There is little to suggest that the economy has not gained momentum in the last three years. Equity has returned to a lot of markets, albeit at a varied pace, and mortgage rates still favor firs-time buyers. Market conditions, for all intents and purposes, are conducive to increased activity. However, as a result, the cost of renting has increased exponentially. No more than halfway through 2015, renters are starting to reach a breaking point. According to Census data calculated by Enterprise Community Partners, more than a quarter of the renter population spends at least half of their family income on housing and utilities. The amount of households in this precarious situation has increased 26 percent to 11.25 million since the onset of the recession. As a general reference, the government defines housing payments in excess of 30 percent as burdensome.
Higher rents are certainly making it more difficult for the housing market to progress.
“It means making really difficult trade-offs,” said Angela Boyd, a vice president at Enterprise Community Partners. “There are daily financial dilemmas about making their rent or buying groceries.”
When all is said and done, more than 25 percent of all renters are burdened by excessive rents. Some might call that a crisis. At the same time, current shortcomings highlight perhaps the largest problem to come out of the recovery: wage hikes have failed to keep up with the blistering pace of rent increases. Even new construction projects have failed to satiate the demands of renters. Simply too many people have been forced to rent as a result of the recession – 2.3 million to be exact.
Rents, like anything else in the housing industry, are incredibly localized. California, Florida, New Jersey and New York are largely to blame for tipping the rent scale. More than 30 percent of the renters in these states devote at least half of their income to rent. With the exception of Alaska, South Dakota and Wyoming, 20 percent of renters in every other state are burdened by high rents.
Of course, the rising rent problem is only compounded by recent pay increase, or lack thereof. Average hourly wages have risen just 2.1 percent in the past 12 months, according to the Labor Department, while rental prices have climbed 3.7 percent, according to Zillow.
Despite localized minimum-wage increases in states like Washington and Oregon, there is still no place in the country where you can work full-time on prevailing minimum wage and afford to rent a modest home—by the standard of not paying more than 30 percent of your income.
In California, one of the most expensive states to rent in, minimum wage works would be forced to work an average of 92 hours a week in order to afford renting out a one-bedroom apartment. In New York, the amount of hours jumps to 98. In Washington DC, 100 hours.
Surprisingly, the landscape is uneven. The percentage of rent-burdened tenants only grew in six cities. Every other city actually saw the amount of rent burdened tenants decline. Findings were seemingly full of contradictions. While San Francisco continues to boast the highest median rent, the city has the lowest percentage of rent-burdened tenants, 45 percent. On the other hand, Miami had a far lower median rent, but 68 percent of tenants were burdened. Of course, income levels have a great deal to do with this. At $61,200; the median household income in San Francisco is nearly 1.5 times that of Miami.
Higher rents are also impacting commercial buildings. In otherwise healthy economic areas, the rents are climbing so high they’re driving businesses away—and no other businesses can afford to move in.