21.3 Million Americans Struggle with Rent

As home prices continue to rise throughout most of the country, increasing numbers of Americans are choosing to rent, rather than buy, their dwelling. At the same time, rising rents and a lack of low-income rental units have created a perfect storm whereby more and more people are finding themselves devoting larger and larger portions of their paycheck to housing costs. As a result, a record-setting 21.3 million Americans spent more than 30% of their income on rent in 2014, while a staggering 11 million spent more than half. Financial experts generally consider a healthy budget as having up to 30% of income dedicated to housing, meaning that those spending more than 30% are labeled "cost-burdened".

These numbers are according to the annual State of the Nation's Housing report from Harvard University's Joint Center for Housing Studies, which also found that the number of renters ballooned to 110 million in 2015, or about 36% of all households.

While you might expect that young people are the drivers of the rental explosion, the report found that 40% of renters are between the ages of 30-49. Furthermore, although almost half of new renters in 2015 made less than $25,000 per year, the fastest-growing segment of the renter population for each of the last three years was actually the top income bracket.

Why the huge increases in both renters overall and cost-burdened renters? Generally, as incomes rise, people tend to transition from renting to owning their homes. However, in recent years the lack of inventory in the housing market has stunted this process, resulting in more and more affluent Americans choosing to remain renters. This has in turn encouraged builders to focus on luxery rental units, which offer higher returns on investment. Because low-income renters cannot afford luxery units, competition for the existing lower-cost units increases, driving rental costs ever higher.

In fact, the median rent in 2015 for a new apartment was $1,381 per month, which (at 30% of budget) translates to an income of about $55,000 per year. However, in reality the average renter made just $34,000 in 2015, meaning that they could only afford to spend about $850 per month in order to avoid being cost-burdened.

Source: 11 million Americans spend half their income on rent