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Money Culture

Rising Rents Slam the Middle Class

Chart: Renters are paying moreFirst it was the Irish, then Portuguese, then Brazilians – for more than 150 years, Somerville, Massachusetts, absorbed wave after wave of immigrants. Today, hipster professionals are pouring into this city next door to Boston.

Somerville rents have shot up as much as 50 percent in 15 years, and a two-bedroom apartment for under $2,000 in a shabby chic neighborhood is a rare find.

A similar trend is playing out all over the country – from Boston and Miami to Los Angeles and Seattle – and it’s squeezing working- and middle-class families the most, according to the Joint Center for Housing Studies at Harvard University.

Although low-income households are by far the most burdened by their housing costs, “the more prominent story is that we’re starting to see, in middle incomes, a much higher incidence of being cost burdened,” said Jonathan Spader, a senior research associate at the Center.

Nationwide, the share of renter households earning between $30,000 and $44,999 who are either “moderately” or “severely” burdened by housing costs has increased sharply, from 37 percent in 2001 to more than 48 percent in 2014, the Center found. The share of burdened households with earnings in the $45,000-$74,999 range increased from about 12 percent of these renters to more than 21 percent.   A disproportionate share of them is either under age 25 or over 65.

The Center defines a moderate burden as having to spend anywhere from 30 percent to half of household members’ combined earnings on housing costs – severely burdened households spend more than half. The share of severely burdened households, though relatively small, has also doubled since 2001 – to 10 percent of households in the $30,000-$44,999 income range and 2.4 percent in the $45,000-$74,999 range. [Household earnings for the middle class starts around $50,000.]

What’s driving this trend? One reason is that middle incomes haven’t kept up with rent increases, especially in metropolitan areas. And rents are being pushed up by growing demand: there are 9 million more renters nationwide than a decade ago, bringing renter households to their highest level since the mid-1960s, according to the Center. Rising demand was also fueled by the foreclosure crisis, which threw owners out of their homes and forced them to rent, and by tightening credit, which made it more difficult to be approved for a mortgage, Spader said. Yet new rental housing units aren’t keeping up with rising demand.

And there’s no sign the pressure on rental properties will be relieved anytime soon. The large Millennial generation born between 1985 and 2004 will continue to move out of their parents’ homes and into their own apartments.

“There’s more to come,” Spader said.

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3 Responses to Rising Rents Slam the Middle Class

  1. Bob Kanarkiewicz says:

    On the supply side, there are less rental units due to zoning and other restrictions on construction. I was recently in Somerville and most – if not all – of the housing did not look like the picture accompanying the blog post, brand new construction. There’s a balance between demand and supply, and zoning skews it by limiting supply in the interested of current property owners who hold political majority. This may be desirable for the majority, but the majority should also acknowledge that it is creating an elite enclave. Others say it better than I can:
    https://www.washingtonpost.com/news/volokh-conspiracy/wp/2015/12/05/the-emerging-cross-ideological-consensus-on-zoning/

  2. John Lewis says:

    I would have to disagree with Bob Kanarkiewicz. Here in Dallas, we are in the middle of an apartment boom of Soviet-style structures, all priced at ridiculously high rates. The middle- to low-income renters are rapidly being priced out of the market, with no end in sight.

  3. Brian says:

    Both above comments are factual. Both miss the mark. What’s happening is simply the market signalling oversupply/undersupply and pricing things accordingly. Home ownership is becoming “cheap” compared to renting in recent years. As those renters who can afford to become homeowners, rents will drop relative to home ownership. And we’ll be responding to articles about how expensive home ownership is compared to renting. It’s market driven, cyclical, and predictable. Be ready.