The rental squeeze is getting worse, according to a new report by Zillow, as people are paying the highest-ever percentage of their income on rent.
Renters can expect to pay 30.2% of their income on rent, according to a Zillow analysis of rental and mortgage affordability in the second quarter released Thursday. That is the highest percentage ever, said Zillow, which has data going back to 1979.
The number is significant in part because it shows rental burdens creeping past 30%, which economists consider an affordable proportion of income for people to pay on rent.
Between 1995 and 2000, renters on average spent just over 24% of their incomes on rents.
“Our research found that unaffordable rents are making it hard for people to save for a down payment and retirement, and that people whose rent is unaffordable are more likely to skip out on their own health care,” said Svenja Gudell, Zillow’s chief economist.
Rental affordability worsened in 28 of the 35 metro areas covered by Zillow. It remained especially poor in the New York area and pricey West Coast cities. Los Angeles renters could expect to pay 49% of their incomes in rent. San Francisco wasn’t far behind, with renters paying 47% of their incomes on rent.
Even in New York and northern New Jersey–long considered a pricey place to rent–affordability has worsened significantly. Renters in the city historically paid about 25% of their incomes on rent and now pay 41%.
In Miami, a city that was long considered affordable but has been dramatically transformed by luxury condos, renters now pay 44.5% of their incomes on rent.
Renters have been becoming increasingly burdened thanks to a combination of rents rising due to increased demand and limited supply and income levels remaining relatively flat. That has put a squeeze even on working, middle-class households.
For some renters there may be a way out: Buy a house. Mortgages remain very affordable. Buyers should expect to pay about 15% of their incomes on housing.
Still, economists say the rising rents are making it even more difficult for renters to make the transition to buying because it is difficult to save for a down payment. Stricter credit standards have also made it more challenging to get a mortgage.
“If you can possibly come up with a down payment, then it’s a good time to buy a home and start putting your money toward a mortgage,” Ms. Gudell said.
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