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Housing Affordability Challenges for Renters and Homeowners in the Rural Fifth District

Regional Matters
September 7, 2023

As previously discussed in this blog, homeownership affordability has been on the decline in rural communities throughout the Fifth District. The combination of elevated home prices and rising mortgage rates have made homeownership harder to achieve. But affordability challenges aren't limited to prospective homebuyers. Many existing rural homeowners and renters — especially low-to-moderate income (LMI) households — are burdened by their housing costs.

Household Income Varies by Housing Tenure…

Differences in household income by housing tenure — meaning whether a household rents, owns with a mortgage, or owns free and clear — contribute to differences in housing affordability. In the rural Fifth District, the majority (63 percent) of renters are LMI, earning less than 80 percent of the area median income (AMI). By comparison, 25 percent of owners with a mortgage and 48 percent of free-and-clear owners are LMI. (See chart below.)

Overall, in the rural Fifth District, the median homeowner with a mortgage earns 138 percent more than the median renter, while the median free-and-clear homeowner earns about 41 percent more. These differences, in part, reflect that renters and owners tend to be in different life stages. Renters tend to be younger and earlier in their careers than homeowners, while free-and-clear homeowners tend to be older and are more likely to be retired. The income differences also suggest that being low income itself is a barrier to homeownership at any stage of life, compounded by the fact that lower-income households tend to have lower savings.

In each Fifth District state, median household income for homeowners with a mortgage is more than double renters' median household income, while free-and-clear homeowners' median household income is between 34 percent and 66 percent greater than that of the median renter. (See chart below.)

…as Does Housing Cost

At the same time, monthly housing cost characteristics differ by tenure. Part of this is due to differences in the types of homes available for rent versus owner-occupancy. For instance, larger, more expensive properties are more likely to be owner-occupied than rented. The types of housing-related expenses also differ by tenure. For renters, monthly housing cost measures include rent, utility expenses, and renters insurance. For homeowners, monthly housing cost measures include mortgage payments (if applicable), utility expenses, property taxes, and homeowners insurance. (Home repair costs, while potentially sizable, are not typically included in monthly housing cost measures.)

In the rural Fifth District, the median monthly housing cost for homeowners with a mortgage is 52 percent greater than the median renter, but the median monthly housing cost for homeowners without a mortgage is 53 percent less than the median renter. Median monthly housing costs are closest for renters and homeowners with a mortgage in West Virginia and farthest apart in Maryland (homeowners with a mortgage spend 38 percent and 69 percent more, respectively). Median housing costs for free-and-clear homeowners are between 49 percent and 56 percent lower than for renters. (See chart below.)

Housing Affordability Is a Challenge for LMI Renters and Owners

Considering income and housing cost characteristics together, homeowners (both with and without a mortgage payment) are in a better position to afford their housing costs than renters in the rural Fifth District. Relative to renters, the higher median income of homeowners with a mortgage more than makes up for their higher housing costs. The median free-and-clear homeowner has higher income and lower monthly housing costs than the median renter.

It follows that renters are more likely than owners to be housing cost burdened, meaning that they spend more than 30 percent of their income on housing expenses. In the rural Fifth District, 46 percent of renters are housing cost burdened versus 25 percent of owners with a mortgage and 11 percent of owners without a mortgage. The same pattern is true in each Fifth District state: More than 40 percent of rural renters are housing cost burdened versus between 20 percent and 27 percent of homeowners with a mortgage and fewer than 15 percent of free-and-clear homeowners. South Carolina has the highest housing cost burden rates among renters and homeowners with a mortgage (48 percent and 27 percent, respectively). (See chart below.)

One of the reasons that large shares of renters are housing cost burdened is because renters are more likely to be LMI than homeowners (as previously discussed). But LMI homeowners with a mortgage are also highly likely to be housing cost burdened. In fact, within any income category, homeowners with a mortgage are somewhat more likely to be housing cost burdened than renters. (See chart below.) In other words, LMI households are most likely to face housing affordability challenges in rural communities, regardless of housing tenure.

Housing Cost Burden in Community Context

The issue of housing affordability is not unique to urban areas; rural communities are also facing affordability challenges. Regardless of whether they own or rent, rural LMI households are likely to be housing cost burdened (although middle-income households can also experience affordability challenges). With housing costs taking up a large share of a household's budget, households have less disposable income to cover other expenses, like transportation or child care, which could serve as a barrier to employment and economic mobility. In this way, high rates of housing cost burden can contribute to local labor shortages. Simultaneous declines in homeownership affordability exacerbate the problem by making it difficult for new, prospective workers to move into a community. Through our outreach, we regularly hear from rural communities that the affordability (as well as availability) of housing is essential to attracting and keeping employers and workers.

While addressing housing affordability is a priority for many rural communities, it's just one measure of how well rural housing markets are meeting the needs of the community. In a future post, we'll turn to measures of housing quality.