Rental housing is home to 38 million U.S. households today, according to the National Low Income Housing Coalition (NLIHC). While households can choose to rent for a variety of reasons, for many of these Americans, it is a matter of economic necessity.
The average renter wage in the U.S. is estimated to be $13.52 per hour, according to “Out of Reach,” a recent study conducted by NLIHC. Not only does such a wage fall short of what is generally needed to buy a home, but it is also falling increasingly short of what it takes to rent even a modest apartment.
The number of renters spending more than 50 percent of their income on rent and utilities, a situation defined as a severe cost burden, is at an all-time high, according to a recent study conducted by Harvard University’s Joint Center for Housing Studies (JCHS).
The study, titled “America’s Rental Housing: Meeting Challenges, Building on Opportunities,” reports that more than 1 in 4 renters, or 10.1 million Americans, face such a burden. That number has grown by 2.6 million over the past decade.
An additional 26 percent of renters spend between 30 percent and 50 percent of their income on rent and utilities, meaning that more than half the country’s renters face at least a moderate cost burden.
“If you are a person working a low-wage job and are spending 50 percent or 60 percent of your income on housing, you will have no room for error, no room for catastrophe, no room for savings, and certainly no ability to think about plans for retirement,” said Sheila Crowley, president and CEO at NLIHC, during a press call announcing the findings of “Out of Reach.”
And it’s not just the lowest paid workers that are being affected.
“In the last decade, rental housing affordability problems went through the roof,” said Eric Belsky, managing director of the JCHS and an author of “America’s Rental Housing.”
“And these affordability problems are marching up the income scale.”
Harvard’s study found that although severe housing cost burdens are more concentrated in the bottom fifth of the household income distribution, during the past 10 years, the number of renter households in the next two higher quintiles that faced a severe housing cost burden grew by one million.
There were also increases among lower-middle-income and middle-income renting households paying between 30 percent and 50 percent of their income on housing and utilities.
“In real terms, it means more people have less money to spend on household necessities such as food, health care, or savings,” Belsky said.
No safe havens
According to the NLIHC’s report, the national average for a fair-market rental studio apartment is $712 per month — $9 more each month than what the average renter could afford, using the generally accepted standard of housing affordability as 30 percent of a household’s monthly income.
And while a studio might suffice for one person, single-person households only account for 2 in 5 renters, NLIHC reports. Widespread perception holds that renters are young, but the Harvard study found that 46 percent of heads of renter households are between the ages of 35 and 64, prime years for households to have children living at home.
Nationally, the fair-market rent for a modest two-bedroom apartment is $960 per month, according to NLIHC. That rate would leave a minimum wage worker just $68 per week for all other expenses, explains Danilo Pelletiere, research director and chief economist at NLIHC. A renter would need to make $18.46 per hour to make that average rent affordable.
However, “just as there is no national temperature, there is no national housing market,” Crowley pointed out. And in many areas of the country, the situation is much worse.
In Hawaii, the most expensive state to rent in, a household must make $31.08 per hour to make a modest two-bedroom apartment affordable. However, the state’s estimated average renter salary is $13.65. At minimum wage, a household would need 4.3 full-time jobs to make a two-bedroom apartment affordable, “Out of Reach” reports.
In fact, Wyoming is the only state in the nation where a household would not need more than one full-time job at a given state’s average renter wage to be able to afford a two-bedroom apartment at fair-market rent, according to NLIHC.
Affordability problems were found across urban, suburban, and rural areas. Even in Clay County, Ky., the most affordable county in the nation according to NLIHC, a household would need to earn more than $8 an hour to make a two-bedroom apartment affordable at fair-market rent. Meanwhile, minimum wage stands at $7.25.
“There is no haven for low-income renters,” Pelletiere said.
“Renters with high housing cost burdens have little left to pay for other necessities such as food, clothing, and health care,” a fact sheet reporting the Harvard study’s findings states.
“On average, severely burdened families spent 71 percent less on transportation, 52 percent less on clothes, 52 percent less on health care, and 37 percent less on food than those living in affordable housing.”
Growing demand, diminishing supply
The need for rental housing is expected to grow dramatically, with the number of U.S. households that rent their homes increasing to 42.6 million by 2020, according to the Harvard Joint Studies report.
“The housing bust and Great Recession have pushed up the share and number of renter households,” the study reported.
“With millions of homeowners delinquent on their mortgages, further increases in the renter population are likely. Owners that have gone through foreclosure are especially likely to remain renters for a number of years to come.”
Unfortunately, just when it seems to be needed the most, the country’s rental stock is disappearing, with low-cost rentals fairing the worst.
Between 1999 and 2009, 6.3 percent of the country’s rental stock was lost, equating to 2.4 million lost units, the Harvard study found. The decade saw a permanent removal of 12 percent of low-cost rentals, twice the loss rate of units renting for between $400 and $799 and four times the loss rate of units renting for $800 or more.
And while rent increases paused during the recession, the study reports that they are on the rise again, according to a survey of rents among professionally managed apartments.
The message for builders
While rental housing usually calls to mind massive high-rises built by large-scale developers, the Harvard study reports that “more than half of all rental units are in small structures, including single-family homes, properties with two to four units, and manufactured homes.”
In fact, the majority of new apartment construction caters to the higher end of the rental market. In 2009, the median asking rent for a new, unfurnished apartment was $1,067, compared to $808 for all rental housing, the Harvard study reports.
For builders looking for practical solutions, Pelletiere has a litany of suggestions, including mixed-income developments, inclusionary zoning provisions setting aside affordable units, and building at different densities.
He also emphasized the importance of something many builders are focusing on already: using building technologies to build more efficiently. Since construction costs are a major determiner of rent prices, Pelletiere argues, “to the extent that we utilize that technology to build more efficiently, that should lower rents.”
