Why We’re All Seriously Overspending on Rent
Since being financially fit has become almost as on-trend as being physically fit, we all know to invest in a 401(k) (compounding interest) and contribute to a slush fund for rainy days (unexpected layoffs or that much-needed getaway to Portugal). But then why are so many of us handing over almost one whole paycheck—or more—to go to our monthly rent without even blinking an eye?
According to a new report released by Harvard University's Joint Center for Housing Studies, the number of Americans allocating more than 30% of their incomes to rent is nearing 50%. The report alleges that renting is becoming a surefire and burdensome challenge for the middle class.
With the recent boom in rental property construction, one would think rental prices would decline. But that’s simply not the case, Chris Herbert, managing director of the Joint Center for Housing Studies, told The Wall Street Journal: “As much as we’ve seen an increase in rental supply, the increase in rentals demand has been astounding.”
It’s the perfect example of supply not being able to meet demand. In mid-2015, 43 million families and individuals lived in rentals, almost a 9 million–person increase from 2005, but the number of rental units only increased by 8.2 million, leaving a definite deficit.
What’s more, most of the new rental properties cater to higher-income renters. The median asking rent for all new apartments was $1372 last year, a 26% overall increase from 2012, the report says. Just ask Toby Buzzuto and others in real estate development, who insist that increased land prices and construction costs have made it hard for their businesses to cater to anything but luxury buildings. “As my father always says, a sheet of drywall doesn’t care if it’s in a luxury high-rise or an affordable housing project—it costs the same,” says Bozzuto, president and chief executive of the Washington-area Bozzuto Group.
So what does all of this mean for renters? Only time will tell.
To read more about the housing report, visit The Wall Street Journal.
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