Renters Spending More Of Their Incomes On Housing

Over the past three years, homeowners have seen the value of their property plummet. But renters have not escaped the misery.

A new report by the Harvard Joint Center For Housing Studies finds that the renters are paying an increasing portion of their income for housing.

Housing has traditionally been considered affordable when combined rent and utilities don't exceed 30 percent of income. The report notes that, over the last half-century, more and more consumers have been paying in excess of that.

For example, in 1960 24 percent of renters paid between 30 and 50 percent of their incomes for rent and utilities. Twelve percent paid even more.

A big jump

By 2000, 38 percent of renters paid between 30 and 50 percent of their incomes, with 20 percent paying more. By 2009, 49 percent of renters were paying between 30 and 50 percent of their incomes for housing.

“The share of US households unable to find affordable rentals has been on the rise for a half-century, with an especially large jump in the last decade as renter income fell even further behind housing and utility cost increases,” the report said. “Even as the need for affordable housing grows—both assisted by the government and supplied in the private market—long-run pressures continue to threaten this essential resource.”

The report notes that rental markets are tightening, with vacancy rates falling and rents climbing.

“With little new supply of multifamily units in the pipeline, rents could rise sharply as demand increases,” the report said. “Regardless, affordability is likely to deteriorate.”

Cheaper to buy

While some people rent by choice, others must rent because they have been shut out of the housing market. With home prices dropping and some properties going for bargain prices, many would-be homeowners remain on the sidelines.

In contrast to rising rents, the National Association of Realtors' (NAR) housing affordability index shows the typical monthly mortgage principal and interest payment for the purchase of a median-priced existing home is only 13 percent of gross household income, the lowest since records began in 1970. Yet, home sales remain stagnant.

“Sales would be notably stronger if mortgage lending would return to the normal, safe standards that were in place a decade ago – before the loose lending practices that created the unprecedented boom and bust cycle,” said NAR chief economist Lawrence Yun.