Us tenants squeezed by rising prices

Sky high: New York is one of the most expensive places for people to rent Photo: ZeroOne

The gap between rental costs and household income is widening, warns to new research by the National Association of Realtors.

The NAR reviewed data on income growth, housing costs and changes in the share of renter and owner-occupied households over the past five years. The study revealed that tenants are being squeezed in many metro areas as rents increase faster than typical incomes.

New York, Seattle and San Jose, Calif. are among the cities where combined rent growth is far exceeding wages, with the NAR warning that levels will soon become unsustainable.

Lawrence Yun, NAR chief economist, says the disparity is "unhealthy", making it harder for renters to become homeowners.

"In the past five years, a typical rent rose 15 percent while the income of renters grew by only 11 percent," he comments. "The gap has worsened in many areas as rents continue to climb and the accelerated pace of hiring has yet to give workers a meaningful bump in pay."

According to Yun, the share of renter households has been increasing and homeownership is falling. Those financially able to buy a home in recent years were insulated from rising housing costs since most take out 30-year fixed-rate mortgages with established monthly payments. Furthermore, a typical homeowners’ net worth climbs because of upticks in home values and declining mortgage balances. The result has been an unequal distribution of wealth as renters continue to feel the pinch of increasing housing costs every year.  

"Meanwhile, current renters seeking relief and looking to buy are facing the same dilemma: home prices are rising much faster than their incomes," he adds.

"With rents taking up a larger chunk of household incomes, it’s difficult for first-time buyers – especially in high-cost areas – to save for an adequate downpayment."

The situation could worsen unless new home construction meaningfully rises, concludes the report.