Moody’s Analytics: Spending 30% of Income on Rent is the New Normal

New York, May 16, 2023 – Cost-of-living concerns are top of mind amongst Americans while rent-to-income ratios (RTI) remained elevated in Q1, according to Moody’s Analytics US State of Rent Burden report and data interactive tool. While seasonal slowness and rising multifamily inventory moderated rent growth, the number of US primary metros still experiencing higher rent burdens plummeted from 49 metros down to only five, a 91% drop from Q4 2022 to Q1 2023. RTI – the percentage of gross income a median-income tenant pays for the average monthly rent – finally cooled at the beginning of 2023 after more than three years of steepening rates nationwide.

“The fever is finally breaking for the housing and rental markets. Since Q4 2019, 82% of metros had higher rent-burdens compared to pre-COVID because rent disproportionately rose faster than incomes,” wrote Lu Chen, Senior Economist, and Mary Le, Economist, Moody’s Analytics. “Rising mortgage rates caused many households to be priced out from homebuying and would-be buyers to remain renters. Apartment demand surged as a result and drove rates sky high. In the first quarter of 2023, a glimmer of hope finally emerged. The vast majority (91%) of all metros finally caught a break from growing rent burdens, as rent growth moderated or even declined given affordability pressures and slowing migration. However, we are not quite at an inflection point yet.”

Even with this near-term relief, the cost of shelter remains significantly elevated relative to wages when compared to past decades. In 1999, just one metro was rent-burdened: New York City, with the median NYC household allocating 53.5% of their income to the average-priced apartment. Today, seven US metros fall within this designation: NYC (now 66.9% RTI), Miami (42%), Fort Lauderdale (36.8%), Los Angeles (34.7%), Palm Beach (34.2%), Northern New Jersey (33%), and Boston (32.8%).

The COVID-19 pandemic period only exacerbated this growing issue. New York City’s RTI increased 8.4% between Q4 2019 – the quarter before the first COVID lockdowns went into effect – and Q1 2023. Many other metros followed suit, forcing several to become “rent-burdened”, meaning the typical household pays 30% or more of their income to rent each month. In Q4 2022, the US became “rent-burdened” nationwide for the first time in nearly 25 years of Moody’s Analytics tracking history.

“As wage growth trails behind the cost of shelter, Americans are feeling financially distressed,” continued Chen and Le. “With rent growth projected to hover around 2% annually, national RTI will stay mostly flat for the year (29.7%), slightly below 30% rent-burdened threshold. That is still uncomfortably elevated and only trailing behind last year’s broken record.”

Other notable findings from the report:

The top 10 RTI metros held steady: New York City, Miami, Fort Lauderdale, Los Angeles, Palm Beach, Northern New Jersey, Boston, Tampa-St. Petersburg, San Francisco, and Orlando.

The Northeast led the pack in rent-burden declines, attributed to a larger-than-average drop in multifamily rent in the Northeast this quarter, although its YoY rent growth still led the charge.

The Southwest is the only US region that thwarted higher rent-burdens over the past year. Texas, Arkansas, and Oklahoma metros are relatively more affordable than many metros in other regions. Ample land to build and a cooling of the single-family housing market pose challenges to the multifamily sector’s supply and demand and affected the region’s rent performance. On the flip side, income growth in the Southwest surpassed other regions over the past year, helping ease the rent burden.

Established tech metros are under pressure. Cities like San Francisco, Austin, and Raleigh are challenged by tech sector volatility and layoffs, elevated rent, and exacerbated rent burdens. Low-income families were rent-burdened in 76% (60 of 79) primary metros before COVID. The number increased to 87% (69 of 79) in 2022 and 92% (73 of 79) now.

For the top 20 metros which are least affordable for low-income families, those who earn just half of the metro’s median income have to work an extra 19-56 hours every week to afford rent at the lower quartile of the metro’s rent distribution. 

About Moody’s Analytics
Moody’s Analytics provides financial intelligence and analytical tools to help business leaders make better, faster decisions. Our deep risk expertise, expansive information resources, and innovative application of technology help our clients confidently navigate an evolving marketplace. We are known for our industry-leading and award-winning solutions, made up of research, data, software, and professional services, assembled to deliver a seamless customer experience. We create confidence in thousands of organizations worldwide, with our commitment to excellence, open mindset approach, and focus on meeting customer needs. For more information about Moody’s Analytics, visit our website or connect with us on Twitter and LinkedIn.

Moody's Analytics, Inc. is a subsidiary of Moody's Corporation (NYSE: MCO). With approximately 14,000 employees in more than 40 countries, Moody’s combines international presence with local expertise and over a century of experience in financial markets. 

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