U.S. renters are richer, older, and have larger households
A week before Ben Carlson’s piece, this article came up in the Curbed coming at the income disparity challenge from a related yet diagonal perspective – also involving real estate. The article talks about a recent study which shows an increasing trend of relatively higher income people shunning home ownership and instead renting homes, almost as an answer to the home ownership problem highlighted in the previous place. Whether that or the general trend of the younger generation’s preference for the gig economy, this is posing another challenge for the lower income category. With rental demand consequently rising, rental costs for housing are hurting the low-income populace – in more ways than one. For a much younger population such as India, this move towards renting over ownership of homes could be even more pronounced and could have meaningful ramifications on the housing industry, both on the quantum and type of demand for housing.
“It’s a perfect storm for raising rental costs: low vacancy rates not seen in decades, an influx of high-income renters, constraints on building new apartments and homes, and the disappearance of low-cost rental units. A new report today from Harvard’s Joint Center for Housing Studies on the nation’s rental markets suggests the ongoing affordable housing crisis has evolved, with a growing number of well-to-do renters increasingly putting a strain on low-income, and increasingly middle-income, renters.
Perhaps the most significant change in the nation’s rental landscape is the shift in just who is renting today. The rental market has welcomed increasing numbers of high-income renters, with the percentage of renter households making $75,000 or more in 2019 hitting 22 percent, the highest level on record.
That’s indicative of a huge change in the makeup of U.S. renters. The number of high-income renter households rose by 45 percent between 2010 and 2018, while the share of low-income renter households, defined as those making under $30,000, declined by a little more than 5 percent—a reduction of nearly one million households.
… As the number of wealthier renters has increased, those renters have also become more wealthy. The Harvard study notes that, according to the latest Current Population Survey, the average real income of the top fifth of renters rose 40 percent over the past 30 years. At the same time the bottom fifth saw their income shrink 6 percent. It’s a growing gap underscoring the nation’s increasing income disparity: Three decades ago, that top fifth of renters made 12 times more than the bottom fifth; today, it’s 18 times as much.
…. Combine all these factors—more competition from high-income renters, a market designed around meeting their needs, and increasing costs associated with rental construction—and it’s no surprise the nation’s lower-income renters face more and more stress and economic strain.
As more expensive housing options get built across the country, the stock of affordable units continues to disappear. From 2000 to 2017, the percentage of rental units nationwide that cost $600 a month or less (in 2017 dollars) fell from 37.5 percent to 25 percent. That helps explain, the report notes, why there are now only 37 available affordable units for every 100 extremely low-income households—those who make 30 percent or less of the area median income—per the National Low-Income Housing Coalition.
The number of cost-burdened renters—those paying 30 percent or more of their income on rent—inched upward. In 2018, there were 6 million more cost-burdened renters in the U.S. than there were in 2001. While the rent-burdened population decreased slightly each year between 2015 and 2017, 2018 saw an increase of 261,000 households.
That means 20.8 million Americans are rent-burdened, with nearly half of them, 10.9 million, qualifying as severely rent-burdened, defined as paying half their income for housing. In 46 states, more than two in five renters are considered rent-burdened.
The report’s authors also found middle-income renters feeling more pressure. For households making $30,000 to $44,999 a year, the share of cost-burdened renters went up 5.4 percentage points, and those making $45,000 to $74,999 saw a 4.3 percentage-point increase. Harvard researchers found that the growth in these middle-income renters feeling cost burdens was most apparent in bigger, more expensive metro areas. “It is increasingly difficult for households with modest incomes to find housing that is within their means,” they concluded.”