Rent affordability in the US is worsening, latest research shows

Tenants in the United States are spending more of their income on rent as affordability is worsening, according to new research, around £2,000 extra a year.

Indeed people renting a home are on average paying out 29.1% of their income, more than the 25.8% they were paying in the run up to the housing bubble that burst with the economic downturn of 2007.

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, according to the research from real estate firm Zillow.

It shows that mortgage payments take up a smaller share of income now than they did historically at 15.4% in the third quarter of 2017 compared to 21% previously.

In expensive markets like San Jose renters are spending nearly 39% of their incomes on rent compared to 26% historically, which translates to $13,525 this year, more than any other metro Zillow analysed.

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 US metros, rents in Pittsburgh have remained mostly level over the past several years, allowing incomes to keep up and even outpace rent appreciation, the research also shows.

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 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,’ she explained.

‘For parents, it could mean additional childcare or a family vacation. This is another example of how much worse rent affordability has gotten,’ she added.

The research report also points out that younger people want to buy a home and have traditional views on the value of home ownership. 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.

Gudell also explained that 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.

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