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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.

Nov 29, 2017

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.

Zillow is a registered trademark of Zillow, Inc.

[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

For further information: Lauren Braun, Zillow, press@zillow.com


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