Housing is expensive. It takes land, a building, repairs, taxes, and utilities. And profits for others, if you rent.
Those profits, which have helped drive up the cost of renting, are taking a toll according to a new study from the Pew Charitable Trusts. The number of renters in 2016 was almost 43 million and 38% of them were "rent burdened," which means they had to spend at least 30% of their income on a place to live. And of all the renters, 17% were "severely rent burdened," which means they had to spend at least half of their income on rent.
For African-Americans (the data Pew used didn't have information on Latinos), the portion rent burdened was 45%, compared to 34% of whites. About half of families with a head of household at least 65 were rent burdened.
Of the 43 million, 9 million started renting only over the last decade. Many might have been among the between 3 million and 5 million, depending on which count you listen to, who lost their homes to foreclosure during the housing crisis and haven't been able to buy another. According to Pew, many of the new renters are older. In 2001, 14% of those 65 years of age or older were renters. By 2015, it was 24%. For the 50-to-64 set, the percentage went from 18% in 2001 to 42% in 2015.
The 30-percent-of-income-for-rent figure is an historical legacy. It was 25% when the Department of Housing and Urban Development set it in 1968 as the percentage of income families in public housing would pay. The number jumped to 30% by 1981 to help manage the federal budget.
Some argue that the number is outmoded because it fails to take many things into account. If you're spending far more than 30% in New York City, as Fortune put it, because there can be extra benefits, such as good public transportation and education. Plus, other things, like food, were supposed to take up proportionately less of incomes over time because of greater productivity.
Except, that's not the case. Food, household energy, and pubic transportation have grown at around the same rate housing: a 50% jump between 1997 and 2017. Other basics like healthcare, child care, and education have skyrocketed in comparison.
Rent burden is a strong correlation with other measures of financial insecurity and income inequality. Almost two-thirds of rent burdened households had less than $400 in the bank. Take only the African-American rent burdened households and it's 84%.
The shift is punishing because of the associated economic problems that renters face. As Pew reported, median rent has gone up 32% between 2001 and 2015, compared to an average household real income decrease of 0.1% per year.
Some might blame this on changing attitudes, with more people deciding not to own a home. However, a 2016 Pew study found that 72% of renters would like to own a home one day.
We're not seeing a trend in preference. This is the result of forces beyond most people's power to resist. A fundamental shift in personal economics is occurring. But, at this point, that shouldn't be a surprise. Renting versus buying is just another example.
