Most financial institutions agree that the amount one pays for housing shouldn’t exceed around one-third of an individual’s pay. However, this isn’t the reality for many in the U.S. Read on to learn more about how rising rents and short supply are impacting citizens across the country.
A Problem for All
The rising cost of rent is an issue that is affecting multiple generations; it isn’t only the millennials that are feeling the pinch. There is clear evidence that rising rents are affecting even the Gen X and Boomers generations. Moreover, it isn’t only those in the poorest income bracket that are feeling the pressure to make rent. Median earners are also seeing their incomes diminished by a larger portion of rent.
According to a recent report by the Joint Center for Housing at Harvard, the issue is growing. The numbers reveal that half of all renters in the U.S. are using over 30 percent of their income to cover housing costs. A total of 25 percent of renters pay more than 50 percent of their monthly income towards rent.
The main reason behind the problem is that fewer households are transitioning from being renters to owners. While some renters have difficulty finding homes in their price range, others have difficulty qualifying for a mortgage in the post-recession period. With less number of people entering the housing market, the supply of rental properties is going down, and short supply translates to higher prices.
Higher rental costs have a major impact on people across the nation. However, location plays a huge role in this problem. According to a Census Bureau report, New York has the lowest homeownership rate in the country. Only 53 percent of New Yorkers live in homes that they (or their families) own. California is in a close second at just 54 percent, and the national rate is 65 percent.
The True Cost
The effect of this problem on the overall economy is staggering. Renters paying a higher percentage of their incomes on housing costs are forced to sit out on other purchases. High rent reduces the amount of money that is spent on basic items, such as food and clothing, as well as on entertainment and other goods. This has an impact on the economy at large.
The forces that are currently driving people to continue to rent are changing. The housing market is growing stronger. More people are able to qualify for loans. In the past, lenders had tightened the requirements which made it difficult for some potential buyers to secure a loan. A new Mortgage Lender Sentiment survey shows that the number of lenders who have recently tightened standards has significantly dropped. Additionally, conventional loans are now available with only a 3 percent down payment. Greater flexibility in lending requirements may help renters move into the housing market. This progression would also ease the current rental shortage.