Rental Crisis USA: Prepare for Sticker Shock
“We are in the midst of the worst rental affordability crisis that this country has known.” That’s what Shaun Donovan, U.S. Secretary of Housing and Urban Development wrote in December 2013.
Rising rent with stunted wage growth and little demand created an affordability problem, said a study at the time.
“Over four years, [there’s been] a 43% increase in the number of Americans with worst-case housing needs,” said Donovan. “They’re paying more than half of every dollar they earn from housing.”
That was close to three years ago. Very few paid much attention to the warning.
Nowadays, even as parts of the U.S. are experiencing skyrocketing rents, that’s not even the worst of it.
Homeownership rates have plunged to their lowest levels since 1965.
Even with historically low interest rates, and more than a million new household formations, the rate has fallen to 62.9% with some analysts predicting the homeownership rate could fall through 2025 to just 60.8% -- the lowest since the mid-1950’s.
It’s a reflection of lingering concerns over home prices that have risen faster than the rate of inflation and personal financial hurdles that have led to more Americans renting property rather than buying homes.
While homeownership rates have plunged for most age groups, the biggest drop has been found among the millennial generation. For example, the rate among Americans under 35 is now just 34.1% -- a record low and about 80% below its peaks since the mid-2000’s.
Even more troubling, in 2005, the number of households that rented stood at nine million. As of 2015, that number was up to 43 million thanks in part to the housing crash, where more than eight million Americans lost their home, or faced foreclose.
Worse, according to a Harvard Joint Center for Housing Studies report, housing costs for U.S. renters are the highest of any other country. More than 28% of Americans are spending more than 50% of their income on rent. In parts of Chicago, 48% of renters are paying more than 30% of their income on rent.
To give you an idea of how bad things are getting, rents rose 0.3% in July 2016. There were up 3.8% for the last 12 months – hitting an eight-year high.
Unfortunately, the situation may only get worse before it gets better.
Not every one is complaining, though. Investors in rental properties are doing just fine.