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Renters Are Being Penalized in Major Cities

01/13/2016

Although certain cities, like Memphis, Raleigh, and Jacksonville, are often hailed as being affordable places to live for renters, this may not be the case. Credit.com recently analyzed several markets in the United States consisting of the highest and lowest rates for housing-poor residents, or described residents who spend over 30 percent of income specifically on housing.

From the examination, a list of the top and bottom 10 cities for housing poor residents was created. At the top of the list, cities housing the most housing-poor residents were Miami, New York, and Los Angeles, which was not surprising. Other cities listed were Columbus, Buffalo, and Raleigh.

Considering Other Factors

While this seems pretty straightforward, you need to consider other factors. For instance, included in the analysis was information on the number of housing-poor residents who are renters versus homeowners. When focusing on renters in particular, some of the cities ranking as “affordable” were actually more expensive than what was initially thought.

For the cities studied, experts found that renters were more likely to be housing-poor than homeowners. This was expected, since some homeowners have already paid off mortgages, and for those still paying, the amount of payments essentially goes down. Therefore, spending a large portion of income on housing is unlikely.

You need to consider the discrepancy between renters and homeowners considered to be housing-poor. The gap between the two is what experts refer to as the “rental penalty.” Interestingly, if you live in a city with a large penalty, chances are good that your finances are seriously stressed if you are a renter as opposed to a homeowner.

Rochester, New York had the highest rental penalty, where housing-poor residents were comprised of just 22 percent homeowners compared to a whopping 54 percent renters. Raleigh, North Carolina is another prime example, with 19.8 percent of housing-poor residents being homeowners and 48.1 percent renters.

What Causes Rental Penalty

Rental penalty consists of several factors. As an example, markets with long-term residents will have fewer households dealing with cost burdens, since homes were purchased years ago and among those, many are now paid off. In addition, for markets that are generally expensive, renting is relatively common among middle- to higher-income households.

In addition, investors are buying a large volume of homes to be used as rental properties in certain markets, which puts price pressure on renters and first-time homeowners. For instance, investors are flocking to Jacksonville and Raleigh, where they can buy homes for a reasonably low price and charge high rent.

High Rental Penalty Cities

Cities ranking the highest for rental penalty include the following:

  • Orlando and Kissimmee, Florida

  • Detroit, Dearborn, and Warren, Michigan

  • Cleveland and Elyria, Ohio

  • Buffalo, Niagara Falls, and Cheektowaga, New York

  • Memphis, Tennessee

  • New Orleans and Metairie, Louisiana

  • Raleigh, North Carolina

  • Jacksonville, Florida

  • Indianapolis, Anderson, and Carmel, Indiana

  • Rochester, New York

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