NEW YORK (MainStreet) — Consumers are increasingly being squeezed by the cost of renting property, one new study shows.
One in every four renters in the U.S., or about 10 million households, currently spends more than half of their income on rent and utilities, while another 26% of renters spend between 30%-50% of their income on rental costs, according to a report from the Harvard Joint Center for Housing Studies, and the situation will likely only continue to worsen in the near future.
“In the last decade, rental housing affordability problems went through the roof,” said Eric S. Belsky, managing director of the Harvard Joint Center for Housing Studies and an author of the study. “And these affordability problems are marching up the income scale. In real terms, it means more people have less money to spend on household necessities such as food, health care and savings.”
The affordability of rental properties declined throughout much of the previous decade, according to the researchers who analyzed census data, as the cost of rent and energy gradually ticked up while the median income of renters dropped slowly or remained stagnant from year to year. On top of this, hundreds of thousands of rental properties with federal subsidies were eliminated in the late ‘90s and again during the recession years, but the demand for affordable properties only continued to increase.
Rental costs were further exacerbated in the late 2000s when the housing marketed collapsed, leading to the recession. As the report shows, the bad economy effectively resulted in a trifecta of problems for consumers. More homeowners switched to renting after the collapse, raising the demand for rentals, but fewer new properties were being created, as homebuilders froze new projects, limiting the supply. At the same time, millions of Americans found themselves out of work or underemployed, which reduced their household income as these rental costs increased.
Going further, federal and state governments have been increasingly strapped for cash since the recession hit, forcing them to cut back on housing assistance programs that might shoulder some of the burden that renters are facing.
While most of those renters who are paying out the majority of their income for rental costs qualify as low income earners, the researchers found that higher earners are increasingly feeling the burden as well. More than 50% of lower-middle income renters paid between a third and half of their income in rent and utilities in 2010, up from 38% in 2000, and just about a quarter of middle income earners paid that amount last year, compared to just 10% who did so in 2000.
As tough as the situation is for many households already, the report’s authors note that affordability may only worsen in the coming years, due to the combination of lingering high unemployment and a lack of new multifamily housing units, which would be cheaper alternatives for struggling renters.
“Given the long lead times needed to develop new multifamily housing, a sharp increase in demand could quickly reduce vacancy rates and put upward pressure on rents,” the report notes. “While this would be good news for owners and investors in rental housing, it would also fuel the intense affordability pressures that low-income renters already face.”
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