A recent report by the Joint Center for Housing Studies of Harvard University has shed light on the alarming increase in rental costs over the past few years, leading to a surge in the number of households burdened by these expenses. The study reveals that in 2022, a record high of 22.4 million renters in America were spending more than 30% of their incomes on rent and utilities.
Affordability is a key factor in determining housing suitability, with the general consensus being that housing costs should not exceed 30% of one’s gross income. Unfortunately, half of U.S. renters in 2022 surpassed this threshold by dedicating more than 30% of their incomes to housing expenses, marking a notable increase of 3.2 percentage points compared to pre-pandemic levels in 2019.
While the overall situation is cause for concern, it is especially distressing to learn that 12.1 million renters were severely “cost burdened,” spending over half of their incomes on housing. Astonishingly, even higher-income households, where a significant annual income of $75,000 or more is assumed, faced an increased strain with a burdened rate rise of 2.2 percentage points.
It is worth mentioning that rent hikes have somewhat moderated since 2022 due to the construction of more housing options. This slowdown is a welcome relief for renters and home buyers.
Financial Strain Amidst Inflation Concerns
As the cost of living continues to rise, wages have not kept pace with soaring rental prices. The Harvard center has highlighted that while median rents have seen a 21% increase in inflation-adjusted terms since 2001, median annual income has only risen by a mere 2% during the same period.
For more information on the impact of rising rents and how it affects consumers and homeowners, see the following resources:
- Renters and home buyers are getting some shelter from inflation
- It’s been years since consumers felt this good about where inflation could go next, N.Y. Fed says
The Housing Affordability Crisis
In recent years, the cost burden on lower-income renters has reached an alarming rate. According to a report from Harvard, those making less than $30,000 per year have seen their cost-burdened rate rise by 1.5 percentage points to a staggering 83%.
It is important to note that in 2022, approximately one-third of all renters had household incomes below $30,000. These individuals had meager savings, with a median cash savings of just $300 and a median net wealth of $3,200.
What’s even more concerning is that after paying rent, these lower-income households are left with a mere $170 in residual income. As the researchers from Harvard highlight, rent is the largest expense for most households, and the consequences of not paying can result in eviction and homelessness.
This dire situation is further exacerbated by the increase in evictions. Homelessness has reached its highest level on record, with a staggering 653,100 people experiencing homelessness as of January 2023 – a significant increase of nearly 71,000 people in just one year. In fact, the number of people experiencing homelessness in unsheltered locations reached an all-time high of 256,610 in 2023.
The report emphasizes that since the pandemic-era policies such as eviction moratoriums and rent relief have ended, the housing safety net is once again overwhelmed and underfunded. Chris Herbert, the managing director of the Joint Center for Housing Studies, asserts that while states and localities have taken some steps to address these gaps, a larger commitment from the federal government is necessary to expand housing supports and preserve and improve the existing affordable housing stock.
In conclusion, the nation must take immediate action to alleviate the housing affordability crisis, which continues to make life incredibly difficult for millions of people. By providing enhanced housing support and investing in affordable housing initiatives, we can finally begin to make a meaningful difference in the lives of those affected.