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Bled dry by high rents

The rule of thumb for housing affordability is to keep rent payments to below one-third of income. Unfortunately, a growing number of U.S. households are going far beyond that measure.

More than one out of four renter households, or 11.2 million, are spending a whopping 50 percent of their income on paying the landlord, a level that severely crimps their ability to pay for other goods and services, according to a new report from Harvard's Joint Center for Housing Studies and Enterprise Community Partners, a national affordable housing and community development organization. If rents and incomes continue along the same pace, the situation will grow only more dire: The number of severely rent-burdened households would rise to 13.1 million within the next decade.

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The past decade has been devastating for many renters, thanks to stagnating income combined with a tight housing market, which has pushed rents relentlessly upwards. The median rent of a newly constructed apartment in 2013 stood at $1,290, or about half of a typical renter's monthly income, which underscores the need for more affordable housing across all income levels, the report noted.

"Something that's this pervasive is going to affect everybody," said Daniel McCue, senior research associate at the Harvard center. Severely burdened renters "can't dedicate their money, time and effort to other means, whether starting a new business or coming up with new innovations. That has an impact of slowing things down in terms of the economy."

Those renters have to make tough choices on what to spend their money on and are forced to cut back on food, health care and savings, he added.

The families most likely to have rent payments that take up a majority of their paychecks tend to be minorities, as well as single-parent families. Black households account for 26 percent of the severely rent-burdened, while Hispanics represent another 23 percent. White households make up about 14 percent, with Asians and other minorities accounting for the rest.

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"The past 10 years were when the major changes happened," McCue said. "Over the decades, we had seen that the incomes of renters and rents generally went up and down together. But starting in 2000, we saw rent prices continue to go up, but renter incomes went down through the recession of early 2000 and continued to go down in the mid-2000s, and really took a hit in the recession."

The recession packed a double whammy, given that declining incomes was compounded by a tighter credit market, making it more difficult for potential homebuyers to secure loans. That pushed up the number of renters in the intervening years.

Lower-income households aren't the only ones grappling with affordability issues, the report noted. In cities with a high cost of living, so are about half of renters earning between $45,000 to $75,000 annually.

Unfortunately, the Harvard center isn't forecasting much improvement, calling the landscape "a fairly bleak picture" for the coming decade. Even if annual income growth exceeds annual rent growth by 1 percent, the number of severely rent-burdened households will decrease by only about 170,000.

It's more likely that rents will continue to rise faster than incomes, which means 1.7 million to 3 million additional households will be spending more than half their income on rent within a decade, the researchers said.

What's the solution? Helping Americans build higher incomes, increasing the types and variety of new housing constructed across the country, and preserving affordable units, McCue noted.

"If things continue the way they are now," McCue added, "attaching the same incomes and rents to the same categories of people, our expected population growth will result in a really large headwind in the fight against housing burdens."

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