The Distribution and Drivers of Rental Unaffordability

• In Event: Using New Sources of Data to Study the Relationships between Housing Affordability, Location, and Inequality

Abstract

Affordability is the most prominent housing policy issue in the United States—and among the most conceptually elusive. Conventional metrics like the rent-to-income ratio (RTI) collapse disparate housing-market processes into a single number, masking the varied forces behind what is commonly called a housing crisis and conflating preference-driven shifts in consumption with constraint-driven hardship. In this paper, we decompose rental affordability over the last sixty years, tracing the separate roles of rents, incomes, and household formation. We also consider how changes in tenure, housing quality, supply, and inter-urban migration relate to rental affordability.

Between 1960 and 2023, the national median RTI rose from 19% to 31%. This median masks substantial variation across the income distribution: among bottom-quintile households, the median RTI climbed from 47% to 67%. Year-to-year and across metro areas, these indicators fluctuate considerably—Los Angeles, for instance, actually became more affordable by most metrics during the 2010s. Such variation motivates our decomposition across income groups and regional markets. To our knowledge, this is the first study connecting inter-urban migration, supply elasticities, and rental affordability.

We analyze how changes in renter household incomes have contributed to rent burdens. Real wage stagnation is a widely cited explanation for rising RTIs, but two complementary mechanisms are neglected. First, out-migration of middle- and lower-income households from high-rent cities can make those cities appear more affordable in standard metrics even as conditions worsen. We assess this compositional effect by decomposing rent and income contributions across metro areas from 1960 to 2023. Second, rising homeownership costs may push relatively affluent households into the rental market. We test whether regions with larger drops in middle-aged homeownership experienced larger increases in higher-income renters. We also assess whether shifts in household composition—growth in single-person households and doubling up—have driven RTI changes by comparing ratios across household types from 2000 to 2023. We then turn to rents. We document how the housing shortage has spilled over from supply-inelastic urban areas to more elastic ones, and how supply elasticities have eventually declined nationwide. Finally, we analyze changes in overcrowding from 1960 to 2023, disaggregated by household size and income quintile.

Our preliminary findings reveal the shortcomings of standard metrics. Rent burdens have intensified only slightly on average but significantly among low-income households. In some metro areas, income growth has outpaced rent growth, but out-migration is one driver that registers in standard metrics as apparent affordability improvement. Los Angeles illustrates this: its RTI improved between 2010 and 2023, presumably because the composition of renters shifted even as rents kept rising. We also find that rental affordability is lower in less supply-elastic metros on average.
Our analysis carries two policy implications. First, decomposing component changes alongside composite metrics like RTI will help policymakers better target areas and populations where problems are most acute. Second, the decomposition distinguishes voluntary price increases—such as preferences for solo living or larger units—from involuntary ones.

Author

• Nicholas J. Marantz, University of California Irvine
  Presenting Author