Rising rents are consuming larger and larger shares of household budgets across the United States, a circumstance that has progressively deteriorated over the past decade but today has reached crisis levels. That’s the conclusion of a new report by Harvard’s Joint Center for Housing Studies, an impressively researched document that should be required reading for every Presidential candidate.
According to the Harvard report, in 2014, the number of "moderately" cost-burdened renters (those paying more than 30% of their income on housing) hit a new record: 21.3 million. This figure represents nearly half of today’s renter population.
Even worse, at 11.4 million, the number of "severely" cost-burdened renters (those paying more than 50% of income on housing) also rose to new record levels. Twenty-six percent of all renters now spend in excess of one out of every two dollars of earnings just on housing.
Rental cost burdens force millions of families to make difficult trade-offs. Research shows that lower-income families paying more than half their incomes on housing spend significantly less on food and health care. Many lower-income renters who work devote substantially less of their paychecks to retirement savings because of high housing costs. To reduce these costs, some resort to cheaper and poorer quality housing, leading to negative health and educational outcomes for their children.
Unfortunately, while rental cost burdens have traditionally been most severe in the largest cities, they are now affecting families in all regions of the country, making this problem national in scope: At least 37% of the renter households in every state, from the most rural to the most urban, spend more than 30% of their incomes just on housing.
And while our nation’s lowest-income households have always been hit the hardest by rising rents, increasing numbers of middle-income families, particularly those living in high-cost metro areas, find themselves trapped in the rental vise.
What are the factors contributing to today’s rental affordability crisis?
First, for more than a decade, household incomes have simply not kept up with rent increases. This dynamic has produced a “treadmill effect” with more and more families unable to offset higher rents with higher earnings.
Second, new demand for rental housing has exploded, the result of families moving from homeownership to renting following the subprime debacle, new household formation by millions of young Millennials, and the desire of many older Baby Boomers to downsize into smaller rental homes. In fact, 9 million new households were added to the renter ranks between 2005 and 2015, accounting for the largest increase over any 10-year period since 1965. The production of new rental housing has been unable to match this spike in demand.
Third, local land-use policies and other regulatory requirements can substantially raise construction costs, often making it prohibitively expensive to build affordable rental homes for the lowest–income households.
While the increasing expense of rental housing hurts individual families, it is also having a major dampening effect on our overall economy.
Renting is the first step on the road to homeownership. But, as families spend larger portions of their income just on rent, fewer are able to accumulate the savings necessary for a mortgage down payment. Not surprisingly, the share of first-time homebuyers in the market has dropped to a 29-year low, according to the National Association of Realtors. With fewer first-time homebuyers, the construction of new single-family homes, a key engine of economic growth, has stalled over the past several years. The result: a slower-than-expected economic recovery.
Without a sustained and comprehensive policy response, the rental affordability situation will only worsen in the coming years. According to the Harvard study, demographic forces alone, most notably the rapid growth in the number of older households and Hispanic families, will likely increase the number of severely cost-burdened renters by 1.3 million over the next decade.
With so many Americans living in unaffordable homes and with rental demand likely to intensify, our nation can no longer accept a head-in-the-sand approach to this problem. Fortunately, policy solutions, such as a major expansion of the low-income housing tax credit to stimulate the production of more affordable rental housing, offer great promise. It is time for the presidential candidates of both parties to take note and make housing affordability a central issue of their campaigns.
Ron Terwilliger is chairman and founder of the J. Ronald Terwilliger Foundation for Housing America’s Families and chairman emeritus of Trammell Crow Residential.