Rising rents taking up growing share of Americans’ income

LOS ANGELES (AP) — Sharp rent increases in many parts of the country are eating up a bigger share of Americans’ monthly income, squeezing tenants already grappling with rising prices for gasoline, food and other necessities.

Households with a median U.S. rent of $1,179 in August tapped 30.3% of their monthly income to pay their rent, up from 29.4% a year earlier, according to an analysis by Zillow. The real estate information company examined data on median rents and household incomes across 50 of the nation’s biggest cities.

Economists generally define housing as affordable when rent is less than 30% of tenants’ monthly income. Renters who go above that threshold likely have a tough time making ends meet on other costs, like groceries, clothing, transportation and utilities, to say nothing of saving for a down payment on a home.

“Earlier on in the pandemic we saw rent burdens actually decreasing in a lot of markets as rents were stagnating or even dropping as a result of the pandemic, but now that rents have recovered, we’re starting to see the affordability become a challenge again,” said Nicole Bachaud, economist at Zillow.

Apartment rents fell during the last three quarters of 2020 after the coronavirus recession kicked in. The national vacancy rate ticked up through the second half of 2020, reaching 5.3% in the second quarter of this year, according to data from Moody’s Analytics REIS.

In the third quarter, the U.S. vacancy rate declined to 4.8%, while rents increased 7.4% from a year earlier to $1,585, according to Moody’s, which is forecasting rents could increase nationally by nearly 10% by the end of this year.

“Concessions have burned off, pricing power has returned to landlords, and there is increasing evidence that populations that may have left larger cities for safer refuge during the height of COVID are returning,” Victor Canalog, chief economist at Moody’s Analytics REIS, wrote in a recent report. “All of these factors contribute to the sense that there is runway to this recovery.”

Rents are climbing again as economic growth and hiring have picked up following the loosening of pandemic-related restrictions and a ramp-up in coronavirus vaccine distributions.

In August, the median U.S. rent jumped 6.1% from a year earlier, according to Zillow, which tracks a wide swath of rental properties, including those owned by individual investors.