Study: Renting is Hot, but Affordability Concerns Loom
Image credit: Harvard Joint Center for Housing Studies, The State of the Nation’s Housing 2014
According to a study released June 26 by the Joint Center for Housing Studies of Harvard University, more people are renting than ever before – but the issue of affordable housing is one that continues to plague the rental market as well as the housing economy at large.
The annual State of the Nation’s Housing Report pulls data from several sources to assess the state of the housing market in the United States, identifying the economic and demographic trends that affect where we live.
Renting on the Rise
The rental market is a key component of the report every year, but especially in the 2014 report, thanks to some surprising figures. The number of renter-occupied households grew by more than half a million in 2013, which is well above the average of the last few decades. Vacancy is down as well; rental vacancy rate was 8.3 percent in 2013, which is the lowest it’s been since 2000.
This trend is causing rent prices to increase in most areas and spurring new construction across the country. Apartment Guide data shows the biggest percent increase in multifamily construction is concentrated in Charleston, SC, where 2014 is expected to bring an 8 percent increase in construction over 2013.
But nationwide, that growth is likely to slow in the coming years, and combined with the new apartments being built, that means rent increases should start to ease. That’s good news, considering the rising number of renters and the changing demographics of tenants.
Portrait of a Renter
According to the report, the median income of a rental household in the United States was $31,500 in 2012. These rental households spent about $880 per month on housing costs, including rent and utilities.
Of the people who moved into rentals between 2005 and 2013, about a quarter of them were aged 35 or younger. But a surprising trend is the rise in renting among older adults. About a quarter of rental growth is attributed to people between the ages of 55 and 64.
“We’re seeing a lot of demand for bigger apartments – 3- and 4-bedroom places,” said Daryl Carter, chairman of the National Multifamily Housing Council, during a webinar announcing the release of the 2014 State of the Nation’s Housing Report on June 26, 2014. “There’s almost an unlimited demand for affordable housing.”
Whereas the typical renter used to be young, single, and/or low-income, that picture is changing. Now, renters are starting to include higher-income earners and families with children. This can be attributed to the tight lending standards that are preventing people from buying homes – homeownership rates have been in decline for several years.
But there are other factors contributing to the decline in home buying among young people, most notably student debt.
Student loan debt accounts for 63% of the growth in total debt over the past year. In 2013 alone, student loan balances reported on credit reports increased by $114 billion.
“Millennials are coming of age in the worst recession since the Great Depression,” said Chris Herbert, research director at the Joint Center for Housing Studies, during the webinar. “Just when they’re getting out there and getting a foothold on life, they get hit by this recession.”
Between 2001 and 2010, the share of households aged 25-34 with student loan debt went from 26 percent to 39 percent, with the median debt amount rising from $10,000 to $15,000. Of these, 16 percent are facing more than $50,000 in student debt – tripling over the course of the decade.
Combined with that, the median household income nationwide fell 1.4 percent in 2011-12, hitting its lowest level in nearly 20 years. This has left many renters cost-burdened, meaning more than 30 percent of their income goes toward housing costs. Nearly half of all renters are cost-burdened, and a quarter are severely burdened, meaning they pay more than half their income for housing.
To see which areas of the country have the most cost-burdened renters and homeowners, check out this interactive map from the Joint Center for Housing Studies.
Rental Costs Up; Renters’ Incomes Down
According to the study, rent prices increased by 4 percent nationwide between 2011 and 2012. This rise outpaces the national inflation rate, which is 1.5 percent.
Apartment Guide has identified a few places where rent prices are rising the most: Wooster, OH (85.63 percent); Glens Falls, NY (69.65 percent); Nacogdoches, TX (54.44 percent); San Angelo, TX (47.39 percent); and Indiana, PA (43.46 percent).
Meanwhile, the median income for renters fell by nearly 13 percent. And new apartment construction isn’t meeting the need for affordable housing: According to the study, a household would need to earn at least $42,200 per year to afford the $1,052 median monthly cost to live in a new unit. That’s well above the typical income of a renter household, which is $31,500.
Big Increase in Rental Houses
One of the most surprising figures to come out of the study concerns the number of people moving into rental houses. The total number of single-family homes rented from 2006-12 increased by 3.2 million, roughly twice the number of new apartments added.
As of 2012, single-family rental houses make up 34 percent of the entire rental market, up from 30 percent in 2006.
The Future of Renting
The JCHS report predicts the number of renter households by will increase by 4.0 to 4.7 million from 2013-2023. Two trends are expected to drive future growth in renters: The surge in the number of older renter households and the increasing racial/ethnic diversity of younger age groups.
The number of renters aged 65 and older is projected to rise by about 2.2 million during this time, which will account for roughly half of all renter growth. Also, Hispanics will account for slightly more than half of all new renters. New rental options in a variety of community settings will be needed to meet this demand.
About the State of the Nation’s Housing Report
The Joint Center for Housing Studies uses current data from the U.S. Census Bureau, the Department of Housing and Urban Development, the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Federal Reserve, CoreLogic, Freddie Mac, Fannie Mae, Moody’s Economy.com, the Mortgage Bankers Association of America, MPF Research, the National Association of Realtors, the National Council of Real Estate Investment Fiduciaries, the National Low Income Housing Coalition, Standard and Poor’s, Amherst Securities, the Brookings Institution, Urban Institute, and Zillow.com.
For the full report, visit jchs.harvard.edu.
More data on the AG Blog:
- What’s the Nation’s Median Rent – and How Much Space Will That Get You?
- Upgrading to a 2BR Apartment? Here’s Where It’ll Cost You the Most
- The Most Expensive Square Feet in the Nation: 20 Metros Where Rented Space Really Costs You
- Hidden Gems: America’s Most Affordable Cities