Market Conditions and Rent: A Rental Affordability Crisis?

Many cities that Nations Lending originates in are experiencing a rental affordability crisis as rent cost continues to increase. And we believe that this is increasing the motivation to buy a home rather than live in an apartment or rent.

Nations Lending loan officers cite a number of factors that have increased rental burden among households due to a greater demand for renting after the crash of the housing market, under-investment in new rental construction, shifting preferences to urban living and slow wage growth. Most of our lending takes place east of the Mississippi, but Western cities are the leading edge of diverse renter markets. Still, Nations Lending is seeing different households being impacted differently.

Rent tends to be lower for households with a high rent burden, but most of the difference between low and high rent burdened households can be contributed towards household income. For households with the lowest rent burden, the median income is four to five times the median household income among households with the highest rent burden. In San Francisco, it’s about six times higher. Among households with the highest rent burdens, half of the household’s income is dedicated towards rent. The highest rental burdened households spent 68 cents of every dollar on rent, whereas the lowest rental burdened households spent between 14 and 15 cents of every dollar on rent. Half of the households with high rent burdens in Denver, Los Angeles and Portland and one third in San Francisco, San Jose and Seattle live in poverty. If that’s not a rental affordability crisis, I don’t know what is.

Households with higher rent burdens live in smaller, older units and overly burdened renters tend to be older. High rent burden households are more likely to have children living with them, are more likely to be single parent homes and spend more time commuting via public transit. And Millennials are over-represented in low rent-burdened households: in San Francisco, 42 percent of people living in households with low rent burdens are millennials, compared to 27 percent in high rent-burdened households.

At some point a rent payment, among other factors, nudges a person from being a renter into buying a home. And as rents increase, our LOs are seeing more and more move in exactly that direction. After all, what better way to avoid the rental affordability crisis than to avoid it altogether?