Last week, we looked at how food prices have remained high even as inflation falls in other areas of the economy. Not only are many consumers struggling to pay their grocery bills, but rent has also become a major financial strain on millions of people. Housing costs skyrocketed in the years after the pandemic, with average U.S. rent growing by more than 15 percent in 2022. According to a recent report by the Harvard Joint Center for Housing Studies, half of American renters spend 30 percent of their income on housing. A record 22.4 million people considered themselves to be “cost-burdened” by rent, an increase of 2 million from the previous year. And of those respondents, 12.1 million said that housing costs comprised more than 50 percent of their income.
The post-pandemic years saw rents rise across every income bracket as housing became an increasing burden for many Americans. “I expected to see it worsen,” said Whitney Airgood-Obrycki, the lead author of the Harvard report. “But the degree to which it worsened, I think, was astounding.” Renters received some relief in 2023 as housing costs dropped slightly throughout the country, but the big jumps of previous years continue to sit heavy on many Americans’ budgets. “We may have come down from the all-time high number,” said Airgood-Obrycki. “But we’re probably still in pretty bad shape.”
One of the main drivers of housing costs is a lack of supply, a situation that will slightly improve in 2024 as tens of thousands of new homes hit the market. As the Harvard study points out, however, not everyone will see the benefits of this increased supply. New construction projects tend to target high-end renters who are willing to spend lots of money per month. Landlords are also chasing this upscale market by either divesting from affordable properties or letting them fall into disrepair as they concentrate on more lucrative real estate ventures. As a result, in 2022 the number of units available for under $600 dropped by more than 2 million compared to a decade before. “Supply is very important. I will certainly underline that,” said Airgood-Obrycki. “But the people who are most cost-burdened are not going to see the immediate benefits of that supply.”
Questions:
1. Why are the most cost-burdened renters unlikely to see many benefits from the upcoming increase in housing supply?
2. Do you think real estate developers should receive government incentives to build more affordable housing? Why or why not?