The Breakdown

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Economist: Southern California 'worst' place in US to rent

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Financials planners usually recommend you devote no more than 30 percent of your income to paying the rent, but more than half of Americans in rentals now spend more than that, an all-time high, according to a new study released Monday by the Joint Center for Housing Studies at Harvard University.

Finding affordable apartments is especially tough in Los Angeles, where 52 percent of residents rent, according to the study.

“L.A. actually does stand out as having the highest share of people renting which in part is a reflection of the high housing costs in the area and a younger population as well,” said Chris Herbert, Research Director at the Joint Center for Housing Studies at Harvard.

St. Louis has the lowest percentage of renters (30 percent) of the 20 largest U.S. metropolitan areas.

The share of Americans who are renters increased from 31 percent in 2004 to 35 percent in 2012. More Americans have become renters in the 2000s than have during any other time in the last 50 years.

Rising rents, shrinking incomes

We usually think of people renting because they can’t afford to buy, but now rentals are becoming increasingly unaffordable, with lots of people spending huge chunks of their paychecks on rent.

That means they don’t have much money left to spend on other things, which hurts the overall economy.

“We are losing ground rapidly against a chronic problem that forces households to cut essential spending,” Eric Belsky, Managing Director of the Joint Center for Housing Studies at Harvard said in a statement. “With little else to cut in their already tight budgets, America’s lowest-income renters with severe cost burdens spend about $130 less on food each month, and make similar reductions in healthcare, clothing, and savings.”

Nationally, rents increased 6 percent from 2000 to last year. During the same time, renter’s income fell by 13 percent.

Half of U.S. renters now spend more than 30 percent of their income on rent, a 12 percent increase from a decade ago. 27 percent of renters devote more than half their income on rent, up 17 percent from a decade ago.

“The gravity of the situation for the large proportion of renters spending so much of their incomes on housing is plain,” said Belsky.

Southern California has ‘worst’ cities for affordability

Though he didn’t participate in the Harvard study, Richard K. Green regularly tracks the local rental market as Director of the USC Lusk Center for Real Estate.

He said the standard advice that no more than 30 percent of monthly income should be devoted to rent is simply not realistic for most people here.

“It’s not available for many, many people who live in Southern California,” said Green. “When we look at Los Angeles, Orange County, and San Diego, the way I do the measurements they are three of worst cities in the country for affordability,” said Green.

Green said coastal areas tend to suffer from the double-edged sword of rising rents and falling incomes while further inland the rent hasn’t increased, but incomes have fallen.

Green said raising the minimum wage would help the problem of housing affordability. He also recommends relaxing the rules on housing development.

“In California, we need to figure out how to make it easier to build housing,” said Green.

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