Broke? Why It’s Getting Harder to Afford Rent
You’re not going crazy. Whether you live in San Francisco or Orlando, it really is getting harder to find an affordable apartment. From 2013 to 2014, rents rose 3.2%, more than twice the rate of inflation, according to a report from the Joint Center for Housing Studies at Harvard University. In many large U.S. cities, renting now costs significantly more than owning a home. The typical renter spent 30% of their monthly income on housing in the second quarter of 2015, according to new data from Zillow, double what the average homeowner spent on their mortgage.
Why is it costing you more to find a place to rent? Fewer people are buying homes, which means more renters competing for a limited supply of units. “[D]ue to an underperforming labor market, insufficient housing supply, and overly stringent underwriting standards since the recession, homeownership has plunged to a rate not seen in over two decades,” Lawrence Yun, chief economist for the National Association of Realtors told CNBC.
The housing squeeze in many cities has made it worse because developers aren’t building new apartments for middle- and lower-income families (what are known as Class B and Class C apartments). Instead, most of the newer units available to rent are in luxury buildings (Class A apartments).
“Everybody and their mother is out building these Class A apartments,” said Ryan Severino, senior economist at Reis Inc., to the Wall Street Journal. “Nobody is building B and C apartments.”
Renters who can’t afford to lease units in new, amenity-rich buildings are stuck paying out the nose to live in more modest apartments. That’s assuming they can even find a place to rent. Vacancy rates are at an all-time low, according to the Harvard report. In cities like Miami and Philadelphia, only a third of apartments were affordable to middle-income renters in 2013, down from 40% and 45% respectively since 2006, the Wall Street Journal reported.
“[F]rom an affordability perspective, rents are crazy right now. If you can possibly come up with a down payment, then it’s a good time to buy a home and start putting your money toward a mortgage,” said Zillow’s chief economist Dr. Svenja Gudell.
Unfortunately, spending such a big chunk of income on rent makes it difficult for many to save for a down payment. Plus, rents are rising faster than wages in many cities, which only compounds the problem. Not only do cost-burdened households (defined as those that spend more than 30% of their monthly income on rent) have trouble saving for a down payment, but they may end up cutting back on necessities like food and health care in order to afford a place to live.
Balancing rent with other expenses has long been a challenge for lower-income households. Now, they aren’t alone in having to make those tough calculations. A growing number of people with incomes between $45,000 and $75,000 a year are now considered cost-burdened, the Harvard report found. And they don’t necessarily live in places that you expect to have a high cost of living, like San Francisco and New York, according to Zillow. In a number of U.S. cities, including Miami, Riverside, Calif., San Diego, Seattle, Denver, Portland, Ore., Austin, and Orlando, the average renter is spending more than 30% of their income on housing.
Some experts think that the boom in luxury apartment construction in many cities could eventually lead to oversupply. That could drive down rents in some of those buildings and make them more affordable to middle-income renters. But that may take years to happen – if it happens at all.
“The gap between what is the top of the market and what’s truly affordable has gotten so large that the odds of the new stuff ultimately becoming affordable is much smaller now than it has been in the past,” Andrew Jakabovics, senior director of policy development and research for Enterprise Community Partners, told the Wall Street Journal.
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