This Is the Next Big Threat to the Middle Class
It’s a challenging time for the American middle class. A Pew Research Center report released last week described the steady decline in middle class households from 61% of all households in 1971 to just under 50% in 2015. In fact, it’s striking how consistently the middle class—defined as households with incomes between 67% and 200% of the median income, or $41,869-$125,609 in 2015—has eroded over time, replaced with increases in both low- and high-income households. The share of high-income households increased from 14% in 1971 to 21% in 2015, while the share of low-income households increased from 25% to 29%.
This flattening of the income distribution provides a somber counterpoint to our own research, which shows that rising rental housing costs are further eroding the discretionary incomes of an increasing number of low- and middle-income households. Harvard’s Joint Center for Housing Studies’ biennial report on rental housing finds that historically-tight rental market conditions are putting increasing strains on renters’ incomes, with the fastest growth in rental housing cost burdens appearing among middle-income renters.
Between 2005 and 2015, the United States added about 9 million new renter households—the largest gain in any 10-year period on record. During the same timeframe, the share of all U.S. households that rent rose from 31% to 37%, the highest level since the mid-1960s. This influx of new demand has reduced the rental vacancy rate to a 30-year low and is putting substantial upward pressures on rents. While the supply of rental housing has increased, primarily through conversion of formerly owner-occupied units and to a lesser extent, new construction, rental demand has simply increased even faster.
But while rents have been rising faster than inflation, the typical renter’s income has not. The result is that we are seeing sizable increases in the share of middle-income renters facing cost burdens, defined as paying more than 30% of the household’s total income to cover housing costs. Among renters with incomes between $30,000 and $44,999, the share of cost burdened households increased from 37% in 2001 to 48% in 2014. For renters making between $45,000 and $75,000, the cost burdened share increased from 12% in 2001 to 21% in 2014. These increases highlight the extent to which the growth in rental housing costs is increasingly straining the budgets of middle-income households.
Within these national-level trends, there are important differences across cities. For example, while about half of renter households with incomes between $30,000 and $45,000 face rental cost burdens in Minneapolis, Dallas, and Phoenix, more than 75% do in high-cost cities like Washington DC, San Francisco, and Los Angeles. While some portion of these differences may be offset by greater access to public transit or other amenities in some cities, they undoubtedly also reflect the increasing strain on household budgets as rising rents have steadily outpaced growth in household incomes.
The consequences of these patterns are clear. When housing costs consume increasing shares of households’ incomes, less remains for the household to cover expenditures like food, healthcare, and retirement savings. Having a stable, decent home has also been linked to numerous benefits, including improved health outcomes and better school performance among children. And earlier this year a National Bureau of Economic Research working paper provided the clearest explanation to date of how the underlying forces that produce these affordability challenges can also reduce the economic productivity of America’s cities.
And yet, this issue has thus far not been raised on the presidential campaign trail. While candidates have acknowledged the growing inequality across households, the presence of 20 million renter households struggling to pay rent is an issue that requires attention. In individual conversations and on the national debate stage, candidates should be pressed about their plans for both rebuilding the nation’s middle class and ensuring that America’s cities remain economically inclusive. In a campaign season that has been frequently dominated by the rhetoric of exclusion, much more attention is needed to the economic benefits of inclusion.
Jonathan Spader is a senior research associate at the Joint Center for Housing Studies at Harvard University. Christopher Herbert is managing director of the Joint Center.