Think rents are getting unaffordable? It’s about to get even worse, a new study has found.
The number of households severely burdened by rent — or those spending more than 50 percent of their income on rent — is set to rise at least 11 percent from an estimated 11.8 million this year to 13.1 million by 2025, with the largest increases expected among older adults, Hispanics and single-person households, according to new research from Harvard University’s Joint Center for Housing Studies (JCHS) and Enterprise Community Partners.
More than one in four renters, or around 11.2 million households, were severely burdened, according to 2013 data, up by more than 3 million since 2000, the study noted. Adding in those facing “moderate” burdens — or spending 30-50 percent of income on housing — brings the total to just under half of all renters, the study said.
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“Even in the unlikely event that income growth greatly outpaces rent gains, the number of severely cost-burdened renters will remain near current record levels,” said Christopher Herbert, managing director of Harvard’s Joint Center for Housing Studies, in a statement.
The study’s base case — which assumes both rents and incomes rice 2 percent annually — expects the number of severely rent-burdened households of those over the age of 65 will rise by around 39-42 percent over the next decade, compared with an around 27 percent increase among Hispanic households and around 12 percent for single-person households.
Part of the reason for the increase in burdened households is a rise in the number of renters.
“We are now seeing more renters than at any other time in U.S. history,” the study noted, citing figures showing homeownership rates have fallen from a peak of 69.2 percent of householders in 2004 to 63.4 percent in the second quarter of this year, the lowest since 1967.
Those renters are chasing a tight market, with neither the private sector nor the government able to supply enough affordable units.
“The need for affordable housing is already overwhelming the capacity of federal, state and local governments to supply assistance,” the study said, noting 11.2 million extremely low-income households are competing for 7.3 million affordable units.
Only around a quarter of the eligible very low income households received rental assistance from the U.S. Department of Housing and Urban Development.
At the same time, “the private sector is unable to supply new units at rents low enough to reach low-income renters,” the study noted, with the median rent of newly constructed units at $1,290 in 2013, about half the median renter’s monthly household income.
This isn’t the first study to note renters are taking it on the chin.
A study released in August by property website Zillow found the cost of renting a home in the U.S. has risen to its least affordable levels ever, taking up a record proportion of income in most major cities. Renters in the U.S. can now expect to pay around 30.2 percent of their monthly income for rent, the highest percentage ever, up from pre-housing boom levels of around 24.4 percent, according to Zillow’s analysis of second-quarter data on rental and mortgage affordability.
Zillow’s historical comparison period covered 1985-2000.
Rents and occupancies are currently hovering at historic highs as supply isn’t keeping up with demand. While apartment construction has seen strong growth over the past three years, construction of multifamily homes, such as apartment buildings, fell to next to nothing amid the housing bust and the new units are meeting with pent-up demand.