Housing bust squeezes renters

April 28, 2011

The housing bust horror flick is now giving way to a very unwelcome sequel: a big squeeze on the cost of renting.

The number of renters paying more than half of their income towards rent has hit record levels, according to a new study by the Joint Center for Housing Studies (JCHS) of Harvard University.

Rental affordability is a critical issue for seniors, who live on fixed incomes and already are coping with low yields on their savings, fast-rising healthcare expenses and stagnant Social Security benefits. Yet the struggle with affordability is found most often among low-income Americans; JCHS found that 75 percent of renters in the lowest quartile of income are spending more than half of their income on housing. JCHS also found that lower-middle class renters also are having trouble finding affordable rental housing.

For example, 33 percent of renters with annual income of $14,500 to $30,000 are facing “severe burdens” in finding affordable rent. And the problem is growing most rapidly among demographic groups traditionally less likely to have affordability problems, including younger households, married couples with children and renters with some college education.

“These are astounding numbers,” says Eric Belsky, managing director of JCHS. “If you are spending half of your income on housing, you have very little to spend on everything else.”

The problem stems from a mismatch of supply and demand of affordable rental housing in the wake of the housing crash. The recession pushed up vacancy rates, and depressed rents, property values and new multi-family unit construction. Meanwhile, the foreclosure crisis has sparked a substantial increase in the number of former owners who now need to rent — just at a moment when development of new affordable housing units has stalled:

The supply gap for very low-income renters (with incomes up to 50 percent of area medians) also increased. In 2003, 16.3 million of these households competed for 12.0 million affordable, available, and adequate units. In 2009, these renters numbered 18.0 million while the supply of units dipped to 11.6 million, widening the gap from 4.3 million to 6.4 million units.

Meanwhile the recession has depressed income, further affecting affordability. Median monthly renter income, adjusted for inflation, has fallen during this decade from $2,950 in 2000 to $2,659 last year.

Rental rates fell through the economic downturn, but were rising at a 2.3 annualized rate last year, according to data quoted by JCHS from MPF Research (see chart). And that rate is expected to accelerate further as the recovery gains steam.

Households headed by adults over age 65 account for about 13 percent of renters, according to JCHS, with another 10 percent headed by adults age 55-64.

How are seniors coping? In part by sharing housing with family members, according to Richard Baron, chief executive officer of McCormack Baron Salazar, a St. Louis-based for-profit developer of affordable housing. “People are doubling up, because they don’t have other options.”

The AARP Public Policy Institute reported earlier this month that the recession has sparked a sizable increase in intergenerational households, from 6.2 million in 2008 to 7.1 million last year – a faster rate of growth than AARP found in the last eight years combined.

The country’s looming age wave also will be a factor driving rents upward in the years ahead, notes Christopher Herbert, director of research at JCHS. “The retirement of boomers will push up the total number of older renters,” Herbert says. “It’s not that more of them will convert from home ownership to renting, but simply that those who rent now will continue to do so – and they represent some very large numbers.”

Like all housing matters, federal programs and policy loom large in matters of affordable rentals. But federal housing policy hasn’t kept pace with the changing rental market. The most significant existing federal program is the Low Income Housing Tax Credit (LIHTC), which aims to stimulate availability of capital for the purpose of replenishing affordable housing stock. An array of vouchers and other subsidies also help some renters.

But the JCHS study notes that the federal programs are focused mainly on the lowest-income renters, so won’t address the growing need in higher income brackets.


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Posted by Housing bust gives way to a big squeeze on renters | RetirementRevised | Report as abusive

tick-tock, tick-toc, tic-toc

Posted by tmc | Report as abusive

I think a major change in bank legislation is needed so banks would have the flexibility to unload, share ownership or rent foreclosed properties. Their hands are tied by current bank regulations.

Posted by abkisa | Report as abusive

It’s like Karl Marx said so many years ago. The factories are empty with no one working in them. The warehouses are full with no one to sell to. The workers are homeless and straving in the streets all the while homes are vacate and farmer’s harvests rot in the fields as their is not enough money to pay people to harvest the food.

Yes the greedy CEO’s and top executives thought they could lay off all their American workers and hire Chinese for pennies on the ten dollars and jack up their prices 10 percent and increase their salaries by a factor of 10,000 so they are making $250,000,000 a year. Yes this plan is not working out very well.

Posted by JEYF | Report as abusive

Ankiss, there is no such regulation. Once banks have foreclosed and taken title they are free to sell the property or to rent it.

Posted by seattlesh | Report as abusive

Praise be the rich and greedy of the world. They have made a beautiful world for all of us. Let’s honor them like kings and queens – they so deserve it. Tick-tock two.

Posted by Butch_from_PA | Report as abusive

Good, very good. Let the rents go up, the hysteria on renting was too big. House prices, interest rates are extremely low, inflation is high, how many stimuli does one need to buy a house now.

Posted by FBreughel1 | Report as abusive

So the fact that the banks are holding obscenely historically high inventory from the market has nothing to do with the rental shortage?

We own a rental home in CO and their is no problem getting the rent we want. We have put the home on the rental market twice in the past three years and have had 10-15 applicants each time.

