The Rent Eats More: Rethinking Housing Cost Burden

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Last month, the Harvard Joint Center for Housing Studies released The Rent Eats More: Residual Income Housing Cost Burdens from 2019–2023. The report examines how rising housing and living costs have impacted renters’ ability to afford essential needs. It uses the concept of residual income to provide a more complete picture of what it means to be housing cost-burdened.

This blog summarizes key findings from the study, explains the concept of residual income cost-burden, and explores what the findings suggest about housing affordability challenges in Mecklenburg County.

WHAT IS RESIDUAL INCOME COST-BURDEN?

The most common and widely used measure of housing cost-burden is whether or not a household spends more than 30% of its gross monthly income on housing costs such as rent or mortgage payments, utilities, taxes, insurance, etc. This metric assumes that if a household spends 30% or less of its income on housing, it will have enough income left over to cover the costs of other essential needs such as food, healthcare, childcare, and transportation.

The residual income cost-burden measure takes a different approach. Instead of evaluating the percentage of monthly income spent on housing costs, it asks how much money a household has left to cover essential needs after paying for housing costs. If a household does not have enough income remaining to cover its basic needs, it is considered residually cost-burdened. This measure demonstrates that even when rent seems affordable based on the 30% rule, many households are still unable to pay for everyday necessities and make ends meet after housing costs are paid.

KEY FINDINGS FROM THE HARVARD STUDY

The Harvard study highlights increasing affordability gaps and financial pressure on renters nationwide:

• In 2023, nationally, 65% of renters were residually cost-burdened, compared to 50% using the traditional 30% housing cost-burden metric.
• 3 million renter households struggled to cover essential living expenses despite appearing to be financially stable using the traditional 30% housing cost burden metric.
• Inflation has increased financial pressures for renters. Between 2019 and 2023, renter expenses increased 30% while incomes only increased by approximately 20%.
• Middle income renters and families with children have been impacted the most by rising costs because they often do not qualify for assistance.
• Rural and small-metro renters have the highest rates of residual income cost-burden, with almost 70% unable to cover the costs of both housing and essential needs.
• At the state level, lower-income states like North Carolina have some of the highest residual income cost-burden rates (67.5% of renters), illustrating that both low wages and rising rents contribute to affordability challenges.

WHAT WOULD REDUCE HOUSING COST BURDEN?

The Rent Eats More: Residual Income Housing Cost Burdens from 2019–2023 includes three policy simulations conducted by the researchers to examine how different types of financial supports would affect residual income cost-burdens among renters. Findings from these simulations are presented below:

• Universal Housing Subsidy: The researchers modeled the impact of capping all rents at 30% of a renter’s income. This simulation showed that such a rental cap would only reduce residual income cost-burdens by approximately 1%.
• Universal Direct Income Support: The researchers modeled the impact of providing direct monthly income support to renters at the $500 and $1000 levels. This approach was more effective than the rental cap alone, with the $500 monthly support resulting in a 7% reduction in residual income cost-burden, and the $1000 monthly support resulting in a 15% reduction in residual income cost-burden.

These findings led the researchers to conclude that even with these types of supports, low-income renters would still experience residual income cost-burdens because for low-income households, incomes are too low to meet the rising costs of non-housing expenses. They suggest that, particularly for low-income renters, generous and flexible income supports would have the greatest impact on reducing affordability burdens.