The K-Shaped Renter Affordability Crisis

Homeownership barriers have caused the number of high-income households to surge, but cost pressures have filtered down the income ladder.

Key Takeaways

Rental affordability constraints have not worsened uniformly: low- and middle-income renters face rising cost burdens, while high-income renters have been largely insulated from rising cost burdens.

High-income renter households have been the fastest-growing cohort post-GFC. Yet, rising cost burdens disproportionately fell on lower-income renters, suggesting that supply-constraints alongside rising high-income demand shifted market-clearing rents upward across the distribution.

Rising income stratification in household formation and cost pressures post-GFC occurred alongside a decade-long decline in low-rent units, supporting the idea that affordable housing shortages have contributed to these diverging cost burdens.

Rising demand and falling affordability have increasingly characterized the US Rental market in recent years. However, this misses a more fundamental feature of the sector in the past decade: rising income stratification.

Using three income tiers: one for lower-income households (<$30,000 per year in 2010 dollars); middle income ($30,000 > $75,000 per year in 2010 dollars); and high income (>$75,000 in 2010 dollars), this analysis investigates the K-shaped nature of income constraints and household formation in the rental housing market since 2010.

Income Constraints

Renters’ experience with affordability constraints in recent years has been far from uniform. Income constraints for lower-income households have risen significantly over the past decade and a half, while high-income renters spend similar shares of their income on rent as in 2010.

In 2010, the median low-income renter household spent 53.0% of its gross income on rent, a share that held mostly steady over the next decade, averaging between 51.7% and 53.0%.

However, income group stratification sharpened post-pandemic. By 2024, low-income renters, on average, spent 57.6% of their income on rent, as nominal incomes at the lower end of the wage distribution struggled to keep pace with rising rental rates.

The median middle-income renter household also saw its rent-to-income ratio increase, from 24.6% in 2010 to 27.1% in 2024. Meanwhile, rent-to-income ratios for high-income renters have risen far more modestly, from 15.1% of income in 2010 to 16.6% in 2024.

Crucially, this analysis adjusts the threshold for each income tier over the observation period. In 2010, a renter household earning $30,000 would have been near the ceiling of the lower-income group, but in 2024, that ceiling is $43,200, reflecting inflation over the past 14 years.

Household Formation and Cost Burdens

Roughly half of American renters spend 30% or more of their income on rent, but cost burdens diverge sharply by income group.

84.9% of low-income renters spend at least 30% of their income on rent, up from 82.9% in 2010. Meanwhile, high-income renters remain largely insulated from rising cost pressures. The cost-burdened rate for high-income renters was just 4.4% in 2010 and has risen to 7.2% in 2024.

Interestingly, high-income households have been the fastest-growing renter cohort since the Great Financial Crisis (GFC), with the bulk of this growth occurring pre-pandemic. Between 2010 and 2019, the high-income renter population grew by 60.7%, far outpacing the middle-income tier (+11.5%), while low-income renter households contracted by 3.3% over this same nine-year period.

These trends suggest that within each income group, the relationship between increased demand and cost-burden pressures may be weaker than often assumed.

Despite low interest rates and depressed prices following the Great Financial Crisis, credit tightening and increased requirements meant that even some high-earning households faced greater barriers to homeownership, especially in high-cost coastal markets.

In turn, high-income renter households have increased; however, despite this, much of the increase in cost burden showed up further down the income stream.

The middle-income tier is where the post-pandemic shift in cost burden has been most visible. From 2010 to 2019, the share of middle-income renters who spent 30% or more of their income on rent rose modestly from 31.6% to 33.3%, then accelerated to 40.5% by 2024.

The income imbalances suggest a filtering effect occurred, in which a post-GFC, supply-constrained market increased competition for available units across the entire rent distribution. As higher-income households accepted higher rents, market-clearing prices rose while cost pressures filtered down the income ladder.

Conclusion

Rising income stratification in household formation and cost pressures post-GFC occurred alongside a decade-long decline in low-rent units, supporting the idea that affordable housing shortages have contributed to these diverging cost burdens.

According to a 2024 report by Harvard’s Joint Center for Housing Studies, between 2012 and 2022, the US lost 2.1 million units with rents under $600 when adjusted for inflation— a threshold that aligns with the cost burden threshold for households earning less than $30,000 per year.

Post-pandemic, there has been an apartment construction boom, but much of this new supply has been more amenitized and has been leased at higher price points. As a result, some old supplies have also filtered down the income ladder. However, the filtering down of supply is not occurring as quickly as the filtering in of new rental demand.