Research Brief

Rising Rents Force Families to Curtail Spending on Food and Health Care

Cost burdens affect half of U.S. households that rent, as housing shortage worsens

Why would one group of lower-income Americans be able to spend more than $350 per month on food, and a second group with comparable incomes manage to afford less than $250 in groceries? What would make health care spending by those two groups a roughly $2-to-$1 ratio?

One answer, of course, is rent, and the lower spenders in this example are households classified as severely burdened by high housing costs. Housing unit growth hasn’t come close to keeping up with population growth in recent years. That has sent home prices and rents up sharply in many areas, forced lower-income workers to live in less desirable areas (poor schools, pollution, commutes), and constrained economic growth as the best job opportunities become distant to increasing numbers of workers.

The presidential campaign underway has taken conspicuous notice of what’s increasingly considered a housing crisis, a topic typically reserved for state and local races, and policymakers across the political spectrum are recommending heightened intervention in a market many consider broken.

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In a special issue of the journal Regional Science and Urban Economics dedicated to housing affordability, UCLA Anderson’s Stuart Gabriel and the University of Southern California’s Gary Painter survey the existing research on housing affordability and the lesser body of work on “the economic and societal implications thereof.” The authors make a point to address “why affordability matters.”

Studies have shown that among the children of lower-income families forced to spend higher percentages of their pay on housing, cognitive achievement suffers; there are declines in mental health; and adherence to prescription drug regimens declines, indicating that the cost of rent crowds out medicine purchases.

Over the past decade, the monthly cost of a residential rental has increased 32%, far outpacing the 19% rise in consumer goods prices reflected in the general inflation rate. Given that wages have barely budged over that stretch, an alarming share of U.S. households is struggling to make the rent.

Spending more than 30% of household income on rent is considered a “burden” in housing economic circles. When the cost rises to more than 50% of household income, the burden is deemed severe. Harvard’s Joint Center for Housing Studies reports that in most states more than half of renters are burdened and in 15 states more than one in four rental households is severely burdened.

The severely burdened include the usual coastal suspects of California and New York, but also Illinois, Colorado, Michigan and Louisiana. In Florida, 54% of renters spend at least 30% on rent, and 29% use more than half of household income to make the rent. The Federal Home Loan Mortgage Corporation recently surveyed four rental-burden data sources and created a composite ranking of the most burdened metro areas. The top five: Miami, San Diego, Los Angeles, New York and Orlando.

And it’s not just the lowest income renters who are most stressed. Gabriel and Painter report that households with incomes between $30,000 and $45,000 in 2015 were significantly impacted. (As a guideline, median household income in the U.S. in 2015 was $56,000.)

“Rent-burdened households have substantially limited financial capacity for other vital needs, notably including food, transportation, health care, and retirement savings,” write Gabriel and Painter.

The authors also lay out a case that the effect of rent burdens extends beyond the impacted households. Academics have been studying the potential economic hit a region takes when rental burdens prevent potential workers from living near enough to a market that has employment demand. A 2017 study suggested that economic growth was just half what it could have been because of this drag. Another research paper puts the reduction in growth rate at around 12%. Even at the lower end, that’s a significant hit to economic growth.

Other recent research co-authored by Gabriel finds vibrant “superstar” cities may be laid low if the pool of potential workers is priced out and pushed beyond a tolerable commute. The authors determined that expanding public transportation could be a more effective — and politically more palatable — response than building more affordable housing in urban areas where nimbyists hide behind concerns about density.

Featured Faculty

  • Stuart Gabriel

    Arden Realty Chair; Distinguished Professor of Finance; Director, Richard S. Ziman Center for Real Estate at UCLA

About the Research

Gabriel, S., & Painter, G. (2018). Why affordability mattersRegional Science and Urban Economics. doi: 10.1016/j.regsciurbeco.2018.07.001

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