Rents Are Up...Income Is Not

Household Income Not Keeping Pace

Pew Research and APM's Marketplace are reporting that household income is not keeping pace with increases in rent. According to Pew, after the recession of 2007 - 2009 fewer people were able to transition from rentals to home ownership. Add to that the influx of millennials into the workforce increasing the demand for rentals, and the supply of rentals is down while demand is up.

The Rent Is Too Damn High

Millennials are taking a double whammy. Home prices stagnated and fell during the recession and its aftermath have rebounded to the higher prices seen during the bubble of 2007. Millenials are priced out of the market. Millennials aren't the only demographic facing the financial pinch.

American Families Face a Growing Rent Burden

17 million are rent burdened and the numbers keep going up. Rent Burdened is defined by HUD as cost-burdened families. Those “who pay more than 30 percent of their income for housing” and “may have difficulty affording necessities such as food, clothing, transportation, and medical care.” Severe rent burden is defined as paying more than 50 percent of one's income on rent.

The Pew study finds 38 percent of all renter households are burdened. Severely rent burdened households—spending 50 percent or more of monthly income on rent—increased by 42 percent. It is now 17% of all renters.


The chart below demonstrates that the problem has been getting worse since 2001.

Less Disposable Income

Households that are rent burdened have fewer dollars to spend. They often make choices between healthcare, food and education. 
According to Pew's findings:
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.

The growing disparity is leading to a growing underclass that is on the outside looking in with little hope of reversing their situation.  Our economy is stronger when our citizens are able to participate as individuals and as consumers. Keeping large portions of the population on the outside will only further divide us. 

And there's a growing cost of poverty. The cost of child poverty: $500 billion a year. The United States has the second-highest child poverty rate among the world's richest 35 nations, and the cost in economic and educational outcomes is half a trillion dollars a year, according to a new report by the Educational Testing Service.

Growing Income Gap

The Eroding Base

Pew Research published a report about the shrinking middle class. I remember learning that the strength of this country was it's robust middle class. According to Pew the middle class has been eroding steadily for the past four decades.

Looking at the chart below reveals growth of the wealthy ranks and the poorer ranks. The result is an increasing income disparity.

Why does this matter?

According to a report from the Organization for Economic Co-operation and Development, there is a reduction in economic growth as wealth becomes concentrated among a smaller portion of the global population.

The International Monetary Fund released a report in June, 2015 that outlined the problems created by the rising inequality in income distribution.

• Inequality affects growth drivers.
• Inequality dampens investment, and hence growth, by fueling economic, financial, and political instability. 

           Financial crises.
           Global imbalances.
           Conflicts.

• Inequality can lead to policies that hurt growth. 
• Inequality hampers poverty reduction. 

You can read more at Causes and Consequences of Income Inequality:A Global Perspective

The prospect of increasing crisis, global imbalances and conflicts does not seem to be a bright prospect. If you take the downturn of the middle class and combine it with the growing ranks of impoverished, you can see the consequences of the continued accumulation of wealth among the top one percent and what it means for the rest of us.