Half of U.S. renters spend more than 30% of their monthly income on housing as the market feels the effects of rental price inflation and higher demand, a new report from Harvard University’s Joint Center for Housing Studies found.
What’s even worse is data from the center shows 27.3% of renters spend more than 50% of their monthly income on housing — that’s 11.3 million Americans giving away half their pay to put a roof over their heads.
HousingWire interviewed Chris Herbert, research director for the center. He noted a series of economic forces at play.
"I think it’s important to recognize it’s a function of two things," Herbert said. "Rents are going up 6% faster than inflation over the course of the past 12 years.” And, he added, there has been a “huge surge in demand.”
Herbert suggested macroeconomic forces do come into play a little bit. For starters, the nation has had a high unemployment rate for a while and wages have yet to increase enough to meet with rising prices and demand.
But the report is more focused on what is happening with rental prices and discusses ways to correct that particular situation.
Herbert pointed out that state and local governments need to be able to produce more affordable housing units.
He believes there will always be some gap between what the public will pay and what the private sector will provide at certain price points. As an in-fill, he sees a need for public policy to provide some rental aid and other incentives to produce units that can meet rising demand levels.
And renters are not going away. With fewer individuals qualifying for mortgages, demand will only continue to rise.
The percentage of Americans renting their homes has grown from 31% in 2004 to 35% in 2012, the center found. Most of the new demand was fulfilled by the movement of 3 million single-family housing units from the owner-occupied segment to rental stock, according to the same study.
The center concluded that there is a pressing need for new rental buildings at affordable rates with the oldest rentals now comprised of single-family detached homes or two- to four-unit buildings. Of that stock 44% were built before 1960.
But getting enough stock fast enough has been a problem. Multifamily permits grew in two-thirds of the 100 largest metros, Herbert’s study found. But even with 186,000 new rental units completed in 2012, rental completions remain below average annual levels produced over the course of the past 10 years.
But this is not just an issue with rent. There are other consequences to the broader economy and to families. Herbert notes that many of these families paying the most may be curtailing other basic consumption — even food intake.
One of the things the study looked at is the effect of having to spend a higher share of income at the lower-economic level on housing, Herbert explained.
"When we look at data and people at the bottom quartile, they are spending more than half their income on housing," Herbert said. What is different is how they spend their money. One of the areas these families cut back on is food — a disturbing trend, considering they are cutting back on basic life necessities to make their rental payments, Herbert noted.