar in Central Florida and how these affect business owners.
First Reason: Supply
Housing in Central Florida continued to fall behind its population boom. The availability of affordable housing in the area, in particular, is even more dire. It has the fourth-highest deficit in the country.
The National Low-Income Housing Coalition reported that, on average, only 18 affordable units are available in Metro Orlando for every 100 low-income (i.e., below 30% of the area’s median income) renters.
Specifically, Las Vegas had the widest gap. It’s reported to only have 13 units available per 100 low-income residents. This is followed by Houston, with 15 units per 100 renters, and Dallas, with 17 units per 100 renters.
This housing shortage obviously affected home prices. As demand surpasses supply, existing home values keep increasing, which could mean fewer homes fall into the “affordable” category. This is good news for current property owners but bad for new buyers, especially those with lower incomes.
The housing shortage is also impacting businesses in Central Florida. As affordable housing becomes scarcer, workers find it increasingly difficult to live near their places of employment, leading to longer commutes and higher transportation costs. Employers also face higher turnover rates and difficulties in attracting talent, which, in turn, disrupts business operations and increases recruitment and training costs.
Consequently, businesses and workers alike seek ways to alleviate financial pressure. They pay off an installment loan early, reduce discretionary spending, or delay major purchases to manage rising housing costs. Some even relocate to more affordable areas or downsize their living arrangements to cope with the financial strain.
Fortunately, Central Florida’s housing market is trending in the right direction. Its available inventory in July showed a 3.4% increase from June, marking a 95.1% increase year-over-year since November 2015. However, this supply is for 4.21 months, which means it’s still a seller’s market. To be a balanced market, it must have six months of supply.
Second Reason: Demand
Apart from the booming population and stabilizing real estate market, the rise of Central Florida as a major tech hub has significantly driven housing demand. Orlando, in particular, is the 9th fastest-growing tech hub in the U.S. As a result, it’s attracting tech giants, startups, and workers, eventually creating a strong need for housing to accommodate them.
Another reason for Central Florida’s increasing housing demand is tourism. In fact, Orlando is the country’s most visited destination. In 2023, the city welcomed 74 million visitors, of which 6.13 million were international visitors, a 25% increase compared to 2022.
However, this surge in local and international tourism has intensified the need for housing in Central Florida. This contributes to the housing crunch as short-term rentals and vacation homes are in constant demand to serve the influx of visitors.
This housing crunch is also driven by tourism-related work opportunities. According to Tourism Economics, in 2023 alone, tourism supported 464,000 jobs throughout Central Florida. While this is good news, this growing workforce adds to the already competitive housing market, pushing up prices and reducing availability, especially for affordable housing options.
Like in supply, the rising housing demand in Central Florida, driven by tourism and the tech sector, significantly affects business owners. As housing becomes more expensive and scarce, businesses face challenges in attracting and retaining employees, particularly those in lower-paying industries like retail, hospitality, and services.
On the other hand, workers who struggle to find affordable housing near their jobs may face long commutes, leading to higher employee turnover and increased hiring costs. This, in turn, can disrupt business operations, reduce productivity, and increase operational costs for business owners.
Final Thoughts
The combination of supply shortages, rising demand from tech growth, and booming tourism have caused significant increases in housing and business rents across Central Florida. However, with positive signs of inventory growth in the housing market, there’s potential for future stability.
