Some housing economists believe that there is a sea change taking place in home ownership in the US. Many of the people who bought homes during the boom years of 2000-2006 have since lost them. Millions of mortgages are underwater, eroding the financial security that owning a home used to provide. Americans may be, for the first time in memory, more interested in renting a home than owning one.
Home ownership was supposed to be a near-certain path to a comfortable retirement. A couple could own a house bought thirty years before they retired and sell it at a large profit to fund their expenses after they turned 65. The fall in the value of the housing market has turned that dream into a nightmare for many people. As many people retire, they find their mortgages are underwater, or worth more than the value of their homes.
The depression in home prices and fear about an ongoing fall in housing prices has driven people to the rental market. The appeal is understandable. Landlords bear the burdens of repair and upkeep. Renters need only worry about their rent, utilities and living expenses.
The trouble with renting is not very different from home ownership. Many people cannot afford to buy a house. And a great many people cannot afford to rent, either. The Harvard University Joint Center for Housing Studies published a paper on April 27, 2011 concerning home rental trends. The data shows that in many US cities, a large percentage of people pay 50% or more of their household income a month for rent. It is not unusual for a quarter of the people in a city to pay this high a portion of their income for rent. The burden is greater in many cases when relatively high rent prices are coupled with modest income and high unemployment. The Harvard study calls people who pay more than 50% of their household incomes on rent severely “cost-burdened” renters. Meg Nipson, research assistant at Harvard’s Joint Center for Housing Studies, told 24/7 Wall St. there is a “pretty huge overlap between low income and cost burden.”
As more people seek cheap housing, it will take time to see if that increased demand will move rents higher in some parts of the country where demand for affordable housing is high. People in cities like Detroit need a roof, but many cannot afford either to buy or rent a home. The economics become twisted – high demand for rentals, and large numbers of low income renters.
The sad conclusion of the move to rentals is not in the Harvard study. The wealthy will be able to rent high- end apartments and homes. But where will the inventory for the lower middle class and poor come from? There are not any good statistics about the trend yet, but it is not hard to make an educated guess. Foreclosures and home abandonment have left record amounts of housing unoccupied. Many low income renters will almost certainly find that over time they will be sheltered in homes once owned by people who could no longer afford them.
These are the ten cities with the highest percent of households that pay 50% or more of their income to rent.