Who won’t be paying the rent next month? Half of US tenants can’t afford to pay their rent, CNN reported on January 24. Not surprising since the median rents have increased 30.5 percent since 2019, up $309, according to Zillow. Even though eviction filings have increased 50 percent from their pre-pandemic rates most tenants will get their rent paid. In some cities eviction rates have climbed even higher.
The Joint Center for Housing Studies at Harvard University reports renters’ incomes rose just two percent during that same period. That affects households earning less than $30,000 a year more than any other income group; they account for almost 32 million households, 25.28 percent, or about one in four of the population according to Statista.com. Their “all-time low median residual income of just $310 per month in 2022,” represents a drop of 47 percent from 2001 after adjusting for inflation. But that’s misleading. The actual situation when we add in credit card, car, and student loan payments finds people underwater. More about that in a minute.
Most tenants do find a way to pay the rent even though they don’t have the actual cash in the bank. They use their credit cards and/or do without some things. The first option, credit cards, has resulted in a record $1.129 trillion in credit card debt, reports Lending Tree, $273 billion higher than the fourth quarter of 2021with the average of 21.5 percent interest up from 11.8 percent in Feb. 2014, just 10 years ago. That can only work for so long until the credit cards are cut off for nonpayment or because they are maxxed out. Many of them have already met that fate, the average credit card bill of $430 either goes unpaid or some other bill goes wanting. As of Feb. 5, 2.98 percent of people were at least 30 days delinquent on credit card debt.
And that’s just credit cards. Car payments data are worse. Fitch as cited by Forbes Advisor Oct. 25, 2023 reports that car payments at least 60 days delinquent make of 6.11 percent of subprime borrowers, those people with FICO scores below 660 and often earning less than $30,000 a year. As we would expect, lower-income people show the worst delinquency rates. They start out with the double whammy of having to pay up to 21.35 percent interest to not having the money to make the payments on that loan. The average car payment for a used car is $530 a month.
Add to that student loans. US News on Dec. 15, 2023 reported that the average student loan payment ranges between $200 and $299 a month. That may have been the deciding factor for many people putting them in a position where they have to choose who gets paid and who has to wait.
For example, someone earning $30,000 a year makes $2500 a month gross, not factoring in tax and FICA deductions. With a student loan, credit card payment, and car payment, they start every month $496 in the hole. They haven’t paid the rent and don’t have the money to. And food? They have to use a credit card for that. Their credit cards may be delinquent, their car payment may be 60 days delinquent, and their student loan may have no hope of being paid, and they still don’t have the money to pay the rent. It gets only slightly better for people earning $40,000 a year or $3333 a month. They will have $37.00 left over if they all their bills. Not near enough to pay the rent much less buy food.
Even households earning $50,000 a year, or $4167 a month, have only $1241 left over for food with rent average rents in the US far more than that. The Rent Report from Rent.com found that the median rent on Dec. 7, 2023 was $1967, more than any tenant earning up to $50,000 a year would be able to pay after making student loan, credit card, and car payments.
“Think about a consumer that makes $50,000 a year,” John Green of Discover cards said last December at an investor conference. “When inflation outpaces your wage growth, they’re making choices in terms of what they’re going to spend, what bill they’re going to pay and what they’re going to frankly put on the table.”
Not everyone has student loans or car payments of the median amounts or even at all. Those figures are middle case, not worst case because they are medians, which means half the people’s payments are more and half less. The problem persists, though. Budging room is small to nonexistent for households earning $30,000 or less per year. They will have to decide what bills to pay and what bills to “put on the table.”
Many renters have put the rent bill “on the table,” hoping their landlords will let it slide this month and maybe next month, too, before they find the eviction notice nailed to their door. Not every landlord lets the rent slide but insists on prompt and complete rent payments every month. In this rental market with the current shortage of housing, losing a tenant for nonpayment of rent is no big deal for a rental owner. Finding another one far more qualified is easy.
While evictions in this rental market are no immediate problem for rental owners. The problem persists with houseless tenants who either have to move in with someone else such as parents, family, or friends, or are out on the street unable to find any place that will take them in.
Even if they do find somewhere to stay, their bills, as much or little as they may be, keep coming. If they don’t make their car payments, they will lose their cars and may not be able to get to work. Thus they’ll be out of a home and out of a job, unable to pay any bills.
Rental owners find themselves better off income-wise than they have been for several years with the end of the pandemic-created eviction moratoriums and their having to eat their mortgage and insurance payments because of lack of rent. But you can’t do just one thing. Every action has consequences, many unpredictable. What we can predict with some certainty are government plans for rent control and for preventing rental owners and managers from considering tenant histories and incomes in tenant selection. Some of those are already in the works in cities and states.
