Renters who earn the least cannot afford even the cheapest market-rate rentals in the nation’s largest metro areas, according to a Zillow analysis of multifamily rents and Census income data.
Among other problems, Zillow reports that most renters don’t have enough savings to cover three months of living expenses in an emergency.
“Any renter can tell you how difficult it is to save up extra cash while spending an increasing portion of their income on rent, but it’s much worse for those who make the least,” said Zillow chief economist Svenja Gudell. “Income inequality is growing in the United States, and this shows how high housing costs contribute to preventing people from moving up the ladder.”
The rule of thumb that people shouldn’t spend more than 30 percent of their income on housing has largely not been abided by due to the overall high cost of living making it impossible.
In the nation’s largest 25 metro areas, the typical rents require a much larger share than that recommended amount for renters whose incomes fall into the bottom third of the income distribution, even when they are looking at the cheapest apartments on the market.
“There are several factors at play here, including wage growth dampened by the recession and increased demand on the rental market,” Gudell said.
Zillow said from 2011 to 2016, rental rates increased significantly more than incomes, especially at the lower end of the market.
Even in areas where lower incomes saw significant gains, rents in those markets saw much bigger jumps.
For example, the monthly earnings among the lowest third of incomes in San Francisco increased by about $485 between June 2011 and June 2016, but over that same time period, apartment rents grew by $1,145, according to the company.
Spending such a significant portion of income on rent means making other financial sacrifices.
Economist and real estate insiders alike agree that putting aside money for an emergency remains a luxury many renters don’t have — 68.8 percent don’t have enough savings to cover three months of living expenses.
Instead of saving the financial priorities for most renters don’t shift much from paying bills such as utilities, food and gasoline, in addition to the rent.
Zillow, a leading real estate and rental marketplace, put together a chart to illustrate how the affordable rent crisis affects over 20 million people.
Gudell leads Zillow’s economics and analytics bureau, which have found that in the coming years the problem may only worsen.
“Without a long-term solution to affordable housing, the gap between the haves and have-nots will continue to widen,” Gudell said.