Reversing a Trend, Renters Are Becoming Less Stretched

By Laura Kusisto Features Dow Jones Newswires

After the housing crisis, the share of renters who spent so much on housing that they couldn't afford food, medical care, clothing or other necessities soared to record levels.

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Now that trend is reversing.

Across the 53 largest metropolitan areas in the U.S., the share of rent-burdened households -- those that spend more than 30% of their incomes on rent -- fell to 47.7% from 48.9% between 2012 and 2015, according to a new report from New York University's Furman Center to be released Thursday.

More than two-thirds of metropolitan areas experienced a decline in the share of rent-burdened households during this period.

Research shows that households spending more than 30% of their incomes on rent often struggle to afford basic necessities. There are broader economic consequences because some renters often are forced to move further and further away from their jobs in order to afford their monthly payments.

The housing boom and bust helped create a new crisis in which millions more Americans became renters, straining the existing housing stock and driving rents faster than incomes in major metropolitan areas, according to NYU.

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The share of renter households increased in all of the 53 largest metros from 2006 to 2015 and has continued to rise in the vast majority of metros since 2012.

Median rents, meanwhile, continued to increase faster than inflation in virtually every metro between 2012 and 2015. Rent growth has slowed considerably in the past year, especially for high-end apartments in urban cores, but that trend isn't captured by these data.

Incomes, which fell in real terms during the early years of the recovery, have finally started to catch up. Real median incomes in major metropolitan areas increased at an average annual rate of 1.8% from 2012 to 2015, according to the report.

In part, the improvement in renters' fortunes is a reflection of the fact that more wealthy people are renting. The increase in renting in recent years was most pronounced among households where at least one member has a bachelor's degree or higher. That was also the group that has seen the largest income gains lately.

"As these more highly educated households are moving to these more desirable cities they're bidding up the rents," said Sewin Chan, associate professor of public policy at NYU Wagner Graduate School of Public Service

The incomes of renter households where members hold only a high-school diploma or some college have grown more modestly and remained below 2006 levels in 2015 after adjusting for inflation.

The share of college-educated households that are rent burdened sits around 34%, while more than 50% of households without a college degree are rent burdened.

To be sure, while renters' fortunes have improved slightly in the last several years, rental affordability is likely to remain a policy challenge in the years ahead. Millennials are renting longer than previous generations, placing additional strain on the housing stock. And while apartment construction is at 30-year highs, the vast majority of that stock is on the high end.

The share of renters paying more than 30% of their incomes in rent is still greater than it was before the housing crisis, according to the report.

Even at the recent rate of decline, it would take 30 years before the share of rent-burdened households returns to the level of 2000.

Write to Laura Kusisto at laura.kusisto@wsj.com

(END) Dow Jones Newswires

October 05, 2017 12:04 ET (16:04 GMT)