The Idea Factory

Is the rent really too damn high?

The evidence shows that renters' problems may lie elsewhere

A new study from Harvard University shows that in the last 30 years, rents have risen and the income of renters has fallen:

Indeed, more renters than at any point in recent history — just under half — are spending more than 30 percent of their income on rent. And of these renters, many are even devoting 50 percent of their income to rent:

[America’s Rental Housing]

This is clearly problematic. People who can’t afford their rent have to cut back on other essentials like food, transportation, and heating.

It also prompts an interesting question: Is the rent too damn high, or are incomes too damn low?

The Harvard study shows that 83 percent of those earning under $15,000 a year spend more than 30 percent of their income on rent. Even after the 2008 housing bust — which caused rents and housing prices to fall in the short term — there isn’t much housing available that low-income Americans can afford.

But the long-term rise in rent prices is not huge — and not out of line with the American population, which has also grown. If rents had risen this much, and incomes hadn’t fallen, the problem would be much smaller. The historically unusual phenomenon of the past 40 years is that incomes have totally failed to keep pace with growth in the wider economy:

In other words, falling income is the main problem, not rising rent.

As you can see, this trend began in the 1970s — precisely the time when globalization began to take hold and manufacturing migrated to places like China, where workers were willing to work for much less. This has been a major factor in depressing American wages and salaries. Meanwhile, American corporations that employ this foreign labor continue to make record-high profits.

Of course, as China and other developing countries develop, their wages are rapidly rising. But that won’t necessarily mean manufacturing jobs will come back to America. They’re more likely to go to other developing countries where workers are willing to work for less. Or if they do return to America, they will be coming back because robotic manufacturing costs have fallen below even foreign labor costs. That might create some jobs, but they will be higher-skilled jobs (e.g., in computer programming) than the ones they replaced.

So where does that leave the growing numbers of people struggling to pay the rent? Building more housing would not only create a larger supply, thereby driving down rents, but would also create jobs in construction and infrastructure. Raising taxes on corporations and high-income earners can yield funds to create jobs for the unemployed, build infrastructure, and invest in public projects like going to the moon. The strong economic growth and low unemployment of the 1950s and 1960s was accompanied by much higher taxes on the wealthy, and much more infrastructure building. And as I've argued before, the government could even start redistributing wealth in a more direct fashion.

Recommended

The daily business briefing: May 24, 2022
A Starbucks in Russia
Business briefing

The daily business briefing: May 24, 2022

The daily business briefing: May 23, 2022
Joe Biden in Japan
Business briefing

The daily business briefing: May 23, 2022

Why are airline ticket prices so high right now?
An airplane.
Briefing

Why are airline ticket prices so high right now?

John Oliver has some complaints about Subway, the sandwich chain
John Oliver
Johnsplaining

John Oliver has some complaints about Subway, the sandwich chain

Most Popular

John Oliver has some complaints about Subway, the sandwich chain
John Oliver
Johnsplaining

John Oliver has some complaints about Subway, the sandwich chain

7 toons about replacement theory conspiracists
Editorial Cartoon.
Feature

7 toons about replacement theory conspiracists

Analyst: Russian forces are 'bludgeoning their way through' Severodonetsk
A destroyed bridge in Severodonetsk.
war in ukraine

Analyst: Russian forces are 'bludgeoning their way through' Severodonetsk