Housing cost unaffordable for more than half of renters

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By: Paul Davidson & Barbara Hansen
September 29, 2010

More renters found housing unaffordable last year as incomes fell while costs increased, a one-two punch that squeezed lower-income households in particular.
Affordability for homeowners, however, was stable.

The share of renters spending 30% or more of their household income on housing costs -- the threshold set by the government to determine if housing is unaffordable -- rose to 51.5% from about 50% in 2008, according to 2009 Census data released Tuesday.

Renters were socked by two forces. Median household income, adjusted for inflation, fell 2.9% in 2009 as unemployment rose as high as 10.2%. Meanwhile, median monthly housing costs, including rent and utilities, jumped about 3% to $842 from $818, the data show.

"Housing affordability is being challenged by a decline in household income and by the job market," says Daniel McCue, senior research analyst at Harvard's Joint Center for Housing Studies.

The higher rental costs largely reflect a surge in demand as home foreclosures and short sales led many Americans to forgo homeownership in favor of renting, McCue says.

A small silver lining: The portion of homeowners with mortgages spending 30% or more of their income on housing costs -- including mortgage payments, taxes, insurance and utilities -- was 37.6%, about the same as in 2008 after rising steadily since 2002. And the median home price dropped about 6%.

The number of homeowners fell nearly 500,000 while the number of renters increased by nearly 1 million. The homeownership rate dipped to 65.9% from 66.6%. The decline came despite a tax credit for first-time home buyers that sparked more purchases, McCue notes.

Renters' strained budgets hurt the economy. By setting aside a bigger chunk of their paychecks for housing, renters have less to spend on shopping, vacations and other discretionary items. Consumer spending makes up 70% of the economy.

Renters were also more likely to be severely financially burdened last year, with 26.4% spending more than half their incomes on housing, up from 25.1% in 2008, according to McCue's analysis of the Census data. Some 9.5 million households fell into that category last year, vs. 8.8 million in 2008.

The share of renters spending 30% or more of their incomes on housing was lowest in the Columbus, Ind., metro area at 29.8%. It was highest in College Station, Texas -- 68.2%.

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