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Americans spend up to 50% of their income on rent due to high housing costs, reveals Harvard study

Harvard study unveils concerning rent payment challenges for Americans, citing the rise of "luxury" buildings as one of the main reasons.

Americans spend up to 50% of their income on rent due to high housing costs, reveals Harvard study
Representative Cover Image Source: Getty Images | Brandon Bell

Housing problems in the United States have become increasingly prominent, affecting millions of Americans. Rising rent costs, limited affordable housing options, and an increasing number of households spending a significant portion of their income on housing expenses have exacerbated the issue, leading to a nationwide crisis that demands urgent attention and solutions. The State of the Nation's Housing 2023 report from Harvard's Joint Center for Housing Studies reveals an unprecedented increase in the number of American renters allocating at least one-third of their income towards rent payments. Currently, 21.6 million households spend over 30% of their pre-tax earnings on rental fees. The study conducted by Harvard also highlights that certain homes are going as far as spending up to 50% of their income on apartments. 

A homeless man sleeps on the sidewalk next to a prepared downtown lot where the new Los Angeles United States Courthouse. Source: Getty Images | David McNew
A homeless man sleeps on the sidewalk next to a prepared downtown lot where the new Los Angeles United States Courthouse. Source: Getty Images | David McNew

 

Daniel McCue, a senior research associate at the Joint Center, stated in the report that housing costs remain well above pre-pandemic levels, thanks to the substantial increases over the last few years." This increase is attributed mainly to the rise of "luxury" buildings, which have replaced more affordable housing options. Over the past two decades, the construction of high-priced apartments, referred to as Class A, has outpaced the construction of affordable housing. In 2022, more than half (51%) of rental construction projects were luxury apartments, compared to just 34% in 2000. This shift towards higher-cost rental units has been observed through Q1 of 2023, according to data from Moody's Analytics. Recent years have witnessed historically low rental vacancy rates, indicating a scarcity of affordable housing options. While the vacancy rate experienced a slight improvement at the start of 2023, rising to 6.4% from the record low of 5.2% in late 2021, it still falls significantly short of the recommended healthy rate of approximately 7% to 8%. This data highlights the ongoing challenge of finding affordable housing solutions for individuals and families in the country.

A building with residential apartments stands in the newly developed and exclusive Hudson Yards neighborhood in Manhattan in New York City. Source: Getty Images | Spencer Platt
A building with residential apartments stands in the newly developed and exclusive Hudson Yards neighborhood in Manhattan in New York City. Source: Getty Images | Spencer Platt

 

Class A buildings, distinguished by their top-of-the-line amenities such as heated pools and gyms, eventually transition into Class B after 10-15 years and then decline to Class C after another 5-10 years. As buildings downgrade from Class A to B and then to C, rental prices typically decrease. However, over the past decade, a shortage of new building constructions has resulted in a limited number of apartments transitioning to lower tiers. This scarcity has contributed to the lack of housing options in the lower rental price ranges.

With the increasing number of Class A buildings in the rental market, the proportion of older and more affordable apartments categorized as Class B and C has significantly diminished. Over the past two decades, the share of these types of units has decreased from 66% in 2001 to 49% in Q1 2021, as reported by Moody's. The current situation may persist because, often, luxury apartments are the most financially viable choice for developers. Most construction expenses are allocated to land acquisition, building materials, and permits while incorporating upscale finishes does not significantly escalate costs but can potentially attract higher rental income. Because of this, developers prioritize fancy apartments, continuing the housing crisis.

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