In the first half of 2023, American renters continued to grapple with the weight of housing costs as limited inventory maintained elevated rent prices. A recent report from Moody’s Analytics shed light on the persisting challenge, though some relief was noted in specific metropolitan areas.
The nationwide average rent-to-income ratio showed a marginal decline this year, settling at 30.2% compared to the previous year’s high of 30.8%. This figure marked a significant threshold, with median-income renter households paying over 30% of their income towards the rent of an average-priced apartment. The metric serves as a yardstick, labeling renters as “burdened” if their rent consumes 30% or more of their pre-tax income.
According to Lu Chen, a senior economist at Moody’s Analytics specializing in commercial real estate, the United States remains generally burdened by rent expenses, despite observing pockets of relief. This relief, however, is accompanied by inflationary pressure in other essential expenditure areas like food and energy, thereby maintaining overall financial strain.
Chen highlighted prominent metro areas like New York, Miami, Los Angeles, and Boston, which perennially grapple with rent burdens. These cities continued to face challenges in the first half of 2023. For instance, New York boasted the highest rent-to-income ratio at 64.9% during the initial quarter, followed by Miami at 42.5%, Fort Lauderdale at 37.3%, Los Angeles at 35.2%, and Boston at 33%.
Interestingly, this year saw two metro areas step away from the list of most rent-burdened locations. Orlando and Tampa witnessed a reduction in their rent-to-income ratios, dropping their burden levels. The Tampa-St. Petersburg area now has a ratio of 29.6%, while Orlando stands at 29.9%.
Chen attributed this shift to the influx of residents these areas experienced in 2021 and 2022, primarily from populous northeastern regions. This surge in migration fueled rent growth, which has now started to stabilize closer to historical averages, thus alleviating the pace of rental escalation.
Strong population growth coupled with elevated rent burdens is currently witnessed in several major metropolitan areas in South Carolina, including Columbia, Charleston, and Myrtle Beach. Charleston, in particular, witnessed a staggering 42.5% surge in average market rent since the onset of the pandemic, propelling its rent-to-income ratio to 29.5% by the end of Q2 2023.
The ramifications of the COVID-19 pandemic and the rise of remote work arrangements have also made their mark on rent dynamics, especially in tech-focused regions like California’s Bay Area. The availability of remote work options has led to softer rent growth in tech-heavy cities like San Francisco and San Jose, as individuals seek more affordable housing alternatives.
Chen highlighted that certain rent-burdened metro areas are experiencing an unprecedented surge in housing construction this year. However, this momentum is impeded by ongoing economic challenges such as labor shortages, policy barriers, and higher capital costs. As a result, completion of some projects might be delayed until early 2024.
Furthermore, the rental market continues to present challenges for moderate and low-income households. With premium Class A apartments commanding high prices, these households are increasingly forced to vie with higher-income counterparts for Class B or Class C accommodations.
Moody’s report painted a concerning picture for low-income renters, revealing that those seeking an apartment at 25% of the market rate would have to allocate over 50% of their income towards rent in twelve metro areas. New York showcased the most extreme scenario, with low-income renters facing a staggering 76% rent-to-income burden. Palm Beach and Miami followed closely, each with a burden of around 67%.
Looking forward, Chen projected a status quo for the U.S. rent burden, anticipating that the 30.2% rent-to-income ratio would persist throughout the remainder of the year. She noted that while the 30% threshold might not decline, the growth in household income coupled with rent moderation could potentially result in even higher rent burdens for the rest of 2023.