Realtor.com®’s chief economist warns that the nation is in a rental affordability crisis and that local leaders need to “wake up” and respond before matters turn even more dire.
Jonathan Smoke, realtor.com®’s chief economist, shared his warnings in a recent column following a report last week from the Harvard Joint Center for Housing Studies that showed a record-setting number of renters were paying more than 30 percent of their income for housing last year as their wages remained stagnant. What’s more, the report showed that 49 percent of renters are considered “cost-burdened,” which means they are struggling to pay their bills because of the high costs of rent. Twenty-six percent are considered “severely cost-burdened.” Smoke warns that this report is based on last year too and rents have continued to grow throughout this year, which means the problem is likely much worse now.
“Low rental vacancies and a lack of new rental construction are pushing up rents, and we expect that they’ll outpace home price appreciation in the year ahead,” Smoke writes. “Solving this crisis will not be simple or easy. We need more new construction, but the market itself skews toward higher-rate units, as we’ve already seen in recent years.”
Only 10 percent of newly constructed units had asking rents under $850 – a level that about half of all renters could afford, according to the report. The supply of affordable units is dropping as older subsidized programs expire too and older units are torn down and replaced.
In more than 85 percent of the 378 largest metro areas, realtor.com® estimates that the median renting household must spend 30 percent or more on the average fair-market rent.
“Wake up, local leaders,” Smoke notes in his column. “Yes, you finally have experienced strong economic growth, but that growth is causing some of this problem. But more important, your future growth will be threatened if the workforce that enables the economic growth can no longer afford to live or even commute to your jobs. … Leaders in Seattle, Denver, San Jose, Chicago, and Washington, DC, especially need to pay attention. Your workers are the canaries in our coal mine. … This rental affordability crisis threatens our most at-risk households, including rising numbers of the elderly.
In addition, this crisis threatens the future value of owned housing, as the burdensome level of rents will trap more aspiring owners into a vicious financial cycle in which they cannot save and build a solid credit record to eventually buy a home.”
Source: “Wake Up, America: We’re in a Housing Crisis,” realtor.com® (Dec. 10, 2015)