The gap between rental costs and household incomes will continue to rise unless a new home supply ramps up, according to a study by the National Association of Realtors.
Across the country, the typical rent increased by 15% over the past five years while income only grew by 11%, NAR chief economist Lawrence Yun said in a news release outlining the study’s findings released Monday. In spite of this, the share of renter households has increased while homeownership fell.
“Meanwhile, current renters seeking relief and looking to buy are facing the same dilemma: home pricesare rising much faster than their incomes,” Yun said in the press release. “With rents taking up a larger chunk of household incomes, it’s difficult for first-time buyers especially in high-cost areas to save for an adequate down payment.”
The markets where rent increases were the largest since 2009 are New York, Seattle, San Jose, Calif., Denver and St. Louis. While hiring has jumped in these and many other areas across the country, the expanded employment has yet to convert into increases in salaries.
To combat this trend, Yun argued that there needs to be greater emphasis placed on constructing new homes targeted, especially to entry-level buyers. Housing starts have averaged 766,000 per year over the past seven years, but Yun said that this rate must return to its historical average of 1.5 million for meaningful change to occur.
“With a stronger economy and labor market, it’s critical to increase housing starts for entry-level buyers or else many will face affordability issues if their incomes aren’t compensating for the gains in home prices,” he said.
This dynamic hasn’t hurt everyone, though. Many new homeowners were insulated from rising housing costs, as many people take out fixed-rate mortgage costs. Moreover, those who own rather than rent can take advantage of increasing home values in growing their net worth and declining their mortgage balances, the study found.