Due to shifts in both rental prices and incomes, renting a home as a middle-class American has never been more difficult. In this blog, we’ll uncover how changes in both the cost of renting a home and the average take-home income for middle-class Americans has created a harsh rental climate.
How has income changed?
From 1967 to 2015, the incomes of the top 1% of earners in the United States rose by over 226%. For the middle 60% of income earners, colloquially referred to as the “middle class,” incomes have only increased by 49%. This suggests that while the richest Americans have experienced soaring levels of prosperity over the past fifty years, those in the middle of the income spectrum have seen little to no gain in wealth.
As income rises, so do the costs of goods and services, such as rent. Unlike their wealthier peers at the top 1% of the income spectrum, middle-class Americans have struggled to keep up with these rising costs.
How has rent changed?
Between 1960 and 2014, the median rent for a 1-BR apartment across the U.S. jumped from $600 to $934 (in 2014 dollars after adjusting for inflation). Of course, some cities that have grown into real estate hotspots like Seattle and San Francisco have seen even greater jumps in median rent.
As the income of middle-class Americans has fallen and the price of rent has risen, the share of renters who are cost-burdened or severely cost-burdened has increased dramatically. For a household to be considered cost-burdened, they must spend at least 30% of their monthly income on rent. For a household to be considered severely cost-burdened, they must spend at least 50% of their monthly income on rent.
From 1960 to 2010, the share of cost-burdened households jumped from 23.8% to 49.3%. Likewise, the share of households that identify as severely cost-burdened rose from 11.9% in 1960 to 26.4% in 2010. Rising rent prices accompanied by meager increases in household median income translates to Americans becoming increasingly financially burdened when trying to meet their housing needs.
How has this impacted cities?
As rents increase at a proportionally greater rate than incomes for the middle class, a ‘spillover effect’ of sorts begins to occur. Searching for a larger supply of homes within their means, many middle-income families begin to rent homes in traditionally lower-income neighborhoods. This, in turn, reduces the supply of houses available to lower-income families and even pushes some individuals into homelessness.
This spillover effect doesn’t just impact middle-class renters moving to a cheaper neighborhood. It also impacts the migration of the middle class into neighboring locales, who may subsequently see corresponding increases in housing insecurity.
To explore the relationship between falling middle-class income, rising rents, and housing insecurity, we now turn to an analysis of Seattle, San Francisco, and Los Angeles—three cities whose rental landscapes have been dramatically transformed by the housing affordability crisis.
The following chart shows the increase in median household income and the median rent for a 1-BR apartment from 2010 to 2019 in Seattle, San Francisco, and Los Angeles.
The relationship between rising rents and stagnating incomes is most evident in Seattle where the median rent has increased by 43% despite only a 32% increase in median income. This suggests that as rent in Seattle increases, more families are pushed into housing insecurity.
Of the three cities, San Francisco has the greatest increase in median income with a 47% jump from $84,116 in 2010 to $123,859 in 2019. Despite this gain in median household income, rent in San Francisco has jumped by over 40% from $1,468 in 2010 to $2,057 in 2019.
In Los Angeles, median rent jumped by 23% despite only an 18% increase in household income. While this increase in median rent appears modest in comparison to Seattle and San Francisco, it is still clear housing in Los Angeles is becoming increasingly unaffordable-—with the median rent of a 1-BR apartment coming in at $1,577 for 2019.
While the trends witnessed in Seattle, Los Angeles, and San Francisco provide insight into only a slice of the housing affordability crisis, it’s evident that income has failed to keep pace with rising rents in real estate hotspots. As rents rise and incomes straggle behind, middle-class Americans will continue to experience housing insecurity at alarming rates.