Renting a home used to be 10% cheaper than owning one, but in the current low housing market and high rental climate, renting now costs up to 15% more! The problem is threefold: rent is skyrocketing as the foreclosed and other former, declined, or prospective homeowners are forced to become renters, wages are stagnant as the low economy and high unemployment allows companies to offer less without fear of losing workers, and the value of the dollar has plummeted, driving up prices for everything.
For renters, it’s a simpler equation: can they make rent on their current paycheck? For all too many, the answer is starting to come up “no.” Affordable housing is defined by costing no more than 30% of a household’s gross income. The Center for housing policy reported in February that 1 in 4 working households are spending an unsustainable amount to keep a roof over their heads: more than half of their pre-tax income on housing alone. More recently, the National Low Income Housing Coalition reported that it is impossible anywhere in America to pay rent on minimum wage, and in 86% of the country, it is impossible on twice that much.
The demand and competition for rentals is a recent phenomenon spurred by the housing crash. Not only are a lot of former homeowners back in the rental market, long-time renters are afraid to make the transition to homeowners. There just aren’t enough rentals to go around, and landlords are getting top dollar as a consequence.
While rent rose an average 4% from 2008 to 2010, incomes dropped 4%, leaving household budgets to fall into a significant financial gap. As a result, more households are living in lowered or substandard conditions, struggling to make ends meet, or are seeking assistance,
All of this is related to the falling value of the dollar. As Forbes.com’s Charles Kadlec relates, “If the dollar had been as good as gold [maintained steady value over the past decade], the price of oil today would be about $20 a barrel, and the price of gasoline near $1 a gallon,” blaming the government’s ability to print money separate from the gold standard (gold-backed currency) for the erosion of dollar value, the explosion of national debt, and the general economic declines in the past 40+ years. He argues price inflation isn’t the cause, it’s the symptom: the dollar is worth less so it buys less.
There is some good news for the households that can make the transition: buying a home is at its most affordable levels in years. There are a lot of limitations; financing is still tight and a good job, credit, and a bit of up-front cash are still mostly necessary for homebuyers. The term “mostly” comes from some more good news: there are programs in place to help people missing a small part of that puzzle to take the plunge into homeownership. As rent becomes tighter, renters are strongly encouraged to talk to a housing specialist, a financial advisor, or a lending agent to figure out if and how home ownership could become their future.
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