More and more Americans are struggling to pay their rent.
According to a report from the Joint Center for Housing Studies of Harvard University, one in four renters are paying more than half their income on housing. This equates to 10.9 million renters.
And millions of additional renters are categorized as cost-burdened, meaning they pay 30% or more of their income on rent.
More and more of these over-burdened renters come from the ranks of middle-income earners. Nearly 56% of renters earning between $30,000 and $45,000 a year were cost-burdened as of 2018, up 5.4 percentage points from 2011. Among those in the $45,000 to $75,000 annual income earners, the share of overburdened increased 4.3 percentage points to 27%.
Why are so many Americans struggle with rent when this is the greatest economy in history? Perhaps because it’s not the greatest economy in history.
According to MarketWatch, the rise in rents has not kept pace with incomes.
There is also a distortion in the rental market that is causing a shortage in lower-rent units. According to MarketWatch, there’s been a surge in demand for rental units among high-income Americans.
As a result, construction activity has concentrated on the upper end of the market, with builders focusing on building amenity-rich apartment buildings in popular neighborhoods designed to appeal to this higher-income renter — and fetch a higher rent. Institutional investors have also bought up a larger share of the country’s rental housing stock, renovating many of these units in order to convert them into properties that can charge a higher rent.”
In other words, there is a luxury rental bubble.
And like other asset bubbles, the Fed helps make it possible.
Construction activity is driven by low-interest loans made possible by the Fed’s manipulation of the interest rates. We saw the same phenomenon in the early 200os. Cranes sprung up like trees across America as builders rushed to construct luxury towers. It was a boom — up until the point that it was a bust.
Economist Mark Thronton developed the skyscraper index based on the fact that Fed monetary policy creates misallocations and distortions in the economy that drive overbuilding, particularly of skyscrapers. In fact, the so-called Skyscraper Index has a remarkably accurate record signaling economic downturns dating back to the late 19th century.
Thornton explained the Skyscraper Index in detail during a SchiffGold It’s Your Dime Interview.
The shift in the rental market toward high-income luxury buildings is just one more indication of the bubble economy. It’s not only putting the squeeze on the average joe; it is also eventually going to pop.
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