Low incomes and high rents combine to give Los Angeles the most unaffordable rental market in the nation, according to a new UCLA study (pdf).
Researchers at the Center for the Study of Inequality in the Luskin School of Public Affairs had no problem finding lots of inequality in the city’s rental market. They found rent burden, especially among low-income residents, to be horrible, persistent and getting worse.
Rent burden is the ratio of rent to income and is generally expressed as the percentage of income spent on rent. Gross rent includes utilities. The study considered a rent-burdened person to be someone paying more than 30% of their income for rent. That’s five percentage points lower than the Census standard.
Los Angeles renters spend 47% of their income on housing, the highest in the nation. The city leads the nation in both moderate (30-50%) and severe rent burden (more than 50%). They have the most people rent burdened and the highest burdens.
The problem is particularly acute in L.A., where rentership is the highest in the nation at around 52%. The national average for metropolitan areas is 35%. High rent burden is bad for the economy. It means residents have less disposable income to purchase goods and services, and can’t save or invest.
Vacancies haven’t changed much, the quality of the housing stock hasn’t notably improved and inflation has been low, prompting the researchers to conclude that market forces and changing housing quality aren’t driving the added burden.
So what is? Basically, it’s low incomes and suspiciously high rents.
“Los Angeles housing prices have grown about four times faster than incomes since 2000,” the report says. “Increases in the median housing price prevent households from making the transition from renter to owner, which increases demand in the rental market, driving rents up further.”
The upward rental price parallels a widening income divide between owners and renters. The ratio is more than 2-1 in the U.S. and Los Angeles, although the nation is just now catching up with L.A. The economic buzzword to describe this flow of money toward the rich is, perhaps not surprisingly, “rent seeking.”
Rent seeking encompasses returns on all kinds of ownership claims, including housing. Economist Joseph E. Stiglitz says:
It “defines many of the ways by which our current political process helps the rich at the expense of everyone else, including transfers and subsidies from the government, laws that make the marketplace less competitive, laws that allow C.E.O.’s to take a disproportionate share of corporate revenue . . . and laws that permit corporations to make profits as they degrade the environment.”
Paul Ong, a professor of urban planning, social welfare and Asian American studies and co-author of the UCLA study, said rent burdens become more pronounced in times of income inequality. That gap began widening 40 years ago and accelerated after the economic collapse seven years ago.
Increased renter burden is a symptom of much larger phenomena. After the 1960s, the post-World War II consensus on the social contract broke down and our approach to economic issues changed. As George Packer notes in the New Yorker:
“The seventies turned out to be the decade when the country began its transformation from steady economic growth to spasms of contraction, from industry to information and finance, from institutional authorities to individual freedoms, from center-left to right. Global competition happened in the seventies, and so did populist politics, special-interest money, the personal computer, and the cult of the self. . . . Wages have remained flat since 1973.”