One of the cornerstone’s of this country has always been the belief that if you strive for the best and work hard for it, then you’ll have a real chance to progress and advance in life.
However, we’ve now reached point at which those who are in the middle class or lower classes simply cannot work hard enough to grow. Why? Well, there are many reasons, but one of the biggest is the current affordability crisis among renters.
And it’s not just the impossibility of growing while trying to make rent that’s the problem, but also the fact that after the rent is paid, there’s usually almost nothing left over for essentials like food and medicine.
So, let’s take a closer look at the current crisis and how it came to be this way, as well as some of the ways to address and solve the problem, because make no mistake, there is light at the end of the tunnel.
How did the renter’s affordability crisis start?
In the past, a middle-class income could support a stable home and all the essentials, and there would still be enough left over for at least a few extras, whether it was school supplies, a night out, etc. Homeownership was all the rage, but that all changed around 2007 with the mortgage crisis and recession. Now, for many families, maintaining a home is more of a source of anxiety than security. So, how did things get this way?
Well, while we do spend about $200 billion a year on housing subsidies, most of that money goes to people who can already afford their own homes, and for the rest, renting is either the alternative since they don’t have faith in the value of owning a home or it’s their first and only possible step toward homeownership.
That’s led to a whole lot more people—including higher income, middle-aged Americans—choosing to rent rather than own, but the problem is, there hasn’t been a corresponding increase in construction of lower-priced property options. When you throw in additional expenses like hefty student debts, even those higher incomes have not been able to keep pace with the increases in rent over the past decade.
Developers have been putting and are continuing to put much more focus on high-end units instead, creating a limited number of affordable units, which has led to long wait lists, increased competition, and, therefore, increased rental prices, rendering them not so affordable anymore.
The bottom line is that many are still renting with the ultimate goal of homeownership, but they’re finding it nearly impossible to pay for their essentials besides rent, much less to save enough money for the down payment for their mortgage.
What’s the current situation?
According to this study by the Urban Institute, while the total number of homeowners will grow over the next 15 years, the homeownership rate will continue to drop drastically.
So, like mentioned above, the fact that more and more people, from middle-aged, higher income Americans to millennials, are choosing to rent rather than own has been a large part of the problem, and that doesn’t look to be changing anytime soon.
Also, according to this Harvard report, the number of renters paying more than 30% of their income on housing hit a new record in 2014 and the number of renters paying more than 50% did the same.
The point is, more people are renting and will continue to rent as opposed to buying than ever before, and the percentage of income that they’re spending on housing has reached record levels. So, you can see why the word crisis is being thrown around so much lately when referring to this situation.
Also, if you, like many, believe that the rental housing crisis is only affecting big cities, you’re wrong. Many renters from right here in New Jersey, for example—which while having its urban sections is considered more suburban—are feeling the effects of the crisis as well. For more on that, check out this post from NJ.com, Without affordable options, families in N.J. will continue struggling to make rent.
How is the affordability crisis affecting families?
These impossibly high rental costs are forcing families to make some very difficult decisions. After all, when there’s only so much money left over after housing, there are only so many ways to stretch it out.
Families who are being forced to spend such a large chunk of their incomes on rent aren’t just finding it harder to put away enough money to buy a home either, they’re also putting much less money away for retirement.
And those families who are being forced to pay more their 50% of their incomes on rent are spending far less on things like food and healthcare, or they’re resorting to poorer living conditions to make ends meet, which can have obvious education and health-related repercussions, especially on children.
As you can see, the current renter’s affordability crisis is forcing families to make some extremely tough decisions and sacrifices that no family should have to make. So, what’s the solution?
The light at the end of the tunnel.
Like mentioned above, while there are several contributing factors to the current crisis, one of the main culprits is the insistency of developers to continue to focus far too much of their efforts on building high-end units.
In fact, there is such a wide selection of them now that landlords must compete for new tenants, which keeps rental costs relatively low, yet many developers are still either focused on building properties intended for these higher class renters or renovating existing ones.
It makes sense. After all, these types of units tend to yield better financial results, but they do nothing to address the millions of mid and low-income Americans who cannot afford them, nor those who can but then cannot afford basic essentials after making their rent. And until that issue is addressed, these people will continue to find fewer affordable options and higher rental costs.
And while there are many solutions being entertained by various experts and economists, we at Capodagli Property Company believe that we can help solve the current crisis by continuing to develop affordable luxury properties. Our goal is to provide a quality living experience at a reasonable rate so that those Americans feeling the effects of the renter’s affordability crisis can start worrying less about making rent and more about the health, growth, and success of their families.
About Us: Capodagli Property Company is a full-service real estate development, construction, and property management firm specializing in transformational multifamily and mixed-use real estate projects.