More than a quarter of American renters are spending at least half of their household family income just to keep a roof over their head and the lights on. This staggering finding comes from a study released by the Enterprise Community Partners, an affordable housing finance non-profit based in Columbia, Maryland. This is an increase of 26 percent, up to 11.25 million households, since the housing bubble popped in 2007. The report comes on the heels of a Commerce Department report published on Tuesday noting that the seasonally adjusted homeownership rate has hit its lowest point since 1989. The cost of renting has outpaced wage growth by nearly double, putting more pressure on tenants to keep up with rising costs and limiting their ability to save the money needed for a down payment–or a financial cushion, in many cases.
All of this comes at a time when buying a home is cheaper than renting in most major metro markets. What gives?
Low Housing Inventory
Part of this is a continuation of the post-bubble housing market narrative–with so many distressed properties and foreclosed individuals, investors bought up large numbers of homes and converted them into rentals, rather than flipping them. This gobbled up a considerable chunk of the housing stock in a lot of areas at a time when many people were dealing with recessionary instability and unable to consider buying a home. In the immediate aftermath of the crash, even people with good credit and savings found it difficult to secure a mortgage. Now, years later, we’re seeing the long term repercussions: a population that is putting most of its annual income into another person’s investment, with no equity of their own to hold onto.
Strict Lending Standards
A second issue, of course, is the current lending climate. While progress has been made over the course of the past year or so with looser underwriting standards, it’s still difficult for a wide range of aspiring homebuyers to land a mortgage they can afford. Particularly for young families who graduated into the recession, as well as freelancers and contract workers who have an inconsistent income history, getting good terms on a loan is exceedingly difficult. As this younger generation is expected to be the next major block of homebuyers, this is deeply problematic for both the market and aspiring homebuyers. As the current rate of appreciation is pushing home prices up more and more by the year–outpacing the gains workers are making in the recovering jobs market.
Rent to Own Housing as a Solution
A recent Center for American Progress report suggests lease option housing opens up a great opportunity to find a way around this trap, by supporting working people as they shift into homeownership. A well-crafted, well-vetted rent to own lease agreement can put people into homes and give them the tools they need to save a down payment, improve credit scores or DTI, or establish a history of steady employment–overcome whatever hurdles are preventing them from buying a home. As rent prices continue to skyrocket and tenants spend more of their monthly income to landlords–of which they get no benefit, save shelter, mind you–it becomes evermore apparent that some reconsiderations and shakeups need to occur in our current real estate climate.