Four years ago, the United States Department of Housing and Urban Development (HUD) warned of “the worst rental affordability crisis ever,” citing data that:
“About half of renters spend more than 30% of their income on rent, up from 18% a decade ago, according to newly released research by Harvard’s Joint Center for Housing Studies. Twenty-seven percent of renters are paying more than half of their income on rent.”
This is a significant problem for US consumers, and especially millennials, because as we have noted repeatedly over the past year, and a new report confirms, “rent increases continue to outpace workers’ wage growth, meaning the situation is getting worse.”
In the second quarter of 2017, median asking rents jumped 5% from $864 to $910. In the first half of 2018, they have remained at levels crushing the American worker.
While the surge in median asking rents has triggered an affordability crisis, new data now shows just how much a person must make per month to afford rent.
According to HowMuch.Net, an American should budget 25% to 30% of monthly income for rent, but as shown by the New Deal Democrat, workers are budgeting about 50% more of their salaries than a decade earlier. The report specifically looked at the nation’s capital, where a person must make approximately $8,500 per month to afford rent.
In California, the state with the largest housing bubble, the monthly income to afford rent is roughly $8,300, followed by Hawaii at $7,800 and New York at $7,220.
In contrast, the Rust Belt and the Southeastern region of the United States, one needs to make only $3,500 per month to afford rent.
“Based on the rule of applying no more than one-third of income to housing, people living in the Northeast must earn at least twice as much as those living in the South just to afford rent for what each market considers an average home,” HowMuch.net’s Raul Amoros told MarketWatch.
Which, however, is not to say that owning a house is a viable alternative to renting. In fact, as Goldman notes in its latest Housing and Mortgage Monitor, “buying is looking increasingly less affordable vs. renting with home prices growing faster than rents.”
In short: the situation is not likely to improve in the short-term.
A sign of relief could be coming in the second half of 2019 or entering into 2020 when the US economy is expected to enter a slowdown, if not outright recession. This would reverse the real estate market, thus providing a turning point in rents that would give renters relief after a near decade of overinflated prices.