In 2014, the number of renters in the United States hit a 20-year high. And, according to a 2015 report by Harvard’s Joint Center for Housing Studies, vacancy rates are at their lowest level in two decades as demand outpaces the number of rental properties under construction. While the number of renters continues to increase, the 10-year period beginning in 2005 saw the lowest level of rental construction since 1974.
With an increase in renters comes a record number of households paying a higher share of their income than ever on rent. While projections for the U.S. economy forecast steady growth, the number of renters under the strain of severe cost burdens is only expected to increase. Researchers analyzed these trends in a 2015 report from the Joint Center for Housing Studies of Harvard University and Enterprise Community Partners Inc. For this report, researchers projected the future of rent costs in the U.S. by analyzing three scenarios–a baseline scenario, scenarios in which rent costs outpaced income growth, and scenarios in which income growth outpaced rent costs.
The study’s findings include:
- In a baseline scenario, in which rents and incomes grow in line with inflation, the number of renters paying more than 50 percent of their income on rent will grow 11 percent by 2025, from 11.8 million to 13.1 million people.
- In a best-case scenario, the number of households paying more than half their income on rent will decrease by only 1.4 percent, or 169,000 households, by 2025.
- In a worst-case scenario, the quantity of households paying more than half their income on rent will increase by 25 percent, or 3 million households, resulting in a total of 14.8 million households severely burdened by rent costs.
- The more rents rise relative to income, the more that renters suffer. Each 0.25 percentage point gain in rent prices relative to income growth is associated with a 400,000 household increase in severely cost-burdened renters.
- Racial and ethnic minorities, who have traditionally been disproportionately affected by rent costs, Millennials, and older populations are three rapidly growing groups in the U.S. who shoulder a greater share of the rent burden.
The researchers conclude that their analysis represents “a fairly bleak picture of severe renter burdens across the U.S. for the coming decade.” They found that in almost all of the scenarios they modeled, “the renter affordability crisis will continue to worsen without intervention.” Policymakers must take steps, they argue, to increase the availability of affordable rental housing and prevent the worst-case or even baseline scenarios from occurring.
Related research: Earlier in 2015, the Joint Center for Housing Studies published its annual report, finding that home ownership rates are continuing to drop and rental markets have substantially grown, leading to rising rents and greater cost burdens on low-income renters. A 2013 report from the Joint Center for Housing Studies analyzes renter demographics, the quantity and condition of the housing stock, construction trends, and renter policy challenges.
Keywords: housing, rental market, real estate, recession, Millennials, housing trends