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Renters’ Costs Rise More than Homeowners

by Adam Price |
November 6, 2006
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San Jose, CA - According to a U.S. Census Bureau report released in October, the cost of renting rose even faster than the cost of buying a home between 2000 and 2005. Over those five years, rents rose 20.7% as compared to an 18.75% rise in homeowner costs (these are nationwide averages, the increases for both in some areas such as California have been much higher).

While the average homeowner spends about a quarter of their income on housing costs, the average renter has to spend one-third of their income on rent, leaving less for food, transportation and other necessities. The plight of renters was overlooked by much of the mainstream media who have focused only on the growing difficulties facing homeowners, showing again the media’s bias towards more well to do households.

Nor did any of the mainstream media use this report to expose how the official government measure of inflation, the Consumer Price Index, or CPI, understates the true increase in the cost of living. According the CPI for urban wage earners and clerical workers, housing costs have risen 15.6% over the past five years. The CPI housing costs are based on the cost of renting a single-family home, when the vast majority of households are either buying a home or renting an apartment. The true increase in housing costs between 2000 and 2005, using an average of actual data on renting and cost of owning a home, would be 19.3%, or 3.7% more.

The Department of Labor claims that workers’ wages were up 1.5% between 2000 and 2005 after taking inflation into account. However, using the actual cost of housing, the increase in purchasing power would be only one-half of one percent (0.5%), or just about no increase at all. This is, of course, no surprise to those workers who are struggling to make ends meet and who often end up borrowing when unexpected medical bills or job losses happen. In contrast, CEO salaries and the income of the rich have soared over the same five-year period.

In the last year rents have risen at an even faster pace. For example, here in the San Jose/San Francisco Bay Area, rents are up 7.5% over the past year, more than twice the general rate of inflation (3.6%). Fewer people can afford to buy homes with rising interest rates on mortgages, increasing the number of renters. At the same time there are fewer apartments available for rent as many were converted to condominiums during the past few years. Over the last two years the vacancy rate for rental housing has dropped, giving landlords even more power to raise rents.

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