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Why Americans are spending more and more on rent

Image courtesy of Flickr user <a href="">turkeychik</a> , under a Creative Commons license.

The affordable housing crisis many renters face today in the U.S. feels like a product of this particular moment. The homeownership rate has tumbled since the housing bubble, pushing more and more people into rentals. Thanks to the recession, new construction hasn't kept pace with population growth. The weak economy has meanwhile made it hard for families to cover their rent.

To top it off, more people are moving to cities like San Francisco and D.C., pushing up competition there for scarce housing.

Take a longer view, though, and an even more depressing picture emerges: High housing costs in America have been building for decades. In 1960, less than a quarter of all renter households spent 30 percent or more of their income on housing. That's the cutoff (pretax) for what's generally considered affordable. Today, nearly half of all renters spend more than that:

As other budget items have shrunk with time (food and clothing eat up relatively less of our money), for the past five decades renter households have been spending more and more of their income on housing.

At this pace, according to a new report from Enterprise Community Partners and the Harvard Joint Center for Housing Studies, nearly 15 million households could be "severely cost-burdened" by 2025, meaning they'll be spending more than half their money on housing. Today, that number is 11.2 million.

In part, two long-term trends are colliding here. Rents have outpaced inflation for most of the past several decades. At the same time, incomes have been stagnating or falling. "The two create this sort of perfect storm," says Andrew Jakabovics, the senior director for policy development and research at Enterprise. Here is what it's looked like since just 2001:

The income side of this equation is easier to understand. But why is the cost of housing rising faster than the cost of a lot of other things? According to this latest paper, rents have outpaced inflation every year since 1982, with the exception of one five-year stretch during the late 1990s.

Jakabovics and Chris Herbert, director of the Harvard center, offer a few explanations. New rental construction hasn't kept pace with population growth and household formation. New housing now is often built for the high end of the market, so contributes little to the affordable supply. In cities like Washington, once-affordable housing has also been remodeled into luxury rentals.

One other thing: The cost of rent is determined by the land underneath it.

"It really fundamentally comes back to land costs," Herbert says. "And as metro areas grow, that pushes land prices up because it increases demand for land close in."

An apartment in downtown D.C. costs much more today than the same apartment did 20 years ago — even if nothing's been done to remodel it — because the value of the land beneath it has risen dramatically.

Housing also hasn't benefited from the same forces that have made your clothes and your electronics cheaper with time, like technological improvements. There have certainly been some advancements in how new buildings are designed and constructed. But they haven't revolutionized the cost of housing the way, say, refrigeration created economies of scale for food, or how globalization created cheap T-shirts from China.

Workers in China can't build your house (for the most part). And while technology has made a lot of the appliances cheaper inside of it, it hasn't taken the place of the construction worker.

These trends in the high cost of rental housing are also affected by one other factor: demographics. Groups like minorities and the elderly who are more likely to rent — and to live with high rent costs — represent a growing share of the population. And so, in these new rent projections, the number of severely cost-burdened renters in America would rise by about 11 percent over the next 10 years even if rents and incomes grew at the same rate as inflation.

This long-term trend, stretching all the way back to 1960 and even before then, raises fascinating questions about what it will mean to live in an economy where a greater and greater share of income is devoted to housing. Money pooled in the hands of landlords, Jakabovics points out, doesn't circulate through the economy with the same impact as money spent at local retailers and grocery stores. Herbert suggests there may be serious health costs associated with a population that has to sacrifice health spending to pay the rent.

This upward trajectory, though, can't continue forever.

"I just don't know how sustainable that is," Jakabovics says. "At this point, landlords are charging a lot because the market will bear it. But in certain places, we’re probably getting close to the breaking point for a lot of folks, and I don’t know how that plays out."