As banks and financial institutions have been mandated to increase their loan qualifications for home mortgages due to government regulations, more and more families are being forced to rent rather than own. As the demand for rentals has been increasing, the level of home ownership has been falling. Some attribute this dynamic to a low inventory of homes on the market, while others blame excessive government requirements imposed on mortgage lenders.
A lack of available rentals along with the increased demand for rentals has propelled rental costs upward. The number of individuals dedicating at least half of their income towards rent hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies.
As rental prices have been rising faster than wages, losing such a large portion of a paycheck to cover housing means cutting back on essentials such as food, clothing and health care. This can be draining on young families trying to save for a down payment on a home purchase and then not knowing if they’d be able to get approved or not.
Last year saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people, accounting for about 36% of households. Middle-aged renters made up a substantial portion of the new demand, with 40% of renters aged 30-49.
More affluent renters are staying in the rental market longer and driving up the demand for housing. Traditionally, the wealthy move on to become homeowners, but tight inventory in the housing market is keeping them in rentals longer.
The median rent on a new apartment was $1,381 in 2015, according to the report, which means that a renter would have to make at least $55,000 a year before taxes in order to be able to afford the rent.
Sources: Joint Center For Housing Studies