The real rental squeeze

Most renters are writing a slightly bigger check every month to their landlord. That hurts. But for low-income renters the financial squeeze is bad and getting worse.

Our guest bloggers are Eric Belsky, managing director of the Joint Center for Housing Studies at Harvard University and Chris Herbert, research director at the Center.

The two scholars have been sounding the alarm about the disproportionate impact rent hikes have on low-income households. The situation could deteriorate even further as cash-strapped local, state, and federal governments cut back on their spending support of affordable rentals.

Of course, there is no silver bullet, but the scholars believe greater attention should be paid to a problem affecting more and more households.

Eric Belsky & Chris Herbert: Over the course of the last decade, rental housing affordability problems went through the roof. The share of renter households spending half or more of their income on their housing costs went up what at-a-glance seems a modest 6 percentage points from 20 percent in 2000 to 26 percent in 2009. But that was the largest jump in at least the past five decades and caps half a century of worsening renter affordability problems. These shifts in shares translate into 2.5 million more renter households reporting such severe housing burdens at the end of the 2000s than at the start.

With rents on the rise but renter incomes stagnating since 1980, renter affordability problems are marching up the income scale. While still anchored among those in the bottom fifth of the household income distribution, over the last decade the number of renter households in the next two highest quintiles with housing cost burdens in excess of 50 percent of income increased by a million households.

The problem here is that as renters spend more and more of their incomes on housing, they have less to spend on everything else. Imagine having only $461 left over every month after paying for rent and utilities. That's the average amount that renter households in the bottom quarter of spenders had left after devoting more than half their outlays to housing and utilities. Even the next quarter of spenders with such a large housing outlay share had just $991 to spend. Add in travel costs of getting to and from jobs, shopping and other trips and the amount leftover falls even further to an average of $415 for bottom and $834 for the next quartile of spenders with high housing outlays.

These are some of the sobering statistics in a report released by the Joint Center for Housing Studies on rental housing in America. The report goes on to detail that spending more for housing means spending less on things like food, healthcare and savings.

Among the bottom quarter of spenders, those who spent 50 percent or more of their income on housing spent on average $135 less per month on food, $27 less on health, and $38 less on savings compared to renters with housing outlays of30 percent or less of their spending . Move up to the next quarter of spenders and high-housing outlay renters spent an average of $160 less per month on food, $67 less on health, and $91 less on savings. Even among the second to highest quarter of spenders, high-housing outlay renters spent an average of a $273 less per month on food, $62 less on health, and $181 less on savings.

Unless something is done to stem the growth in rents and utilities, other sectors of the economy will suffer. The difficult choices that individual households make - between living in a neighborhood that is safer and with a better school or scrimping on basics like food and healthcare--have potentially enormous public consequences. Scrimping on food and healthcare, for example, can result in higher Medicare and Medicaid costs. Having people choose neighborhoods that may be less advantageous for their children can have lasting generational consequences as well. Furthermore, the less people have to save, the less insulated they are against layoffs and unexpected medical expenses, and the less they can invest in their own and their children's futures.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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