The rule of thumb for household budgeting is that no more than 30 percent of income should go toward housing; more constitutes a cost-burdened household and spending more than 50 percent a severely cost one. The Harvard Joint Center for Housing Studies, in concluding its report on The State of the Nation’s Housing, estimates that 40.9 million households were cost-burdened in 2012, more than a third of U.S. families and individuals. Despite a drop of 1.7 million between 2011 and 2012, these households had increased by 9 million in the previous 10 years and, more disheartening, 5.8 million of this increase were severely cost burdened households.
The 2012 decrease was virtually all on the homeowner rather than the renter side. While more than a quarter of homeowners are considered cost-burdened and 10 percent severely so, cost burdened renters rose slightly in 2012, the sixth straight increase, to 20.6 million. Nearly half of all renters are considered cost-burdened and 17 percent are in the severe category.
Among households with incomes below 15,000, the equivalent to full-time minimum wage employment, four out of five paid more than 30 percent of that income for housing and more than two-thirds paid over 50 percent. There was little difference between renters and owners, especially in the severe category.
The incidence of severe cost burdens is particularly high among minority households; 27 percent of black, 24 percent of Hispanic, and 21 percent of Asian households were considered severely burdened whereas only 14 percent of white households fell into that group.
The numbers cost-burdened households among renters and owners have grown for different reasons. For homeowners it has been the ups and downs of housing costs which spiked by 15 percent between 2001 and 2007 and then began a steep decline as interest rate and home prices fell. By 2012 costs were nearly back to decade earlier levels but were offset by dwindling income levels.
For renters declining income has been the culprit. Median rental costs rose 4 percent between 2001 to 2007 but income fell by 8 percent and then lost another 8 percent by 2011. While there were income gains in 2011-12 the net loss in income was 13 percent over 11 years while median rent ($880) rose 4 percent.
Senior Director, Coldwell Banker New Homes Division
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