(October 2013) By many measures, housing in the United States has become more affordable. Home prices are lower today than they were during the peak of the housing boom. Mortgage rates, while rising, are low by historic standards. And during the past year, there has been a sharp decline in the share of households with a high “housing cost burden”—defined as spending at least 30 percent of income on housing expenses.1
However, these national trends mask a growing owner/renter gap in the amount of money spent on housing, relative to household income. Historically, owners have been less cost-burdened than renters—who tend to be younger and have less income.2 But during the past decade, this gap has grown, from an 18 percentage-point difference in 1999 to a 25 percentage-point gap in 2012 (see table). Between 1999 and 2007, both homeowners and renters experienced sharp increases in housing cost burdens as home prices and rental costs soared. But new data from the Census Bureau’s American Community Survey show that between 2007 and 2012, the cost burden for homeowners has dropped, while the share of renters with high cost burdens has increased. Housing affordability improved slightly for renters between 2011 and 2012, but more than half of all renters—52 percent—still have high cost burdens—nearly twice the percentage of homeowners (27 percent).
The table below presents national trends, but more detailed data for states, large cities and counties, and metropolitan areas are available in PRB's DataFinder.3
Percent of Owners and Renters With High Housing Cost Burden*
*Households paying at least 30 percent of income on housing costs
Source: U.S. Census Bureau, Decennial Census and American Community Survey.
This growing owner/renter gap may be linked to a combination of related factors: Declines in homeownership—especially among young adults—the changing economic circumstances of homeowners versus renters, and the recent increase in rental costs.
The U.S. homeownership rate declined from 67 percent in 2007 to 64 percent in 2012. But trends in homeownership have been uneven across age groups. In the five-year period from 2007 to 2012, the share of homeowners ages 45 and older increased from 68 percent to 74 percent, while the share of renters in this age group increased only slightly, from 41 percent to 43 percent. The rising share of older homeowners reflects the changing age structure of the U.S. population, as well as the decline in homeownership among younger adults—some of whom lost their homes to foreclosure during the housing crash.4
Renters are much more likely to be poor compared with homeowners, and this gap has grown since the onset of the recession. While the poverty rate for owners increased from 4 percent to 5 percent from 2007 to 2012, the percent of renters in poverty increased from 25 percent to 28 percent during this period.
As poverty rates among renters has increased, so have their median monthly rental costs, from $865 in 2007 to $884 in 2012, and a majority of renters are not making enough money to afford the rising costs.5 The rush of former (and potential) homeowners into the rental market has likely played a role in rising rental costs, driving up demand in a tight housing market.6 Rising rental costs are especially hard on low-income families and their children, who often struggle to cover basic expenses including food, transportation, child care, and health expenses.
- The U.S. Department of Housing and Urban Development considers housing "affordable" if total expenses (rent or mortgage payments, taxes, insurance, utilities, and other related payments) account for less than 30 percent of total household income. Paying 30 percent or more of income on housing may leave insufficient resources to cover other basic expenses, including food and health care costs. Data are from the 2000 Decennial Census and the American Community Survey. Calculations of housing cost burden exclude households for which housing costs as a share of household income could not be calculated.
- Kelvin Pollard and Mark Mather, "One in Five U.S. Households Struggle to Afford Rent, Mortgage Payments" (October 2001).
- Estimates of housing cost burden shown in PRB’s DataFinder differ slightly from those presented here, because the DataFinder estimates include all households in the denominator, including those for which housing costs could not be calculated.
- C. Eugene Steuerle et al., "Lost Generations? Wealth Building Among Young Americans," accessed online at www.urban.org/publications/412766.html, on Sept. 20, 2013.
- The median monthly rental cost in 2007 is shown in 2012 dollars.
- Jessica A. Bean, "Renters More Often Burdened by Housing Costs After Recession: Nearly Half of All Renters Spent Over 30 Percent of Income on Housing by 2010," accessed online at http://scholars.unh.edu/cgi/viewcontent.cgi?article=1168&context=carsey, on Sept. 20, 2013.