Housing affordability has been a key area of concern over several years. In general, housing costs have risen faster than wage growth over the past decade. Single-family home prices and multifamily rents have both exceeded increases in average earnings. Yet, the story is more nuanced.
Rising housing unaffordability is not evident in many of the broad industry metrics, including national and metro rent-to-income ratios from the U.S. Census Bureau. Some of the statistics seem contradictory to the widespread belief that housing has become less affordable in recent years. While declining affordability is true for many renters, the rising number of higher-income renters has kept the broad rent-to-income ratios largely stable in recent years.
Census statistics, however, reveal higher rent-to-income ratios for individuals and families at or below the median income. This is the heart of rising housing unaffordability.
The broad national statistics show that for all U.S. renters (single-family and multifamily), rent averaged 29.9% of gross household income in 2018. The national rent-to-income ratio has been essentially stable for the past four years and is actually down from a decade ago. In 2010, 31.6% of household income was used for paying rent compared to 29.9% in 2018.
The percentage of households that are "rent-burdened"—paying 30% or more of income on rent—has also been stable over the past two years and has edged down over the decade. In 2018, the figure was 46.2% compared to 48.9% in 2010 (note that with nearly half of renters paying more than 30% of income on rent, the industry definition of being “rent burdened” needs to be reconsidered).
Rent-to-income data for workforce households—approximated by using the $35,000 to $75,000 annual income range—clearly reveals rising unaffordability. For this group, rent represented 36.2% of household income in 2018, well above 29.9% overall. Moreover, the rent-to-income ratio for workforce households rose considerably over the decade—from 26.3% in 2010 to 36.2% in 2018. Income growth did not match the pace of rent growth.
At the metro level, most rent-to-income averages came within two percentage points of the national average. In other words, typically, metros with more expensive rents also had higher incomes to compensate. There was some variation; Miami (36.8%), Inland Empire (34.9%) San Diego (34.1%), Los Angeles (33.7%), Orlando (33.0%) and Sacramento (32.7%) had the highest rent-to-income ratios among the 40 metros analyzed (population with at least 1.5 million). Renters in these markets were paying more of their income on rent then elsewhere in the U.S.
The metros where renters were paying the lowest percentage of their incomes on rent were Columbus and Raleigh, both at 26.9%. The next lowest ratios were found in Kansas City (27.7%) and Pittsburgh (27.9%). The Midwest dominated the set of markets with low rent-to-income ratios.
Metro variation–and housing unaffordability—is much more apparent in the statistics for workforce households (households earning $35,000 to $75,000 per year). Not surprising, households in this income range were paying a very high percentage of their earnings on rents in the expensive gateway markets led by San Jose with a rent-to-income level of 78.7%. Other metros with high ratios were San Diego, San Francisco, Los Angeles, Washington, D.C., Seattle and Miami—all at 61% or higher.
To be fair, the metro data does not fully recognize differences in wage levels and therefore somewhat overstates the variation among metros. For example, wage levels for workforce households in more expensive markets are higher than in less expensive markets, so in more expensive markets, the definition of workplace households would include households making more than $75,000.
Yet, even with this statistical caveat, the data provides a clear picture of where housing is expensive (relative to income) and where housing unaffordability is of greater concern.
For the full report with statistics for all major U.S. markets, contact the author at [email protected].