Renters Feel the Squeeze, While Homeowners Enjoy Relative Affordability

The housing crisis and resulting Great Recession that descended on the United States over 10 years ago devastated many families and their communities. While many across the country have recovered, many others are still feeling its adverse effects, perhaps none more so than the nation’s renters. The recent plight of these renters is a result of increasing competition for rental housing and stagnant wage growth for most of the last decade.

Increasing competition for rental housing has come about due to the foreclosure crisis pushing many former homeowners into the rental market. Further, the impact of changing demographics, progressively higher average student loan balances and changing lifestyle choices among younger generations (e.g., delaying marriage and children) all influence the ability or decision to become a homeowner. These forces have combined to significantly increase the number of renter households in the years since the Great Recession, affecting both urban and rural communities nationally and the Eighth District of the Federal Reserve. (See Table 1.)

The increase in the number of renter households has placed upward pressure on rents across the country, including in the St. Louis Fed’s District. (See Table 2.) This increase in rents has affected both metro and nonmetro communities.

As previously noted, these rent increases have come at a time when growth in renters’ incomes has been modest, particularly in nonmetro areas. Again, this trend holds true both nationally and in the St. Louis Fed’s District. (See Table 3.)

Not surprisingly, the combination of these challenges facing renter households has resulted in more and more renters experiencing housing cost burden, meaning that they are spending more than 30 percent of their gross income on housing costs. While a greater percentage of renter households in metro areas experience cost burden than in nonmetro areas (48.3 percent versus 40.5 percent in 2016), nonmetro areas witnessed a larger increase in cost burdens after the crisis (burden rates in metro areas increased 2.0 percentage points between 2009 and the peak in 2014, versus 2.4 percentage points in nonmetro areas). Housing cost burden rates also decreased at a somewhat slower pace in nonmetro areas between 2014 and 2016.

The nationwide trends in renter housing cost burdens have also affected the Fed’s Eighth District. Between 2009 and 2014, four of the seven states in the St. Louis Fed’s District experienced statistically significant increases in cost burden among renter households in nonmetro counties (Arkansas, Kentucky, Missouri and Tennessee). Over this same period, six of the seven states in the Eighth District had statistically significant increases in metro counties (all states except Arkansas). By 2016, just two states continued to have statistically significant increases in renter housing cost burden in their metro counties, while fully three of the four states that originally experienced statistically significant increases in their nonmetro areas continued to have elevated levels. (See Table 4.)

While renters continue to struggle with affordability challenges, homeowners are experiencing a period of relative affordability. Indeed, the rate of housing cost burden experienced among homeowners has decreased dramatically since the height of the crisis in both metro and nonmetro counties, nationwide and in the Eighth District. (See Table 5.)

Households struggling to pay their housing expenses are forced to make difficult choices and often forgo important investments that can pay off over the long term, including investing in their education, health and well-being.