Making six figures doesn’t prevent someone from struggling to pay rent, according to a recent survey from Piñata, a large credit building and rewards program for renters.
It found that 93% of renters earning over $100,000 were “worried the current economic climate will impact their ability to continue renting. Of that group, 41% said they were “very” concerned.
An even higher percentage, (57%) said they were concerned about their ability to get an apartment due to their income or budget, 36% delayed renting due to not having enough saved for moving costs, 43% budget between 21-30% of their income on rent and 38% were concerned about rent hikes.
Pressure is even greater for people making less than $100,000, which is far above the average wage of Americans. Social Security Administration data indicated that the national wage index was 60,575 and Bureau of Labor Statistics data from May 2022 estimated the annual mean wage at $61,900.
According to a January report in the New York Times citing Moody’s Analytics data, “the typical American renter is now rent-burdened,” and pays more than 30% of their income on rent. Around 36% of Americans were renters as of 2019, according to Pew Research Center data.
Martha Galvez, the executive director of the Housing Solutions Lab at New York University’s Furman Center, said that U.S. rents have been moving in this direction since the 1970s. When Moody’s first started tracking the metric in 1999, the typical rent-to-income ratio was 22.5%.
“The rent-to-income ratio continued to climb up because income growth was not able to catch up with the rent growth,” said Lu Chen, a senior economist at Moody’s Analytics.
Why have rents increased so much?
In January, the Consumer Financial Protection Bureau said that rent increases have been widespread over the last two years, on the rent to wage ratio gap Galvez said has been growing for decades.
“The answer is largely a story of supply and demand,” said an article last August in The Atlantic. It explained that, during the COVID-19 pandemic, household formations quickly changed.
“Americans who had previously bunked up with friends or family during the pandemic suddenly sprung to get their own place,” said the article. “Singletons got especially antsy. Single-person households accounted for more than 80% of the new household units that formed since 2020, according to Rob Warnock, an analyst for the online marketplace Apartment List.”
These changes have put “unprecedented strain” on the housing market.
What’s wage got to do with it?
Of course, this story isn’t just about rents increasing, but why wages haven’t increased alongside them.
Back in 1996, Gary Burtless wrote in a piece for the Brookings Institution that “since 1970 American incomes have become strikingly less equal,” and that “living standards of poor and lower middle-class Americans have fallen while those of affluent Americans have continued to improve.”
While he noted that “many people blame rising income inequality on the growing importance of trade, especially trade with nations in the developing world, in the past quarter century,” he said that several issues contributed to the disturbing trend.
“Among economists, the leading explanation for increased wage inequality is changes in the technology of production. Such innovations as the personal computer or new forms of business organization have favored workers with greater skill and reduced the value of unskilled labor,” he said. “But other developments are also at work. Economic deregulation, new patterns of immigration into the United States, declining minimum wages, and the dwindling influence of labor unions have also contributed to the job woes of unskilled and semi-skilled workers.”
In the decades since, things have only become worse. Following the Great Recession in 2008, household incomes began to increase slower than they had in years. According to research published by Pew in 2020, “economic inequality, whether measured through the gaps in income or wealth between richer and poorer households, continues to widen.”
Although wages have gone up, “most of the increase in household income was achieved in the period from 1970 to 2000,” Pew explained. “In these three decades, the median income increased by 41%, to $70,800, at an annual average rate of 1.2%. From 2000 to 2018, the growth in household income slowed to an annual average rate of only 0.3%.”
Harvard Business Review also tackled the wage growth issue in 2017.
“It took many factors – some the result of deliberate policy choices, some the outcome of broad economic processes – to produce decades of wage stagnation for the typical worker,” said the publication. “Similarly, it will take many incremental reforms and new policies to reestablish the conditions that support robust, broadly shared wage growth.”
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