• In November, the typical renter household whose employment wasn’t impacted by COVID-19 earned $3,790 per month and paid $1,120 in rent, spending 29.6% of their income on housing — largely unchanged from November 2019 (29.7%). 
• The rental market is currently a tale of two types of renter: Those that have remained employed and to reap the benefits of rental concessions and slow rent growth; and those that have lost employment and are confronted with exceptionally high rent burdens.

Rents got modestly more affordable over the past few years for those renters that held on to their jobs throughout the ongoing pandemic, boosted this year in particular by a softening rental market and over the longer-term by incomes that have grown faster than rents.

In November, the typical renter household whose employment wasn’t impacted by COVID-19 earned $3,790 per month and paid $1,120 in rent, spending 29.6% of their income on housing — largely unchanged from November 2019 (29.7%). The current level is just below the 30% threshold at which renters are considered ‘cost burdened’ by the U.S. Department of Housing and Urban Development, less-able to save adequately for healthcare, education and other critical costs. 

Since March of 2018, typical rent burdens in the U.S. have been slowly but steadily improving, falling from 30.8 and driven down in large part because of incomes that are growing faster than rental costs. From January 2014 through November, the compound annual growth rate (CAGR) of U.S. rents has been 3.1%.  Over the same time, incomes increased at a CAGR of 3.9% — 26% faster than rents.

Renters with stable employment have benefitted from a rental market that has softened in the face of the pandemic. In October, a third of rental listings offered concessions, including months of free rent. A measure of rent metric that blends both reported rents from the American Community Survey and Zillow’s Observed Rent Index (ZORI) grew 1.9% from November 2019 to November 2020, well off the longer-term average rate of 3% recorded since January 2014.

The rental market is currently a tale of two types of renter. There are those that have remained employed and able to reap the benefits of rental concessions and slow rent growth. And there are those who are unemployed, confronting changing unemployment insurance (UI) benefits and wild swings in rent burdens — initially improving with the first rounds of federally passed pandemic relief, then spiking when those benefits changed and/or expired.

We estimate that 7% of renters that were employed in March 2020 were no longer employed by November 2020 because of Covid-19 related job losses.  A combination of 7% of the rent burden from unemployed renters with 93% of the rent burden from employed renters provides an aggregate affordability burden of exactly one-third of income (33.3%) in November.  Constructing the aggregate affordability metric from estimated unemployment rates in each month since April provides a bigger picture of affordability for all renters, initially improving to 29.7% in April after passage of the $2.2 trillion CARES Act and its more-generous enhancements to state-level UI, but then progressively rising as CARES Act supplements diminished and then expired in the fall, peaking at 33.3% in November. 

But while this aggregate number reflects the volatile nature of rent affordability in 2020, it is important to note that it doesn’t reflect a realistic renter experience — a renter cannot both be employed and reliant on earned income, and unemployed and reliant on UI income.  Renters were either employed and typically paid less than a third of income on rent, or they were unemployed and typically spent much more than a third of income on rent.

Among the 50 largest U.S. metros, employed renters spent the highest share of their income on rent in Miami (38.7%), San Diego (36.2%), and Riverside, CA (34.3%).  The most significant deterioration in rent affordability occured in Las Vegas , where employed renters spent 32.3% of income toward rent in November 2020, up from 29.3%% in November 2019.  

Employed renters spent the least on rent in Louisville (24%), Kansas City (24.3%), and Birmingham (24.4%).  Although these renters spent far less on housing than their renting peers in other metros, they spent more than their home-owning neighbors. Typical monthly rent in Louisville, for example, consumed roughly twice as much of an employed renter’s income as the typical mortgage payment (12.8%) consumed of a local homeowner’s earnings.  Homeowners in Kansas City (14.4%) and Birmingham (12.4%) similarly benefitted.

Homeowners are able to take advantage of historically low mortgage interest rates and long repayment terms that help keep monthly payments low, even as bottom-line home prices rise.  This highlights the relative financial benefits of homeownership, which allows buyers to typically pay a smaller share of their income toward housing costs while simultaneously building wealth through home equity.