The Rent Is Officially Too Damn High For ‘Pretty Much Everyone’

The cost of renting in major urban areas around the country has gotten so awful that even the Atlantic is complaining:

Pricey rent might not seem like that big of a deal, but it is. Housing accounts for the single largest expenditure for the bottom 90 percent of earners — which is pretty much everyone. While you may be able to scrape and skimp in order to decrease other bills like groceries, utilities, or extras like entertainment, housings costs are generally fixed — at least for a period of time. In other words: The more you’re burning on rent, the less there is for everything else.

And for the 11.25 million households that are considered the most burdened by housing costs — those spending more than 50 percent of their income — they aren’t just spending slightly more than half their income. Jakabovics says that the median of that group is well over the line, and what they spent on rent is closer to 70 percent of their income.

This is bad news not simply for us but for the economy as a whole:

“We know that low-income households that are cost burdened spend considerably less on food and other essentials than affordably-housed folks in the same income bracket,” Jakabovics says. He estimates that even helping those who are most overburdened by the rent to decrease their housing expenses to only 50 percent of their income would put $56 billion back in their pockets. In turn, these households would put that money back into local economies.

Not to mention in the long term. People who are spending 50–70% of their take-home pay on rent can’t pay down their student loans or save for retirement, meaning that more of them will end up depending on social services later on. And they can’t save up to buy real estate either, meaning they won’t be able to invest in and then benefit from what has often been a crucial asset.

Though the situation is rough for the vast majority of us, lower-income folks are hit extra hard:

One in four American renters now struggle under what experts describe as a “severe rent burden.” For the working poor — earning $15,000 to $30,000 a year — the number is one in three households. The high cost of rent forces people to cut back on food, medicine and child care, and puts many on the brink of eviction and homelessness.

Pressure on renters comes from two sides: Rising rents in the wake of the housing collapse coupled with stagnant wages or underemployment. As home ownership fell to its lowest rate in 20 years, increasing numbers of Americans now rent apartments and homes, squeezing vacancy rates and pushing up rents.

People who, in previous years, would have been able to increase the vacancy rates of rentals by buying “starter” homes are now stymied, as current owners of “starter” homes won’t vacate themselves, or can’t:

That negative equity is concentrated in the lowest price tier of the market — the tier that is most likely to be affordable to first-time buyers.

“The bottom one-third of housing stock is three times more likely to be underwater than the top one third,” said Zillow Chief Economist Stan Humphries.

Homeowners are also reluctant to give up the rock-bottom mortgage rates many of them refinanced into not long ago, Nothaft said.

Also on the supply side, homebuilders are not having any trouble selling their spec homes, but smaller builders are having trouble obtaining construction loans, according to Yun.

“The big guys can obtain money from Wall Street. Smaller guys depend on community banks” that are struggling, he said.

Low inventory also perpetuates itself: Existing homeowners fear selling their home because they’re not sure they’ll find a home to replace it, said David Crowe, chief economist for the National Association of Home Builders (NAHB).

You’re not imagining it. The situation has never before been this bad for renters.

Rents are now rising faster than home prices (4.3 percent vs. 3 percent in the last month), according to Humphries.

“Rents have never been less affordable,” he said. “It’s a broad-based problem affecting every single metro.”

That’s a problem because “today’s renters are tomorrow’s buyers.”

Wages are flat, costs are high, and the market has no conscience. Is there any hope? Well, a little.

What remains of “affordable” and low-income rental housing is often concentrated in high-poverty areas and deepens America’s already serious segregation crisis. The recent — though understandably overshadowed — Supreme Court ruling in support of the Fair Housing Act might provide some assistance in that respect:

A Supreme Court ruling last week forcefully reminded state and local governments that the Fair Housing Act of 1968 forbids them from spending federal housing money in ways that perpetuate segregation. Communities across the country have been doing exactly that for decades.

Instead of building subsidized housing in racially integrated areas that offer minority citizens access to jobs and good schools, local governments have often deepened racial isolation by placing such housing in existing ghettos.

Also, there’s this, maybe?:

This spring, [New York] city officials announced they would encourage private developers to build on land inside public housing complexes, potentially making luxury apartments their neighbors.

The city’s move was intended to raise billions of dollars to fix up the often rundown complexes, and to expand the city’s below-market-rate housing stock by requiring that 50 percent of such infill construction be set aside as affordable. But the economics of any new buildings will likely depend on also drawing market-rate tenants to places they once might have shunned. …

Alessandro Zampedri, a managing partner at Sanba, said the townhouses, with contemporary facades of steel or terra-cotta, and with landscaped backyards, will fill in lots that had been empty and desolate for years.

“I think it’s like everything in life, when you put something nicer in, that keeps within the context of what’s there, I think it raises everyone’s pride,” he said. The townhouses, as yet unpriced, hit the market this fall.

Developers say the amenities their buildings will bring to these newly targeted areas, such as stores, shoreline paths and improved streets, will benefit the neighborhoods as a whole.

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