Rent Relief Skips Over Lowest Income Areas, Heightening Housing Crisis
While rent increases have generally cooled down across the United States over the past year, providing a much-needed break for many Americans battling inflation, this trend is not reflected in the nation’s least expensive neighborhoods. In these areas, where low- and middle-income families are most vulnerable to housing cost burdens, rents are continuing to climb at an alarming rate, exacerbating the affordability crisis and pushing residents closer to financial instability and even homelessness.
According to a recent analysis by the Bank of America Institute, rents in the zip codes with the lowest average rental rates jumped by a substantial 7.5% annually in December. This stark contrast to the national trend is underscored by the fact that rents in middle-tier neighborhoods increased by only 4.4% annually, and in the most expensive areas, the increase was even lower at just 3.4%. The Institute’s data is drawn from a comprehensive analysis of check, debit, credit card, and other rent payments made by tens of millions of Bank of America customers, providing a robust picture of rental market dynamics across the country. The reported figures are based on three-month averages, smoothing out month-to-month volatility and offering a more stable representation of rental trends.
The implication of these uneven rent increases is significant. Low- and middle-income residents, who are disproportionately likely to reside in these less expensive areas, are already struggling to keep up with high rent and utility costs. These additional rental hikes are placing them under increased financial strain, potentially pushing them into dire circumstances, according to housing experts.
"The least costly zip codes are feeling the most relative pressure," explained Joe Wadford, an economist at the Bank of America Institute. His observation highlights the disproportionate impact of rising rents on those least able to absorb the cost increases.
While the national consumer price index indicates that yearly rent increases have slowed from a peak of 8.8% in early 2023 to 4.2% in January, this overall trend masks the struggles faced by residents in the most affordable neighborhoods.
The dynamics of the rental market have shifted significantly since the onset of the pandemic. In the early days, demand for both rental and purchase homes surged as Americans, particularly those with the means to work remotely, sought more spacious living arrangements or moved out of shared living situations due to health concerns. This led to migration patterns, with many white-collar workers relocating from expensive urban centers to smaller cities offering larger homes at lower prices.
Wadford noted examples like people moving from New York City to Charlotte, North Carolina, or from Los Angeles to San Antonio, Texas. These moves, while often involving a shift from one relatively pricey area to another, generally increased demand and rental costs in the destination cities. From early 2022 to late 2023, rent increases in the top two-thirds of zip codes significantly outpaced those in the bottom third. For instance, in April 2023, average rent rose 4.7% annually in the least expensive zip codes, compared to 9.1% in the middle third and approximately 8% in the most expensive areas, according to the Bank of America Institute data.
However, as rent hikes intensified and squeezed tenants’ budgets, many began seeking more affordable options, either by moving to cities like Indianapolis or Columbus, Ohio, or by relocating from places like Charlotte and San Antonio to less expensive suburban or rural areas within the same metropolitan areas. This shift pushed up demand for apartments, and consequently, rental prices, in towns that were previously more affordable, though still less so than they used to be.
Starting in March 2024, the price dynamic began to reverse, with rent increases in the least expensive zip codes starting to outpace those in the middle and upper tiers, as revealed by the Institute’s data. "People have been chasing affordability," Wadford stated, underscoring the driving force behind these shifting rental patterns.
The unfortunate consequence is that existing tenants in the least expensive communities are now confronting steep rent increases that are significantly straining their finances, and in some instances, pushing them to the brink.
One such individual is Emmy Manley, a 22-year-old living in an affordable neighborhood in Duluth, Minnesota. For four years, Manley had experienced relatively modest yearly rent increases of $30 to $40, which had pushed her rent for a two-bedroom apartment in a converted triplex to a manageable $930 a month. However, this year, she received a notice that her rent would be rising by $155, a significant jump that left her shocked.
"I was definitely shocked," Manley stated, noting that the apartment has no amenities and receives minimal service, making the extra cost seem unjustified. As a result, Manley, who works in customer service for a financial services firm, decided not to renew her lease and is moving to a one-bedroom apartment that costs $795 a month.
Had she decided to stay, Manley explained that she would have had to make significant cuts to her budget, sacrificing small pleasures like grabbing coffee or lunch near her office and opting for homemade alternatives. She also would have had to scale back on dinner and movie nights with her boyfriend and shop exclusively at discount stores such as Walmart.
For lower-income Americans already struggling to make ends meet, these big rent increases force even starker choices.
"What this means is a cut into either medicine or food," said Shamus Roller, executive director of the National Housing Law Project, an organization that advocates for the rights of tenants and low-income homeowners. "The increase really starts to matter. It can push them into homelessness."
The numbers paint a grim picture. In 2023, 83% of renters who earned less than $30,000 a year were considered cost-burdened, meaning they devoted more than 30% of their income to rent and utilities, according to the Joint Center for Housing Studies at Harvard University. This is compared to half of all renters. Moreover, those low-income renters spent a staggering 80% of their income on housing costs.
Responding to the sharp rent increases across the U.S. in recent years, builders initiated a surge of apartment construction from 2021 to 2023. However, with rent increases now softening, developers are pulling back on new projects, according to Joel Berner, senior economist at Realtor.com.
Compounding the problem is the fact that even the new multifamily housing built in recent years has largely consisted of luxury buildings geared toward middle- and upper-income residents, which are more profitable for developers. This leaves a significant gap in the availability of affordable housing options for those who need them most.
"It’s not likely to provide immediate relief for people in the least expensive areas," Wadford said, underscoring the disconnect between current housing development and the needs of low-income renters.
The statistics are stark: the nation faces a shortage of 7.3 million affordable rental homes, according to the National Low Income Housing Coalition, highlighting the severity of the affordable housing crisis and the urgent need for solutions. This persistent shortage exacerbates the challenges faced by low-income individuals and families, pushing them further into precarity as they struggle to secure stable and affordable housing.
