19.2 Million Working-Age Renter Households Are Housing Cost-Burdened According to Residual-Income Measure

A journal article published in Housing Policy Debate, “‘The Rent Eats First’: Rental Housing Unaffordability in the United States,” examines renter cost-burdens using a residual-income approach, which estimates whether households have enough money left after paying rent and utilities to afford a decent standard of living. This method differs from traditional housing cost-burden estimates, which deem a household cost-burdened if it spends more than 30% of its income on rent and utilities. The article finds that in a sample of 30.9 million renter households, 19.2 million (62.1%) were cost-burdened according to the residual-income measure while 14.8 million (47.9%) were cost-burdened according to the traditional measure. The article finds that households with children, Black and Latino households, and households with low incomes are most likely to experience residual-income cost burdens.

To test the residual-income approach, the researchers estimated costs for basic needs such as transportation, food, healthcare, and childcare. The researchers used the Economic Policy Institute’s Family Budget Calculator as their primary data source on household expenditures. The calculator assumes adults are of working age, and therefore the analysis excludes households with a person aged 65 or older from the sample. American Community Survey data was used to identify actual household incomes and housing costs. To calculate residual-income cost burden for individual households, the researchers subtracted spending on housing from the household’s reported income. If the amount left over was not enough to cover combined non-housing expenditures, the household was classified as having residual-income housing cost burden.

In total, 14.8 million renter households are burdened under the traditional cost-burden measure, and 19.2 million are burdened under the residual-income measure, while 13.9 million households are burdened under both the residual-income and standard cost-burden measures. Over five million households experience residual-income cost burdens but not traditional housing cost burdens. Across all household types and income levels, the number of households experiencing residual-income cost burden is higher than the number of households experiencing traditional cost burden, but households with children and households earning $30,000 to $45,000 are most drastically undercounted using the traditional measure. Of the 942,000 households that have standard cost burden but not residual-income burden, 65% are single-person households, 26% are two-adult households with no children, and 88% make more than $45,000 annually. The researchers posit that these households may choose to live in more expensive housing, leading them to be cost-burdened when using the standard measure but not the residual-income measure. Additionally, households without children have lower non-housing expenses, such as childcare, which lessens their chance of experiencing residual-income cost burden.

Households with children, Black and Latino households, and households with lower incomes are more likely to experience residual-income cost burden. Households with children are 4.1 times more likely to experience residual-income burden compared to households with no children. The likelihood of experiencing residual-income cost burden is also greater for Black and Latino renters, with members of these groups being 20% and 10% more likely than white households to experience residual-income burden, respectively. Renters with incomes below 80% of the area median income also experience greater residual-income cost burden. The estimated shortfall between basic expenditures and income for these households is approximately $37,000 larger than it is for middle- and high-income households.

The research highlights the competing pressures on renter households and explores how different policy interventions could decrease residual-income burden. Because housing is the largest household expense for most renters, a policy that ensures no households spend more than 30% of their income would lead average housing expenses to decrease by 22%. Transportation is the second largest expenditure for households in the sample, and these costs could be lessened by increased carpooling, more robust public transportation systems, or transportation subsidies. The researchers estimate that a policy intervention designed to ensure that households spend no more than 45% of their incomes on housing and transportation combined would decrease the number of residual-income cost-burdened households by 2.4 million. Other possible interventions to decrease household expenditures include healthcare subsidies, increased SNAP coverage, and universal childcare. 

The article can be found at: https://bit.ly/3qsUXuU