Why your rent is so damn high «
Renting has become significantly less affordable in recent years, a report released Monday by the Harvard Joint Center for Housing Studies finds. In fact, 50% of U.S. renters spent more than 30% of their gross income on rent (the traditional measure of affordability) in 2010, up a record 12 percentage points from the 38% of households facing such a burden a decade prior. And many of those households, about 27% of renters, spent more than half of their salary on rent, up from just 19% of renters a decade ago.
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This comes at a time when more Americans are renting: 35% in 2012 versus 31% in 2004. The consequences for those who can’t find affordable housing can be dire, the report noted, leading families on already tight budgets to spend significantly less on health care and retirement savings.
One contributor to deteriorating affordability was rising unemployment, the report noted. But there are other factors at work as well. “Slow housing starts and stagnant wages have been a bad combination for renters,” says Lawrence Yun, chief economist with the National Association of Realtors. Construction of housing units has averaged around 1.5 million a year for the past five decades, he says, but is likely to be less than 1 million this year. Taking into account the collapse in the housing market after 2008, he says, the inventory of newly constructed homes is at a 50-year low and housing construction needs to increase 50% to reach normal levels. Meanwhile, the average seasonally adjusted hourly earnings of all employees on private nonfarm payrolls was $24.15 in November, largely unchanged from $23.67 a year earlier, according to the Bureau of Labor Statistics.
Young people are particularly at the mercy of landlords, studies show, and are still struggling to get jobs. Although employment among 25- to 34-year-olds rose to 75.2% in November from 75% in September, according to the Labor Department, that’s still far below the 78% to 80% employment level for that age group before the 2008 recession. And the unemployment rate for that age group rose to 7.4% in November from 7.3% the month before, despite overall unemployment falling to a five-year low. “Many renters have been forced to find an additional roommate and live in more crowded spaces just to share the rent,” Yun says.
Shutterstock.com Landlords are also hiking rents, making it harder for renters to save enough money to consider buying a home. Real median rents adjusted for inflation increased by 6% nationally between 2000 and 2012, while the real median income of renters actually fell by 13% over the same period, the Harvard study found. “We are losing ground rapidly against a chronic problem that forces households to cut essential spending,” Eric Belsky, managing director of the Joint Center for Housing Studies at Harvard, said in a statement. That trend continues: Nationwide, rents rose 2.7% in the 12 months leading up to October 2013, according to recent data from real-estate marketplace Trulia.
Among the 25 largest rental markets, landlords hiked rents the most in San Francisco, Portland and Seattle, while reducing them the most in Washington, D.C., and Philadelphia. San Francisco now has the steepest annual increase in rents and the highest median rent: $3,250 for a two-bedroom unit, even outdoing the New York metro area where the current median rent for a similarly-sized unit is $3,150 a month.