By Dan Weil and Michelle Smith
Demand for rental housing has soared over the past seven years, and that has pushed rents higher than many middle-class Americans can afford to pay.
A rule of thumb is that households shouldn’t pay more than 30 percent of their income on rent and utilities.
But now half of U.S. renters devote more than 30 percent of their income to housing, up from 38 percent in 2000, revealed a report from Harvard University.
Housing Secretary Shaun Donovan has called this “the worst rental affordability crisis that this country has ever known.”
The number of tenants in the United States increased by 6.2 million from 2007 to 2013, while homeowners increased by only 208,000, according to Stan Humphries, chief economist of Zillow, a real estate information service, The New York Times reports.
And the problem of soaring rent isn’t limited to the usual high-cost cities, the Times reported.
In 90 cities, the median rent — not including utilities — is more than 30 percent of the median gross income, according to an analysis from the real-estate website Zillow commissioned by the Times.
In New Orleans, for example, rent as a percentage of income is double the historical average, having increased to 35 percent from 14 percent, the Times reports.
As the number of renters grows, competition for rental space pushes the costs increasingly higher, but wages, in many cases, have headed in the opposite direction.
In Riverside County, Calif., median annual rental costs have increased $756 during the past six years, but the median household income has fallen in each of those years, Congressman Mark Takano wrote in a rental report earlier this year.
In the City of Riverside, he added, 51 percent of households have been spending more than half their income on rent since before the recession hit in 2007, but their wages remain below pre-recession levels.
Smaller paychecks and tight-fisted lenders makes it more difficult, if not impossible, for many Americans to become homeowners. But after housing prices fell during the economic crisis, it created a prime opportunity for investors to swoop in and snap up real estate at bargain prices, and often in cash.
The prevalence of investors in the rental market creates risks and adds additional challenges, such as lack of competition for rental prices and lower housing availability, said Takano.
Apartment-vacancy rates have dropped so low that forecasters at Capital Economics, a research firm, project rents could rise, on average, as much as 4 percent this year, the Times reports.
In many cities, such as Miami, there is a prevalence of upper-income renters who are able and willing to pay these soaring rents. That demand is also helping to price the middle-class out of the rental market.
To cope, a growing number of working-class professionals are finding it necessary to live with their parents or double up with roommates, the Times reports.
All this is occurring at a time when money from housing-assistance programs is drying up, but is desperately needed.
Riverside County, for example, has 50,000 applicants for its Section 8 housing assistance program; only 8,500 are currently receiving assistance, notes Takano.
Many people are renting because they can’t qualify for mortgages.
Analysts at Capital Economics say rents may rise an average of 4 percent this year, up from 2.8 percent last year, according to The Times.
Home-purchase prices have been rising as well, with the S&P/Case-Shiller index of prices for 20 cities jumping 13.2 percent in the year through January.
One way investors may be able to profit from the rising-rent trend is by purchasing apartment real estate investment trusts (REITs). Among the biggest players in that category are Avalon Bay and Equity Residential.
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See original article here: http://www.moneynews.com/Personal-Finance/Rents-affordability-middle-class/2014/04/16/id/565995/