Rising Rents, Stagnant Economy
Following the Great Recession, Richard Florida writes, Americans have flocked to renting over homeownership. But both modes of housing consumption are getting more unaffordable. "Between 2001 and 2014, the number of renters who spend more than half of their income on rent grew by more than 50 percent, from 7.5 million to 11.4 million renters." Pulling from a new study by Denise DiPasquale and Michael Murray, Florida discusses why rents have increased at more than twice the rate of renter income growth since 1970.
A key point: higher rents may mean less demand for other things, hurting the consumer economy. "The rising share of income devoted to rent may be an important contributor to what economists dub secular stagnation, the inability of our economy to generate the robust demand required to sustain economic growth." Weighed down by rents, especially in major cities, the economy has fewer chances to provide for income growth: a vicious cycle.
Interestingly, Florida writes, the study doesn't assign blame to gentrification or the back-to-the-city movement. Nor does it point to land-use restrictions on rental housing supply. "The actual answer, according to the study, is much more basic. Renters are simply spending more money to consume more housing." Square footages and amenities in rental housing have increased a lot since the 1980s, mirroring a similar bloat in single-family homes.
Florida concludes by calling excessive demand for housing a "fetter on economic growth."