It’s Not Just You: 5 Signs Rent Is Totally Out of Control
Housing prices have soared so high in the U.S. that renting may increasingly look like a better option. But the truth is that rent prices are skyrocketing too. Here's a look at how painful rent is for Americans lately, with no signs of easing up.
Monthly Payments Are the Highest in 30 Years
On Friday, the Wall Street Journal reported that debt levels among Americans have actually decreased lately. Yet what people pay each month as a portion of income for non-debt kinds of financial obligations—including things like cell phone, auto leases, and the biggest bill of all, rent—has hit a high not seen since the 1980s.
Debt levels among Americans have dropped hand in hand with plunging homeownership rates. Yet the decrease in people facing mortgage payments means a rise in renters, and rental prices have increased 18% over the last five years, according to Department of Labor data cited by the Journal.
In late 2016 and early 2017, rent and other non-debt financial obligations accounted for around 5.44% of after-tax income. That's up from levels below 4.7% in the mid-'00s. The last time these obligations represented a higher percentage of after-tax income for Americans was 1987.
Median Rent Has Doubled in 20 Years
Thanks to inflation, we can expect rent and other expenses to rise over the years. But rental rate increases in the U.S. have been outpacing inflation for decades.
In the first quarter of 2017, the median asking rent for a vacant apartment or home in the U.S. was $864, according to the Census Bureau. By comparison, median rent was around $500 at the turn of the millennium, and it rose to $700 during the Great Recession and topped $800 for the first time in 2015. Without adjusting for inflation, today's median rent is roughly double that of 1995, when it was around $425.
When factoring in inflation, $100 in 1995 is worth the equivalent of $160 in 2017. If median rent increased at the same pace of inflation, that $425 in 1995 would translate to $680 today. In other words, the median asking rent is $184 higher today than it would be if rental rates had risen only as fast as inflation over the past two decades.
Minimum-Wage Workers Need 2 (or More) Full-Time Jobs to Afford Rent
A report released this month by the National Low Income Housing Coalition shows just how unaffordable rent is for workers making the federal minimum-wage of $7.25 per hour. "In order to afford a modest, two-bedroom rental home in the U.S., renters need to earn a wage of $21.21 per hour," the report states. That's nearly $14 higher than the federal minimum wage, and nearly $5 per hour more than the average renter's hourly pay ($16.38).
The researchers also looked at how many hours a minimum-wage employee would have to work weekly in order to afford rent. Using the common wisdom that housing costs should be no more than 30% of one's income, researchers found that workers making $7.25 an hour would have to put in 94.5 hours per week to afford a one-bedroom unit. That, quite obviously, would be like working more than two full-time 40-hours-per-week jobs.
Some Renters Paid the Equivalent of a 13th Payment Last Year
Apartment-search site Rent Café crunched some data and found that while average rent rose "only" 4% nationally in 2016, rates in some cities grew so sharply that it was like renters were hit with a 13th month's payment.
In Detroit, for example, rental rates popped 9.3% in 2016, with the average renter paying $853 per month in December 2015 and then $932 one year later. That means renters ended up shelling out $948 more than they did in 2015 — equivalent to a month's rent. In Long Beach, Calif., average rent hit $1,828 in December 2016, up from $1,677 the year before. So renters there paid an extra $1,812 over the course of the year, on average.
Rent Has Climbed Every Month in 2017
According to the June rent report from the website Apartment List, the pace of rent growth was fairly flat in 2016. But that's changed over the past five months, with rates increasing nationally at a clip of 0.5% to 0.7% each month in early 2017.
"Our national rent index has already increased more in 2017 than it did in all of 2016," Apartment List reported a few weeks ago. "Rents increased by just 1.6% over the course of last year, but are now up by 2.1% compared to their December 2016 level."
The site's researchers also noted that further increases in rent are likely: "Based on the seasonal trend that we’ve seen in previous years, rents could increase by another 1.5% by the end of the summer."