Rental affordability expected to get worse

By Tony Wittkowski | Business Reporter | The Herald-Palladium

Rental affordability in the U.S. has been a struggle for large, highly populated metro areas.

According to a study released Monday, the number of renters who struggle will increase nationwide.

Enterprise Community Partners, an affordable-housing nonprofit organization, joined forces with Harvard’s Joint Center on Housing Studies to determine what trends U.S. renters would see by considering various scenarios for wage and rent growth over the next decade.

The number of U.S. households that spend at least half their income on rent – known by housing experts as the “severely cost-burdened” – could increase 25 percent to 14.8 million over the next decade. Households shouldn’t spend more than 30 percent of income on housing, by the general rule of thumb.

That group of renters could see an increase in size based on two large demographics. The study says more than 1 million households headed by Latinos and more than 1 million headed by the elderly could pass into those ranks.

Even the best-case scenario is nothing to smile at. If wages grow at a full percentage point per year faster than rent growth, the study showed the number of severely-cost burdened households will barely fall, from 11.8 million in 2015 to 11.6 million in 2025. In the baseline scenario, where rent, wages and inflation increase at 2 percent each year, the researchers expect the number to reach 13.1 million.

There were 11.2 million severely burdened renter households in 2013, competing for only 7.3 million units affordable to them in the U.S., the report said.

If rent continues to rise faster than wages, the number of households spending more than half their income on rent will rise, too. Wages grew 0.2 percent in the second quarter of this year, the slowest pace since 1982.

Darlene Davis, associate broker for Lakeside Property Management and Real Estate, is familiar with the rental market in St. Joseph and Stevensville. From what she has seen from the Southwest Michigan region, she does not see any indication that area rents will reflect the study’s prediction.

“I do not see that in this area. There are jobs here,” she said. “If I was trying to rent a house in Van Buren County, there would be a problem. But we have hospitals, a power plant and Whirlpool. Employers are a good reason for sustainable living.”

Davis said the rental market is determined by the demand, which changes every year.

This year, Davis said they were renting houses and apartments faster than they could get them on the market during April and May. Normally, it’s in July and August when Davis sees the largest amount of incoming renters.

However, as long as rent is based on wages, her clientele will have nothing to worry about.

“Most of our tenants are people coming in to work at Whirlpool, so I guess it matters how much they are making,” she said. “It also depends on how much they are willing to spend. If there is only housing in the $1,500 range, then they might pay that because there is nothing else. We try to get the most for the owners that the market will bear.”

By the numbers

In New York and Los Angeles, more than one-third of middle-income renters were severely rent-burdened. However, those numbers are skewed because of the type of market they exist in.

The regional rental affordability statistics from the National Low Income Housing Association, shows the Niles-Benton Harbor metropolitan statistical area has 16,860 total renter households.

The total amount of renters within Michigan’s 6th Congressional District – which includes Berrien, Cass and Van Buren counties – is 72,143. Renters make up 21 percent of all households in the district. Out of that total number of renters, the regional rental affordability stats show 18,414 are severely burdened households. That means about 25.5 percent of this district’s renters pay more than what’s recommended.

Gary Walter, executive vice president of the Southwestern Michigan Association of Realtors Inc., said when the U.S. went through the 2008-09 recession and saw an increase of foreclosures, he witnessed an influx of people lose their houses. Many who lost their homes became renters.

If the rental market were to see an additional 25 percent of renters become severely cost-burdened, Walter said the housing market could see more first-time buyers.

“It’s possible to see that,” Walter said. “If rental rates go up that high, it would make them take a look at buying, instead of renting.”

New data from the Census Bureau last week showed the percentage of U.S. households spending 30 percent of their income on housing was lower in 2014 than in any year since 2005.

However, housing economists have said that’s likely because home buyers are taking out new mortgages and homeowners are refinancing existing loans at lower rates. Renters don’t have that option.

Contact Tony Wittkowski at twittkowski@TheHP.com or (269) 932-0358. Follow him on Twitter: @tonywittkowski.

(Author’s Note: This article was originally published on Sept. 25, 2015)

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