Rent Taking Bite Out of Americans' Slow-Growing Disposable Income

According to a short piece in the National Real Estate Investor (NREI),  the third quarter this year showed that a large chunk of Americans' disposable income went to rent – this share hitting 3.81%, the peak number for this data in over sixty years. NREI says that during the current economic expansion that “rising shelter costs” have accounted for most of of the inflation. While some of this is due, in fact, to falling home ownership (and increasing rental), the price index for tenant-occupied housing rose by 3.7% through September making it nearly the fastest rise seen in ten years. Why is rent currently taking such a piece out of the renter's discretionary cash? We've covered that previously, and the NREI article answers it, too...

Although the economic growth is slow-but-steady, wages have all but frozen for many workers, especially in lower income brackets. Country wide, disposable personal income was up in September, but only by about 2.9% compared to the previous year. This meant that disposable income grew slower than the rental rate – and for the 22nd straight month according to the NREI article.

calculator.jpeg

Ultimately, in order to have disposable income and to effectively adjust rents, overall personal income has to increase and according to a recent report on The Pew Charitable Trusts online, although the country has seen all personal incomes rise to pre-recession levels that growth is varied and slow. Since the beginning of the Great Recession, the national growth of personal income has been slower than the historical pace. In ten states, personal income even dropped for the year that saw the end of the second quarter in 2017. A persistent weakness in the country's farming industry was one factor, as were issues in the industries of construction, management, and information distribution for example. Indiana saw modest personal-income growth at 1.7% since the start of the Recession.

Yet, as we've previously noted in articles, companies like Target leading the way with a minimum wage increase may begin to increase overall disposable income and allow for more comfortable rental changes. The current thinking is that once Target and other large companies begin to adjust their minimum wage in order to attract and maintain talented workers, other companies will follow suit. A factor like higher minimum wage will allow for greater disposable income and will possibly break the 22-month streak of the slow-growing income vs the faster growing rental rate.

Elizabeth Wheeler