March 4, 2019

Think You Pay Too Much Rent?

You're not alone.

Americans are spending a larger chunk of their paycheck on rent than they used to. According to a 2018 report by The Pew Charitable Trusts, which analyzes data from the University of Michigan’s Panel Study in Income Dynamics, about 38 percent of renters said they spent 30 percent or more of their pretax income on rent in 2015. The number of Americans who are “rent burdened” rose about 19 percent between 2001 and 2015.

Strikingly, the number of respondents who qualify as severely rent burdened—spending 50 percent or more of monthly income on rent—increased by 42 percent during that time.

African-American renters are more likely to feel squeezed by rent than whites. Forty-six percent of African-American-led renter households were rent burdened in 2015, compared with 34 percent of white households. Between 2001 and 2015, the gap between the share of white and African-American households experiencing severe rent burden grew by 66 percent. 

Similarly, half of renter families headed by someone 65 or older were rent burdened, and more than one-fifth were severely burdened, the research shows.

Antonette Knazze, an African-American senior, is feeling strapped. The 64-year-old’s rent for a one-bedroom apartment in Forest Park, Illinois, $1,100, takes up 52 percent of her income from Social Security and a pension leaving her with $1,000 for food, clothing, utilities, phone, and other expenses..

“It’s challenging for a person like me. Rent at that rate is almost like a mortgage. I don’t know why they charge that much,” says Knazze, who is trying establish an emergency savings fund and a higher credit score to be able to buy her first home. With her tight budget, an unexpected car expense can leave her short of money to pay all her bills. Knazze, who is single, retired two years ago as a child care worker and is considering driving for Uber or returning to child care to make ends meet.

“The home is the most significant expenditure per month you have, whether you rent or own. And an essential component of family economic stability is affordable rent or homeownership,” says Travis Plunkett, a senior director at The Pew Charitable Trusts. According to research, people who are rent burdened often have little or no savings and can become detached from the banking system. This leaves them unprepared in a crisis, when they might rack up fees from payday lenders, borrow money from family and friends, or fall behind on credit card payments, all of which can create a long-term drag on their finances.

The home is the most significant expenditure per month you have, whether you rent or own. And an essential component of family economic stability is affordable rent or homeownership.

Travis Plunkett, The Pew Charitable Trusts

Both younger and older Americans are renting more today than in the past—and for longer.

The decline in homeownership since the Great Recession of 2007 to 2009 is driving up demand and prices for rental property. Since 2001, adjusting for inflation, gross rent has increased 3 percent a year, on average, while income has declined by an average of 0.1 percent annually. About three-in-four renters say they want to buy a home at some point, and most cited financial reasons when asked why they rent, according to a 2016 Pew Research Center report.

3%
Gross rent has increased 3 percent a year, on average, while income has declined by an average of 0.1 percent annually

Stephan Bobalik, 37, rented a loft for seven years in an area of downtown Detroit that was quickly developing, but moved when his rent of $1,350 was going to be raised to $1,750. He found a two-bedroom apartment in a residential neighborhood about three miles away where he pays $950.

“The housing market has definitely changed since I moved here. As there is more investment in the city, it has made people look farther afield,” says Bobalik, who is a fundraiser for a nonprofit. Will he become a homeowner? “I would certainly think about it in the next couple years. I haven’t taken any steps to do so, but it seems like a sensible thing to do.”

To learn more, view the 2018 Pew Charitable Trust report, “American Families Face a Growing Rent Burden.”

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