American renters spend an average of about 30% of their monthly incomes on rent, according to multiple sources of housing data, but throughout the country, many people spend much more than that. That’s a decent indication of a rent affordability problem in the U.S., given that housing experts consider consumers to be “rent-burdened” if they pay more than 30% of their income for housing. Sure, some people spending large chunks of their paychecks on rent may live in expensive places and may be able to opt for cheaper housing, but that’s often not the case.
Housing researchers project that renters will grow at a faster rate than homeowners throughout the next decade, so even if wages and rent prices grow at the same pace, millions more Americans will be rent-burdened by 2025. A report from Enterprise Community Partners and Harvard’s Joint Center for Housing Studies estimates there will be 4.2 million new renters by 2025.
The Urban Institute thinks it will be worse. In a new report, Urban Institute researchers estimate there will be 6.5 million new renters by 2025. If rent and incomes each grew 2% annually over this time period (as the Harvard research assumes), Urban Institute estimates there will be 2.2 million more rent-burdened consumers.
Given the declining homeownership rate and increasing demand for rental housing, experts find it unlikely that rent and incomes will grow in tandem. If rents grow 3% annually and income 2% annually, the Urban Institute estimates 31% of renters will be severely rent-burdened by 2025, up from 28% in 2015 — that’s an additional 4 million people putting more than 30% of their incomes toward rent.
Even if you’re not among the rent-burdened population, you’ll still have to deal with higher rents, based on these experts’ projections, which is particularly unwelcome news if you live in some of the priciest places in the country. Many personal finance experts recommend you spend no more than 25% of your income on rent, but if demand continues to rise faster than wages, that will be increasingly difficult.
Another thing that could make your housing search more stressful is your credit: Poor credit can make it hard to get an apartment, especially in a competitive rental market, where a leasing agent may easily find someone else who wants the place but also has a good credit score. Even if you get the house or apartment, you may be asked to pay a higher deposit, to offset the landlord’s risk of renting to someone with a low credit score. To improve your chances of rental-hunting success and keeping your costs down, try to keep up your credit scores. You can see where you stand by getting your free credit scores every 30 days on Credit.com.
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