More than 1 in 5 Americans are spending their entire paychecks on rent or working second jobs to afford a place to live as housing costs remain high in markets to buy and rent a home, even with some relief in renewal agreements and interest rates from the Federal Reserve.
The cost of housing has been a long-standing problem for the U.S. and was accelerated by the pandemic, when asking prices for homes and monthly rents skyrocketed during a period of low interest rates for homebuyers and more competition for rental units. It is often the biggest expense in household budgets that have been squeezed by higher prices for essentially all common goods and services since the pandemic hit.
Buying a home is also not an option for many renters, with home values climbing above $400,000 and higher mortgage rates adding hundreds of dollars to monthly payments.
A Redfin survey found 22% of renters are spending all their income directly on rent, while another 20% are working a second job to afford it. Renters are also dipping into their retirement funds to keep a roof over their head, with 13% pulling money out and another 12% contributing less to savings.
It comes as rental prices have flatlined over the last year on a national average, with a boom in construction of apartments, condos and other multifamily units. But even with the moderating pace of rent increases, costs are still higher than they were pre-pandemic, and wages have not yet grown enough to give renters more wiggle room in budgets.
The median asking rent in the U.S. was only 0.2% higher in October compared to 2023, but still came at a steep price of $1,619, according to Rent. That is well above pre-pandemic levels, where the median asking price was below $1,400.
Rent costs vary by region and city, but the overall market outlook has been about mostly flat prices throughout 2024, thanks to a construction boom that brought thousands of new units, reducing competition for a limited number of spaces and keeping price increases subdued.
But the nation’s homebuilders have struggled to keep up the pace under the weight of high interest rates from the Fed and inflation for materials and labor that has made it harder for projects to turn a profit.
Building enough housing units has been a challenge in the U.S. for years, leading to a shortage of millions of places to live and is a leading factor in the affordability issues in the for-sale and rental markets. Economists generally agree that ramping up the supply of housing through new construction is the most effective solution to the nation’s housing problem.
Housing starts, which measure new projects from builders in the U.S., fell 3.1% in October. In the multifamily sector that includes apartments, condos and other rental properties, construction was up 9.6% from the month prior but down 29.3% compared to last year.
Projects started last year or earlier are still being finished and coming to market, keeping the rate of rent increases down in areas with high construction, but that relief may be short-lived. Overall, the number of apartments under construction is down to 821,000, which is the lowest level since March 2022.
“Further interest rate cuts from the Federal Reserve through 2025 should result in lower interest rates for construction and development loans, helping to lead to a stabilization for apartment construction and expansion for single-family home building,” National Association of Home Builders chief economist Robert Dietz said in a release.
While builders may get some relief in prices with the Fed’s benchmark interest rate being cut over the next year, the other major hurdle they are facing is zoning laws and regulation that hampers building. More states and localities have discussed easing those rules amid the affordability crisis, and President-elect Donald Trump has also promised to slash regulations once he takes office early next year.
He has not yet detailed exactly what his plans are to address the affordability issues but frequently talked about building more homes, called for opening federal lands for housing and bringing down mortgage rates, though those are outside the president’s direct control.
Here are Southern California News Group’s most-read stories about affordable housing of 2024 …
No. 1: It takes $349,200 income to buy an Orange County home, 3.5 times the US salary
No. 2: LA’s latest homeless housing project, at nearly $600K a unit, opens in Skid Row
No. 3: 20 least-affordable US cities to buy a home are all in California
No. 4: California’s down payment assistance lottery reopens for first-time homebuyers
No. 5: California has 13 of the most unaffordable small US cities
No. 6: Huntington Beach housing development at former Magnolia Tank Farm up for approval again
No. 7: LA Mayor Bass wants affordable housing. But these low-income tenants say at their expense
No. 8: See where rents are falling or rising in LA, Inland Empire and Orange County
No. 9: ‘Duplex’ law allowing 4 homes on a lot struck down for California’s charter cities
No. 10: You need a $73,000 pay raise to buy Southern California’s median-priced home