Housing Costs Rose for Working Families During Housing Bust

Despite falling mortgage interest rates and home prices from 2008 to 2011, severe housing cost burdens remained stable but high for working families who own their homes while more than one in four working renter households (26.4 percent) spent more than half of their income on housing costs in 2011-an increase of more than three percentage points since 2008.

The share of working households with a severe housing cost burden increased almost two percentage points between 2008 and 2011, rising from 21.8 percent to 23.7 percent. This growth reflects the combined effects of an increase in the rate of severe housing cost burden for working renters and a more or less steady rate for working owners, according to a new study by the Center for Housing Policy.

The median housing costs of working renters rose nearly six percent between 2008 and 2011 while their median incomes fell more than three percent. Working owners experienced a decrease in median housing costs over the three-year period, but the lower costs were accompanied by an even larger decline in their median incomes, so affordability did not improve, the study found.

Median gross rents of working renters rose nearly six percent in nominal terms since 2008, with steady year-over-year increases. In contrast, housing costs for working owners followed precisely the opposite course, falling more than three percent between 2008 and 2011, with steady annual drops. Rising rental costs may be due in part to increased competition for rental units and the inadequate production of new rental units during the Great Recession.

Household incomes for working renters and owners fell at least three percent between 2008 and 2011, despite a modest one-percent increase in incomes in the most recent year. For working renters, a 3.2 percent drop in median household income reflects a larger one-year drop between 2008 and 2009 followed by small improvements in both 2010 and 2011. Working owners faced a 4.2 percent drop in median household income between 2008 and 2011 that reflects incremental annual decreases from 2008 to 2010 followed by a modest increase in 2011.

“The growing rate of severe housing cost burdens among renters is not a new trend, but it is clearly an unsustainable one,” said lead report author Janet Viveiros. “While rental costs have steadily risen over the last few years, wages for these working families have not fully recovered from the hit they took between 2008 and 2009. Spending most of your paycheck on rent means cutting back on other necessities, including healthcare and even food.”

Co-author Maya Brennan noted that the causes of rising housing cost burdens among working renters include a difficult economy and an increased demand for rental housing, partly due to the crisis on the homeownership side of the market.

“While the economy pushed both owners’ and renters’ incomes down, the shift away from homeownership is pushing rents up due to increased demand. What we’re seeing with the rental market is not explainable by population trends alone-it clearly reflects the movement of former homeowners into rentals as well as delays in home purchases by current renters,” Brennan explained. “But this increase in rental demand has not been matched by an increase in supply. This imbalance leads to rising rents in markets across the country.”

The study defined working households as those that report household members working at least 20 hours per week, on average, and earning no more than 120 percent of the median income (AMI) in their area. There were approximately 44.5 million working households in the United States in 2011, split between homeowners (21.9 million) and renters (22.6 million).