The Persistent Weight of Rent: A Burden That Persists Amidst Slight Improvement

Despite a modest improvement, the third quarter of 2023 has seen American renters grappling with the weight of housing costs, according to a new report by Moody’s Analytics. The study revealed a 0.5% decline in the U.S. rent-to-income ratio (RTI), settling at 30%, a figure that keeps renters on the brink of being labeled “burdened.” Renters are considered burdened when their rental payments surpass 30% of their gross income.

This marginal improvement comes after a troubling milestone last year when the median renter household in the U.S. paid over 30% of their income for an average-priced apartment, reaching a high of 30.8%. Lu Chen, a senior economist at Moody’s Analytics, pointed to a lack of inventory growth in moderate- to lower-cost Class B and Class C apartments as a contributing factor to the persistent rent burden.

“Rent continued to be burdensome for median income households. For moderate- to lower-income families, growing income inequality and the lack of inventory growth in affordable and Class B/C space, their already higher rent burden will be even more exacerbated,” Chen emphasized.

While rent growth outpaced income growth in 2021 and 2022, contributing to the surge in the national RTI, the trend reversed in Q1 of 2023. Incomes rose faster than rental prices, stabilizing the national rent burden at around 30%. Chen anticipates this trend to persist in the coming year as income growth stabilizes and rent is projected to grow below average.

Despite being the most rent-burdened cities in the U.S., New York City, Miami, Fort Lauderdale, Palm Beach, and Los Angeles saw declines in rent burdens year-to-date, although they remain above the 30% threshold in Q3 2023. New York City’s RTI topped the nation at 64.2%, followed by Miami at 42.2%, Fort Lauderdale at 37%, Palm Beach at 34.3%, and Los Angeles at 34%.

“The top 10 rent-burdened metros have all seen declines in their rent burden year-to-date, ranging from -0.4% for Flagstaff to -2.1% for New York. However, the decline was far from sufficient to bring these metros’ rent-to-income ratios meaningfully below the 30% threshold,” Chen explained.

The impact of the COVID-19 pandemic and the rise of remote work continues to shape rental markets in tech-heavy areas like the Bay Area. Since 2020, expensive tech markets, including San Francisco, San Jose, Los Angeles, Boston, and Washington, D.C., experienced below-average rent growth.

Rising insurance premiums, exacerbated by natural disasters, are also playing a role in the stubborn rent burdens. Landlords, dealing with higher operational expenses, may consider rent increases in high-demand markets, potentially affecting the delicate balance of supply and demand.

As renters navigate these challenges, the slight improvement in the RTI offers a glimmer of hope, but it remains to be seen whether it will be enough to alleviate the burden on the shoulders of American households in the long run.