We Are Spending More Money Than Ever On Rent

Including those of us who own our own homes.

Photo credit: Capri23Auto, CC0 Public Domain

Get ready to have your mind blown, because we’re going to look at rising rent costs for both renters and homeowners:

You already know the rent is too damn high. But here’s fresh evidence that something’s amiss in the housing market: one metric of measuring housing costs has never been so high.
Rental income as a share of gross domestic product hit an all-time high of 3.86% in the first quarter, according to government data out Friday.

This in itself should be no surprise. We’ve run so many articles on “hey, the rent is higher than it was” and “no wait, it’s even HIGHER” now that I am only going to pull one as an example:

But here’s where the data gets interesting. The “rental income” metric includes both rent, like, what we pay every month, and something called “imputed income,” which essentially means what homeowners would be paying in rent if they didn’t own their homes.

As Sam Khater, deputy chief economist for CoreLogic, explains it: this measurement captures the cost of housing by estimating how much homeowners would charge themselves to live in the residences they own.
Homeowner rental income accounts for roughly 70% of total rental income, while tenant-paid rental income makes up about 30% — very roughly approximating the homeownership rate for the country as a whole.

So. Follow along, because your mind’s going to get BLOWN: because the housing market is so high right now (pun intended, I guess) the cost of living in your own home is higher than it’s ever been, both in imputed and literal terms. The cost of renting, meanwhile, rises commensurately—because, again, homes are more expensive than ever.

This means that everyone who saves up to buy a home at a higher-than-ever cost—plus everyone who buys properties for investment and/or to rent them—makes the rent higher for the rest of us, which prevents us from being able to buy homes too!

Then the people who are living in these properties (and/or renting them) find themselves stuck because of the imputed cost of living there (plus the literal, actual mortgages), and if the property is in any way rentable, they raise the rent!

But the imputed cost of renting wouldn’t be so high if the actual cost of renting weren’t so high! If the market value of a home weren’t higher than ever, the imputed cost of living in that home after you already owned it wouldn’t be higher than ever!

Numbers are made up! The economy is a circle! My mind is SO BLOWN!

In conclusion: if you own your home, you are paying too much invisible rent on it. Also, all of us are paying more in rent than ever before—which is the same story The Billfold has been running for the past five years.