There is a growing shortage of affordable housing in the U.S. With more middle class families turning towards renting instead of home ownership, low-income families are being squeezed out of rentals that were once affordable. But for both middle class and low-income families, renting continues to take up a growing percentage of household income.
The Shift Towards Renting
Demand for rental housing is at its highest since the 1960’s- and home ownership at a 48-year low. While home ownership is still more affordable than renting in many U.S. markets, it is not an option for individuals or families who do not qualify for loans, have incomes that are too low, or are saddled by debt like student loans. In 2008, a quarter of rental applicants were paying off student debt, by fall 2015 that number had risen to half.
With high-income earners forgoing home ownership, increasing urban populations, baby boomers downsizing, and the housing crash fresh in the minds of would-be homeowners, vacancy rates for rentals are at an all-time low. And with that comes ever increasing rent costs.
Rent Taking Up More of Americans’ Paychecks
Affordable rent is considered less than 30 percent of a household’s income, though today, most rents surpass that. According to the National Low Income Housing Coalition’s 2016 Out of Reach Report, U.S. renters need to earn an average of $20.30 per hour to afford a modest two- bedroom apartment- the average wage of a U.S. renter is $15.42.
What about those making the federal minimum wage of $7.25? First, there is no state where a full-time worker making minimum wage could afford a fair market value, one-bedroom apartment – anywhere. Second, in order to afford a one-bedroom apartment, that worker would need to put in 90 hours per week at work or 112 hours per week for a two-bedroom apartment. For single moms or dads not only holding down full-time employment, but also part-time evening work, that is often a reality- and the only option.
Housing Wages (By State) Needed to Afford a Modest Two-Bedroom Apartment
But let’s take a closer look at it this way, too:
Unaffordable rent is a critical issue millions of Americans face. These severely cost-burdened households are a critical issue for the U.S. as well. With more and more of workers income going towards rent, less and less is being spent in the market. The Out of Reach report also found that families who spend more than half their income on housing spend 50 percent less on clothing, one-third less on food, and 80 percent less on medical care compared to those with affordable rent.
It’s interesting to note that when we look at labor force participation, it seems to be worse in many areas that have more cost-burdened households and higher rents.
More “Low-Income” Housing is Not Always the Answer
As long as higher-income earners are willing to pay high prices, there will continue to be a shortage of affordable apartments. With federal housing funds cut in half over the last 10 years, and fewer families qualifying for rental subsidies, the shortage will remain. Though building more “low-income” housing (via tax credits to developers) often seems to be the go-to solution, that in fact has shown to be not only ineffective overall, but actually more expensive than simply increasing the purchasing power of renters.