Worsening Affordability Costs Renters $2,000 per Year

Income growth stagnated as rents continued to climb, forcing renters to pay an increasing share of their income on rent

- The median U.S. rent requires 29.1 percent of the median monthly household income. In pre-bubble years - 1985-2000 - rent required just 25.8 percent of the median income.

- Renters in 34 of the nation's 35 largest markets have to spend a larger share of income on rent now than they did in pre-bubble years.

- Homeowners spend $3,300 less per year on the typical mortgage payment than they would if mortgage payments required the same share of income as they did historically.

News provided by

Zillow

Nov 29, 2017, 07:00 ET

SEATTLE, Nov. 29, 2017 /PRNewswire/ -- Rising rents are eating up an increasingly large share of American incomes, costing the typical renter $2,000 per year.

Currently, the median U.S. rental requires 29.1 percent of the median monthly income. However, in the years leading up to the housing bubble, renters spent just 25.8 percent of their income on housing. That means renters are spending $1,957 more on rent in 2017 than they would be if the percentage had remained the same.

By contrast, the typical homeowner spends less of their income on house payments than they did previously – saving about $3,300 per year on the typical home. Mortgage payments take up a smaller share of income now than they did historically – 15.4 percent in 2017 Q3, compared to 21 percent previously.

In expensive markets like San Jose, renters are spending nearly 39 percent of their incomes on rent, compared to 26 percent historically, which translates to $13,525 this year, more than any other metro Zillow analyzed. Renters in San Francisco are similarly affected by worsening rent affordability, spending $11,236 more on rents than they would have if the cost of rent had remained proportional to income.

While rent affordability has worsened in most U.S. metros, rents in Pittsburgh have remained mostly level over the past several years, allowing incomes to keep up and even outpace rent appreciation. Renters in the metro actually spend a smaller share of income on rent than they did in pre-bubble years, meaning they are spending about $3,400 less per year than they would have at the historical rate.

"In most markets, current renters are at a disadvantage compared to years past because paying the rent takes up a much larger share of their income than it did before," said Zillow® Chief Economist Dr. Svenja Gudell. "For many people, that can mean less cash to put toward paying off student debt, building an emergency fund, or saving for retirement. For those hoping to buy a home, it could be a significant part of their down payment. For parents, it could mean additional childcare or a family vacation. This is another example of how much worse rent affordability has gotten."

Younger generations want to buy homes, and have traditional views on the value of homeownership. However, with home prices climbing, first-time buyers have to save more than $100 a month for a down payment just to keep up with rising home costs[i]. Low interest rates mean monthly mortgage payments are relatively affordable, but the majority of renters cite that initial down payment as the main barrier to buying a home[ii].

Metropolitan Area	Share of Income Spent On Rent, 2017 Q3	Historic Income Spent On Rent	Additional Rent Costs Per Year	Share of Income Spent On Mortgage Payments, 2017 Q3	Historic Income Spent On Mortgage Payments	Mortgage Payment Savings Per Year
United States	29.1%	25.8%	$1,957	15.4%	21.0%	$3,289
New York/Northern New Jersey	39.3%	26.2%	$9,543	26.2%	29.7%	$2,566
Los Angeles-Long Beach-Anaheim, CA	48.4%	36.2%	$8,178	40.8%	35.2%	-$3,781
Chicago, IL	29.7%	25.2%	$3,020	14.4%	22.8%	$5,578
Dallas-Fort Worth, TX	30.2%	21.8%	$5,298	15.2%	20.4%	$3,256
Philadelphia, PA	27.7%	21.4%	$4,337	14.3%	20.0%	$3,901
Houston, TX	28.8%	24.3%	$2,848	12.8%	15.3%	$1,611
Washington, DC	26.1%	17.6%	$8,313	17.6%	22.3%	$4,651
Miami-Fort Lauderdale, FL	41.0%	28.5%	$6,741	21.3%	20.0%	-$717
Atlanta, GA	26.0%	19.3%	$4,261	12.9%	19.1%	$3,941
Boston, MA	33.8%	26.3%	$6,296	23.0%	26.2%	$2,687
San Francisco, CA	42.4%	30.7%	$11,236	40.6%	38.3%	-$2,189
Detroit, MI	24.9%	19.9%	$2,850	11.3%	16.6%	$2,991
Riverside, CA	36.7%	32.7%	$2,406	24.9%	26.5%	$969
Phoenix, AZ	27.3%	22.9%	$2,600	18.3%	21.3%	$1,791
Seattle, WA	30.2%	23.8%	$5,592	23.5%	25.2%	$1,493
Minneapolis-St Paul, MN	26.6%	21.3%	$3,903	15.2%	18.4%	$2,299
San Diego, CA	42.0%	34.7%	$5,322	34.4%	34.1%	-$198
St. Louis, MO	23.1%	21.2%	$1,132	11.2%	16.1%	$2,887
Tampa, FL	32.1%	27.6%	$2,271	16.5%	18.7%	$1,097
Baltimore, MD	27.4%	26.9%	$374	15.5%	21.4%	$4,476
Denver, CO	32.4%	23.7%	$6,531	22.1%	21.9%	$220
Pittsburgh, PA	22.5%	28.4%	-$3,392	10.8%	15.5%	$2,750
Portland, OR	32.5%	23.5%	$6,182	24.1%	22.5%	$1,078
Charlotte, NC	26.9%	19.3%	$4,344	14.0%	18.3%	$2,472
Sacramento, CA	31.8%	31.8%	$37	24.7%	28.6%	$2,611
San Antonio, TX	28.0%	26.2%	$1,068	13.0%	17.7%	$2,691
Orlando, FL	32.0%	22.6%	$4,987	17.6%	20.4%	$1,505
Cincinnati, OH	25.6%	19.2%	$3,808	11.6%	19.3%	$4,632
Cleveland, OH	25.5%	22.7%	$1,530	11.4%	20.0%	$4,616
Kansas City, MO	23.8%	17.5%	$4,046	11.3%	20.1%	$5,611
Las Vegas, NV	28.0%	24.1%	$2,126	19.1%	25.9%	$3,735
Columbus, OH	25.9%	22.0%	$2,393	12.2%	20.0%	$4,757
Indianapolis, IN	25.3%	21.8%	$2,013	10.9%	20.8%	$5,638
San Jose, CA	38.5%	26.0%	$13,525	43.3%	36.0%	-$7,938
Austin, TX	29.0%	23.3%	$4,027	17.6%	18.9%	$ 908

Zillow

Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Launched in 2006, Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and ZG), and headquartered in Seattle.

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[i] http://zillow.mediaroom.com/2017-11-09-Home-Buyers-Need-to-Save-up-to-600-a-Month-Just-to-Keep-Up-with-Rising-Home-Prices
[ii] https://www.zillow.com/research/down-payment-hurdle-zhar-14790/

SOURCE Zillow