A lot of fuss has been made about the housing market lately — and understandably so. Home values have plummeted, homebuilder earnings have evaporated, foreclosures remain high and mortgage lending remains stagnant.
America has endured a roughly 30% drop in housing values nationwide compared with 2006 valuations — give or take a bit depending on your particular home and particular market.
But there is an untold story of the housing crash that also has wiped away billions in wealth from American families and will continue to weigh on the economy going forward: the surge in rent costs.
“Unaffordable” Rentals Rise
The release of 2010 Census data released this week shows that more than half of Americans are paying over 30% of their household income on housing costs via costly rental agreements. The government uses that 30% mark to define whether housing is “affordable” or not for a given market. As of 2010, 53% of Americans were spending about a third or more of their total income on housing costs.
That’s disturbing enough, but worse is the news that this trend isn’t new. That 53% of families above the “affordable housing” threshold last year was up from 51.5% in 2009 and from about 50% in 2008.
That trend isn’t going to slow down, either. A USA TODAY report this week cites an economist at the real estate site Zillow.com as saying rents should go up another 4% nationwide this year. That’s because “strong demand is driving rents up as homeowners lose homes to foreclosure and become renters” and “skittish consumers are also delaying home purchases.”
Inflation Eroding Wages
So what’s behind the upward trend for rents in a down economy? Well, there are several reasons. First and foremost, the trend isn’t necessarily “up” for rents. According to the numbers, median rents nationwide remained stable at $855 per month last year.
The problem is inflation and stagnant wages. Median national household incomes fell 2.2% last year when you adjust for inflation — meaning there is just less money to go around for everything.
Don’t expect that trend to slow down, either. Consumer prices in the U.S. rose by 0.4% from July to August, bringing the annual measure of inflation to 3.8% — the highest since September 2008.
Lack of Rental Supply
Making matters worse is that many real estate markets had long ago abandoned the construction of rental units. The culprit here is the same twisted logic that led to the housing bubble — the theory that home values always will go up and that a family’s best investment is a new house as a result. Why bother building rentals where homes are where the money is?
After years with little or no rental growth, there now is a huge disparity between supply and demand. Take Fort Lauderdale, Fla. The region is a poster child for the condo bust turned apartment boom. Developers are set to kick off a new round of “housing” construction with plans to build more than 4,000 rental apartments.
It’s a bitter pill for some to swallow. Some Florida builders who made a mint selling cookie-cutter condos during the boom will now get paid again for building rentals, even as homeowners get burned twice on the condo crash and skyrocketing rents.