The inception of the next presidential administration is exactly one year away.
Will household rent become even less affordable during this time?
The Housing and Urban Development (HUD) offers the following definitions for rent expenditures as a percentage of income:
1. Rent-Burdened: Rent expenditures exceed 30 percent of income.
2. Severely Rent Burdened: Rent expenditures exceed 50 percent of income.
According to the American Community Survey (ACS), of 40 million total household renters, 50 percent are rent-burdened and 25 percent are severely rent-burdened.
The Bureau of Labor Statistics reports real rent (rent adjusted for inflation) grew 2.6 percent in November 2011 versus the previous year, while overall prices declined 0.2 percent. Real rent is now at pre-recession levels at the beginning of 2008.
Ironically, states severely impacted by the recession are those with the most rent-burdened and severely rent burdened populations.
The National Association of Home Builders (NAHB) indicates these figures for Florida are 56 percent and 30 percent, respectively, while those in California are 54 percent and 28 percent. Since 2009, the ACS reports the rent burdened population grew 3 percentage points in Florida and 2 percentage points in California.
The reason for this seeming dichotomy:
1. Lower income due to decreased aggregate demand, especially in the construction sector.
2. Strong demand for short term, rental housing due to long term uncertainty in employment and income (i.e., weak demand for ownership and mortgage debt).
Census data compiled by NAHB suggest housing formation over the past three years was 2.1 million less than expected. These individuals tend to be young working age adults living in the same residence as their parents, forming the “shadow” inventory of future renters and homeowners.
NAHB expects this inventory to begin mobilizing in 2012. This increase in demand will place upward prices on rent in the near term.
The macroeconomic outlook for the US economy in the coming years appears to be anemic, with little real income growth. As rental prices trend upward, the rent burden will most likely rise as well.
This scenario suggests it is becoming more likely that the next presidential inauguration, only a year away, will feature a new face.
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