As this article demonstrates the media seems to have ZERO clue on what is going on at street level. However they’re plugged into Washington’s and WS propaganda machines.

When this financial house of cards collapses I believe four entities will be scorned by the populace…Washington, WS, FED/Banks and the press.

Posted by csodak | Report as abusive

This is but another example of the false economy embedded within the Boskin Commission’s inflation formula. While current government figures suggest deflation, Boskinized figures are in fact disguising mounting inflation. Seniors received no COLA in January despite real inflation of 8-10%, including housing inflation. Governments built up with lies don’t tend to last very long, witness the unrest in the Middle East.

Posted by SanPa | Report as abusive

Rent seeking has been and remains the core of American crony capitalism. Wealth in America is rarely earned, but rather is extorted though pyramid schemes and usury charges. As the decades long housing scheme was starting to run out of steam in the mid 2000’s, Wall Street gamed the system with their fraudulent mortgage securitization schemes, transferring global wealth to a small cabal. With the housing crash, the real estate scheme gets to start all over again, enriching unethical investors and forcing everyone else into rent peonage. America will never change. It’s always been a place where nice guys finish last and snake oil sellers either become politicians or their benefactors.

Posted by Greenspan2 | Report as abusive

Inflation? What inflation? The government economists including Ben Bernanke say that energy and food aren’t part of “core” inflation. So, obviously they’re not important. Real economists deal with more volatile numbers by averaging them over time, but this would make the government “economists” have to admit that inflation has been taking off for close to a year.
COLA was zero. What a lie. Let Congress keep stealing from the Social Security “Trust” Fund, leaving unpaid IOUs, then blaming the old folks they’re stealing from and set them up against the younger workers.
It’s just the way that Congress and the lobbyists from K Street conduct their “general welfare”.

Posted by ptiffany | Report as abusive

Usually, Mark, your articles are very good. This one might be a bit off the mark.

To be fair, and blunt, if you have an income between 14-30K, unless you’re largely self-sufficient, which most of us forgot how to be two generations ago, you’re going to have trouble not only paying rent, but in general being an American, period. You’re going to have to double up with others. That is a ‘wages have not kept pace with inflation, for decades’ issue, not a ‘rent is too high’ issue. EVERYTHING is too expensive for that demographic of people.

It is just tiresome to continue to read about how the poor and elderly are getting it so badly. We simply need to accept the fact that The Great Recession has dealt permanent damage to both those groups of people, and move on. Stop discussing it as if it’s some revelation. It’s not. It’s been happening slowly for decades, within the past 4 years it’s become acutely obvious, but get over it. I watched my grandparents’ life savings dwindle to nothing thanks to Rx costs. I’m sure I wasn’t alone. I watched the price of homes increase at insane rates, I’m sure I wasn’t alone. Yet we allowed this to happen. We made our bed, now lay in it.

I’ll also say that I live in Chicago, am currently looking for another rental property, and have NO problem finding 2br units for less than $1000 per month, in many ‘safe’ areas of the city. The price of real estate here is crazy compared to many other parts of the country, yet I’m able to find plenty of places to live that fit well under 50% of the monthly adjusted income you’ve got listed. I’m sure it’s more fun to live alone as an adult, but that’s not in the cards for many of us in the near future. Deal with it.

Posted by Adam_S | Report as abusive

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Posted by Housing bust squeezes renters- Tony Alvarez | Report as abusive

When a segment of the whole, the banks and large corporations, of the economy has too much influence over the government decisions, then what has happened, will happen. Large profits and large executive salaries do not add up to good times for the country. It means that wealth is being gathered and kept and that tyrany is just about upon us. It means a shaking will happen in the government that they, the government, will not like. They will be called to account and many of their responsibilities will be taken from them.

Posted by fred5407 | Report as abusive

Reuters is generally one of the best at financial reporting, in my experience, with many of the other news sources giving assignments to writers that is way beyond their competency level, and not improved or discarded by editors.

But I have some problems with this one. If the problem exists (low income and lower mid income having to pay more than they can afford to rent) then it existed before any of the housing bust or recession factors came on board. I say this because a 6% decrease and a 2% increase add up to a 4% decrease. Other factors unrelated to housing, such as high unemployment and high under-employment could be blamed on recent times, but I believe that the cause and effect as presented in this article is false.

We still have too much housing on the market, and property prices are still in a slump. Of particular note is that condominiums led the way in this crisis, and there are many more condos than homes sitting empty. What typically happens in a down housing market is that condos turn into rentals. Either the developer fails to sell enough unit and converts to rental, or upside down owners are forced to go live cheaper somewhere else, and rent out the condo to help make the mortgage payments. Generally more supply means lower prices, not higher. I’m thinking that due to the attention being payed to housing currently, somebody finally noticed that there is a lack of affordable housing for those above poverty level but not quite middle class. But that would be a different story than the one woven in this artice.

Posted by glrx2010 | Report as abusive

Quick note: The chart in the article makes it appear that rental prices jumped 8%: from 6% below something (zero line in the chart) to 2% above something. From what they said in text, this is not the case. The increase was 2%.

Posted by glrx2010 | Report as abusive

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