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The number of Americans considered to be “cost-burdened” by rising housing costs has grown by nearly 14 million households over the last 30 years, according to the Harvard Joint Center for Housing Studies’ 2018 State of the Nation’s Housing report. Nearly a third of all households—or 38.1 million—paid more than 30 percent of their incomes for housing in 2016, which financial experts say is too much.
Renters, in particular, are facing high costs. Nearly 21 million renters—or 47 percent—paid more than 30 percent on their housing; 11 million paid more than half their income on housing.
“If incomes had kept pace with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs,” says Daniel McCue, a senior research associate at the Harvard Joint Center of Housing Studies. “But that hasn’t happened.”
Growing income inequality has fueled the increase in cost-burdened households, according to the JCHS report. The real median income of households in the bottom quartile rose only 3 percent between 1988 and 2016; the median income for adults aged 25 to 34 years old increased by 5 percent. In that time, the median home price rose 41 percent faster than inflation between 1990 and 2016; the median rent increased 20 percent faster. The nation also had 2.5 million fewer units renting for less than $800 a month.
Ongoing housing inventory constraints is also contributing to affordability challenges, JCHS notes. Single-family housing starts remain well below the 1.1 million per year historical average. Also, multifamily starts in 2017 dropped by 9.7 percent to 354,100 units.
“The relative lack of new housing, along with Americans’ decreasing propensity to move, limited the number of homes for sale, which dropped to record lows in 2017,” the report notes.
As such, home prices increased 6.2 percent in 2017 and are now above pre-housing crisis peaks in a majority of housing markets. Rents have risen by 3.7 percent, but there are some signs that rents are cooling as vacancies tick up, according to the report.
“The easing conditions in the rental market reflects the fact that, after a decade of soaring rental demand, U.S. households are returning to homebuying,” according to the report. The national homeownership rate increased for the first time in 13 years in 2017—reaching 63.9 percent, up 0.5 percentage point from its low in 2016.