Opinion: Without real solutions, renters will continue to be worse off

Opinion by Jung Hyun Choi and Daniel Pang for CNN Business Perspectives

Over the past year, both rents and home prices have risen faster than inflation, and the surge in housing prices has outpaced wage growth. But renters — who were already more financially vulnerable than homeowners before the pandemic — are bearing the brunt of the current surge in housing costs nationwide.

For the first time ever, the median rent in the US exceeded $2,000 a month in May, a 15% increase from the year before, and it continued to climb in June. For most households, housing costs account for the biggest share of their monthly spending. And while families can tighten their budgets for some costs, like food or entertainment, they can’t reduce their housing payments. A recent survey found that, in April, more than 75% of tenants said they had less money left each month for basic necessities over the last year, largely because of the rise in rent costs.

Skyrocketing housing costs and other price hikes also make it harder for renters to save money, preventing them from saving enough to become homeowners or to weather economic storms in the future. And because renters are more likely to be households with lower incomes and households of color, higher housing costs could potentially widen racial homeownership and wealth gaps.

Short-term fixes to rising rents aren’t enough. Federal, state and local policymakers need to consider long-term solutions that promote financial stability and wealth-building among renters.

Renters were in a worse position than homeowners to weather the pandemic

Before the pandemic, around half of the country’s 44 million renters were cost-burdened (meaning they spent 30% or more of their monthly income on housing and utilities), mainly because of a lack of housing supply and the lingering impact of the Great Recession.

Many renters also lacked an adequate emergency fund. In 2018, 21% of renters said they could not come up with $400 for an emergency, compared with 5% of homeowners.

Once the pandemic hit, the unemployment rate of renters rose faster than that of homeowners because renters, especially those with lower incomes, were more likely to work in service industries such as food and accommodation, which were hit harder by the economic shutdown. In the early months of the pandemic, renters who lost their jobs faced greater uncertainty than homeowners, as the federal policy action to ensure renters stayed in their homes was much slower than the swift forbearance options provided to homeowners.

Rent increases are widening the wealth gap between renters and owners

Renters have less control over their monthly housing costs than homeowners do. Homeowners are largely freed from the concerns of future housing cost increases because they have a fixed monthly mortgage payment. Renters, on the other hand, have to deal with potentially massive increases in rent costs when their lease is up.

Most landlords plan to increase rent in the next 12 months, which will add to renters’ housing cost burdens even more. In a tight market like Manhattan, average rents skyrocketed to more than $5,000 a month in June, up nearly 30% from a year ago, with increased rental demand expected to continue in the wake of rising mortgage rates.

Homeowners have also gained significant housing wealth as home prices accelerated during the pandemic. Many homeowners also refinanced their mortgages, taking advantage of historically low mortgage rates and reducing their monthly housing payment.

As a result of these different financial situations, inequities between renters and homeowners have increased and will continue to expand. And with rising interest rates and increased competition in the homebuying market, renters — who face greater difficulty saving for a down payment because of rent increases — have even fewer opportunities to become homeowners. This could widen the racial homeownership gap and block households of color from the wealth-building opportunities that come with homeownership.

We need long-term solutions

During the pandemic, the federal government’s swift actions — such as expanded unemployment insurance, a series of eviction moratoria and emergency rental assistance — largely helped keep renters housed. But we cannot continue to rely on short-term policy interventions every time an economic crisis hits, as stopgap fixes don’t prevent renters from being vulnerable to the next economic crisis.

Federal, state and local policymakers all have a role in creating and implementing long-term policy solutions to prevent growing inequities and improve renters’ economic health. In the housing market, this will require preserving and creating more affordable housing. Reforming zoning and land use regulations, providing financial incentives to developers to build more affordable homes, and expanding manufactured housing (which costs significantly less than site-built housing), are all important steps to boost the housing supply.

In addition, expanding housing choice vouchers to more people who qualify could increase renters’ housing stability during economic downturns. Only one out of five borrowers who qualifies for federal housing assistance receives it because of underfunding. Our research found that housing choice vouchers have helped both tenants and landlords survive the pandemic because they guarantee at least a portion of the rent will be paid, and they prevent renters from experiencing variable housing costs.

These long-term investments can set renters up for greater financial stability and ensure they don’t continue to bear the brunt of rising costs and economic shocks.

The-CNN-Wire
™ & © 2022 Cable News Network, Inc., a WarnerMedia Company. All rights reserved.