Pew: Fewer Families That Rent Becoming Homeowners Than in 2001

Higher rents leave households more financially fragile since 2007-09 recession

Fewer Families That Rent Becoming Homeowners

 

WASHINGTON—A new report by The Pew Charitable Trusts, “American Families Face a Growing Rent Burden: High Housing Costs Threaten Financial Security and Put Homeownership Out of Reach for Many,” shows that in the aftermath of the 2007-09 Great Recession, more households are “rent burdened”—that is, spending more than 30 percent of their pretax income on housing—than before the downturn. Such families are slower to transition to homeownership and are more financially fragile than those that spend less of their income on rent or own their homes.

Pew’s analysis uses the Panel Study of Income Dynamics, a data set of U.S. household finances developed by the University of Michigan, to explore how increasing rent affected households’ ability to accumulate savings and transition to homeownership between 2001 and 2015. The report also examines how the supply and demand of rental properties have caused prices to rise and how those increases have affected renters of various income levels, races, and age groups. Rent-burdened households typically find saving for the unexpected difficult and long-term wealth building, such as homeownership, even more elusive.

“We know that families can’t be upwardly mobile if they aren’t financially secure,” said Erin Currier, director of Pew’s financial security and mobility project. “Our data show that the rising number of rent-burdened households represents a population struggling to transition to homeownership and, more importantly, that a growing number of Americans are in a precarious financial state.”

Among the report’s key findings:

  • In 2015, 38 percent of all “renter households” were rent burdened, an increase of about 19 percent from 2001.
  • The share of renter households that were severely rent burdened—spending 50 percent or more of monthly income on rent—increased by 42 percent between 2001 and 2015, to 17 percent. Increasing rent burdens were driven in part by year-over-year growth in gross rent—contract price plus utilities—that far exceeded changes in pretax income, which means that after paying rent, many Americans have less money available for other needs than they did 20 years ago.
  • In 2015, 46 percent of African-American-led renter households were rent burdened, compared with 34 percent of white households. Between 2001 and 2015, the gap between the share of white and African-American households experiencing severe rent burden grew by 66 percent.
  • Senior-headed renter households are more likely than those headed by people in other age groups to be rent burdened. In 2015, about 50 percent of renter families headed by someone 65 or older were rent burdened, and more than a fifth were severely rent burdened.
  • Rent-burdened families are also financially insecure in many other ways:
  • Nearly two-thirds (64 percent) had less than $400 cash in the bank; most (84 percent) of such households are African-American-headed.
  • Half had less than $10 in savings across various liquid accounts, while half of homeowners had more than $7,000.
  • Fewer rent-burdened households transitioned from renting to owning in 2015 than in 2001. Households that were rent burdened for at least a year were less likely to buy a home than those that never experienced a rent burden.

Pew’s report notes that policymakers focused on economic opportunity and financial well-being should consider ways to make renting more affordable for the about 17 million American families who pay more than 30 percent of their income for housing.

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The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Learn more at pewtrusts.org.

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American Families Face a Growing Rent Burden

High housing costs threaten financial security and put homeownership out of reach for many

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Nearly 43 million U.S. households rented their homes in 2016, including about 9 million households that were formed over the preceding decade, according to the Harvard Joint Center for Housing Studies. Demand for rental properties has increased across age and socio-economic groups since 2008. Recent research indicates that although some of those increases can be explained by population shifts, a significant portion is the result of declines in homeownership since the Great Recession.