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Unaffordable rental market hits record heights

CAMILA DOMONOSKE, HOST:

Rent has skyrocketed in the United States. That means Americans are handing over a bigger portion of their paycheck to their housing costs, leaving less money for things like food, electricity and commuting. The pandemic and inflation have both played a role in pushing rents higher, but Whitney Airgood-Obrycki, senior research associate at Harvard's Joint Center on Housing Studies, says it's not all bad news.

WHITNEY AIRGOOD-OBRYCKI: In some markets, rents are actually going down now, but we're in such a hole from those massive rent increases that it's going to take a little while to get ourselves out of that.

DOMONOSKE: NPR's Jennifer Ludden covers housing and joins us now to talk about how we got here and what it would take for things to change. Hi, Jennifer.

JENNIFER LUDDEN, BYLINE: Hi there.

DOMONOSKE: So as we've heard, a record-high share of people are facing painfully high rents. How did the U.S. housing market get to this point?

LUDDEN: So there are a lot of factors, but I would say there's one big one that underlies them all, and that is that the U.S. has a massive housing shortage. It goes back to the 2008 housing crash. A lot of homebuilders went out of business, and really, for a decade, economists say the U.S. did not build enough. And that has led to an incredibly tight market, so that helps explain why.

And then we had the pandemic, and people started going remote, moving all over the country. And you really saw rents skyrocket - double-digit increases because there just was not a lot out there. In some places, vacancy rates hit 1- and 2%.

Then on the heels of that, there was high inflation and skyrocketing mortgage rates. So that meant a lot of people who wanted to buy a home got priced out. They are now stuck renting, which makes the rent market even tighter. And one other big factor - you know, wages just have not kept pace with rising rents. Over the past two decades, according to Harvard's Joint Center for Housing Studies, median rents went up a whopping 21%, but the median income for renters, only 2%.

DOMONOSKE: Two percent over 20 years?

LUDDEN: Yeah.

DOMONOSKE: Wow. And when prices rise in general, it's often the lowest-income Americans who feel it the most. Is that the case here?

LUDDEN: It is, but they're definitely not the only ones because, again, prices are up across the board. In fact, the Harvard study finds middle-income renters - making between about 30,000 and $75,000 - were the most likely to see their rent go up to the point where it became unaffordable. And even people working full time, the study found one-third of them cannot afford their housing costs.

But absolutely, for the lowest-income renters, they are squeezed the hardest. Harvard finds that a record 83% of them now pay more than a third of their income for rent and utilities. And for a very big chunk of that, it's more than half their income. And, you know, there is a striking racial disparity. Black and brown people are disproportionately rent-burdened. They're also much more likely to be evicted, which, of course, makes it even harder to find a place to live.

DOMONOSKE: If people are spending most of their income on rent, how does that affect the rest of their budget?

LUDDEN: Yes, there is not much left for many people. You know, the researcher we heard from, Whitney Airgood-Obrycki, says for the lowest-income renters, the amount left has dropped almost in half, and the things that people used to do to find cheaper housing don't always work anymore.

AIRGOOD-OBRYCKI: So you might not be living in as good of a neighborhood. You might be commuting farther. You might be sacrificing the quality of your school system to try to live in affordable housing. And often, what we're seeing is that even when people are attempting to make these trade-offs, they still end up paying too much for housing.

LUDDEN: She says research shows that when faced with this, people spend less on things like food, less on health care. They don't save for retirement. They may not be able to save at all. They rack up more debt. U.S. credit card debt is at a record level, and delinquency rates for all kinds of debt are up. And, you know, for people who want to eventually buy a home, high rents make it a lot harder to save up for that.

DOMONOSKE: At the same time, we're also hearing that the market for people who want to buy a home is cooling off a bit. Is that also happening with rentals?

LUDDEN: It is, yes. This past year, Redfin says nationwide rents only rose about 1% on average, and they've even dropped a bit in some places that have been really overheated. A main reason for that - you know, even though there is a massive housing shortage, there is a lot more construction now. Our colleague Scott Horsley spoke with Kim Betancourt, who tracks the rental market for Fannie Mae.

KIM BETANCOURT: Right now underway, what I call holes in the ground, cranes in the sky, a million units - that's a lot. We need it. We absolutely need it. But it's primarily concentrated in about 15, 18 metros.

LUDDEN: And to be clear, even in those places, it's only going to help so much. Most new construction is at the higher end of the market. There's a lot of demand for that. Plus, land and construction costs are so expensive, it's just not profitable to build low-cost apartments unless you have government subsidies.

DOMONOSKE: All right. So there's this massive shortage of affordable housing. The market, despite new development, is not going to be able to fix it on its own. So what is happening to try and create places that people can actually afford to rent?

LUDDEN: There is a lot going on in states and cities. OK, for one thing, a growing number are starting to open up their zoning. They're allowing townhouses and small apartments in places that have long been restricted to single-family homes. Now, this is controversial. There are lawsuits. Many worry that these multifamily buildings are going to ruin their suburb, and not everything that gets built this way is really that affordable. But the idea is to add supply to the market and, over time, bring prices down.

Another zoning change - some places are requiring or encouraging developers to include a specific number of low-cost units in a building. We've also seen voters in dozens of places approve spending to build new affordable housing, and there's a really active tenants' rights movement. You've seen groups around the country have helped pass rent control in some cities. That's also controversial. Some economists say it can lead to fewer low-cost places because developers need to make money, and if they can't, they won't build as much. But activists say, look, construction takes years, and there are so many renters who need relief right now.

DOMONOSKE: Yeah. And so, bottom line, what is the reality right now for people who can't escape rising rents?

LUDDEN: OK. Well, I would like to just note a very important but harsh reality - as rents have gone up, we have also seen homelessness rates rise, and there are certainly a lot of reasons someone may end up living on the street. But a landmark study in California last year found unaffordable rent was a really key part in why many lost their housing.

For others, you know, people have always moved for cheaper housing. These days, you may have to go farther. The website Apartment List says a lot of renters are moving to different states where housing costs less. For a while, we've also seen a steady rise in adults living with their parents. The Pew Research Center found the most common reason for that is financial. And there's been a bump in more-affordable communal living. It's maybe a bit fringe, but you really have whole buildings now that are designed with private bedrooms and shared living spaces to help bring down the rent. So it does seem like it's going to be a tough market for a while and people may just need to get creative to find ways to get by.

DOMONOSKE: NPR's Jennifer Ludden, thanks.

LUDDEN: Thank you.

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Jennifer Ludden
NPR National Correspondent Jennifer Ludden covers economic inequality, exploring systemic disparities in housing, food insecurity and wealth. She seeks to explain the growing gap between socio-economic groups, and government policies to try and change it.