Homeownership costs are rising, but rent is a whole ‘nother story
By Katie Zager
Chamberofcommerce.org, a business-minded website recently published an article outlining the cities with the most “House Poor” Homeowners. They define “house poor” as synonymous with “cost burdened,” using the 30% rule. That is: a household is considered cost-burdened if they spend more than 30% of their income on housing and housing-related expenses, such as insurance and utilities.
The top five cities with the most “house poor” homeowners were: Hialeah, FL; Los Angeles, New York, Miami, and Hollywood, FL. The top 10 include more cities in California and Florida, along with Honolulu, Hawaii. Rates of house-poor homeowners ranged from 44% to 59%. 1
The article goes on to highlight cities with the most “budget-minded” homeowners – places where more homeowners are spending a smaller share of their budget on housing. On this list, Charlotte ranks 15, with 54.5% of homeowners spending less than 20% of their income on housing.
However, as with many of these headline-grabbing articles, there is much more to the story.
Let’s re-think the 30% rule
The most common measure of cost-burden is when a household spends more than 30% of its gross income on housing costs such as rent or mortgage payments, utilities, insurance, taxes etc. It is assumed that the remaining 70% of gross income is enough to cover all other living expenses, such as transportation, healthcare, childcare and food.
Yet a recent Harvard study, summarized by Mary Ann Priester on mecklenburghousingdata.org, makes the argument that the 30% rule isn’t sufficient for understanding how housing costs impact a household budget. We need to think about residual cost burden. Priester says that “instead of evaluating the percentage of monthly income spent on housing costs, it asks how much money a household has left to cover essential needs after paying for housing costs. If a household does not have enough income remaining to cover its basic needs, it is considered residually cost-burdened.”
That means a four-person household making $3,300 per month, and spending $1,000 each month on housing costs would not be considered cost burdened using the 30% rule. However, the household would only have $2,300 (gross) to cover all other living costs, which might be difficult to do. Framing it this way, according to the Harvard study, 65% of households nationally are cost burdened, compared to 50% of households using only the 30% rule.
Conversely, when looking at very high income areas, the 30% rule might overstate cost burden, particularly when looking at homeownership. A four-person household with an income of $20,000 a month could spend 50% of their income on housing, and still have $10,000 every month to cover all other expenses. Although the Census does not have data on cost-burden among very high income households, the effect of this is likely small.
The concept of residual cost burden, combined with an understanding of the affordability and availability of other goods and services in an area can provide a much more nuanced understanding of how over-extended households really are.
The costs of homeownership are increasing
The Chamber of Commerce article frames residents in specific cities as people who consciously over or under-spent when purchasing their home. However, people everywhere are facing an increasing number of constraints and costs when it comes to homeownership.
According to the American Community Survey, the median monthly homeownership costs nationally increased 3.8% between 2023 and 2024, up from 3% the year prior. This is in line with overall inflation, according to the Consumer Price Index. Far outpacing inflation, however, has been increases in the cost of property insurance, which went up 5.3% between 2023 and 2024. Price increases were especially sharp for larger homes, increasing around 9% for homes with four or more bedrooms.
The data from the Chamber of Commerce shows two things happening:
- In places like New York, Los Angeles and Hawaii, the cost of housing is just really high. According to the American Community Survey, California, Hawaii and New York are in the top six states for monthly costs of homes with a mortgage. The high cost of housing in these places has remained fairly consistent over time.
- Monthly ownership costs are increasing fastest in the Southeastern United States, especially Florida. Monthly ownership costs in Florida increased at a rate of 8% for the past 3 years. Other states in the Southeast, including North Carolina where costs are up 7.6%, have also seen large increases over the past year. Cities in the Southeast, and especially in Florida, also have higher percentages of homes subject to homeowners associations and the fees that go along with that. In North Carolina, about 29% of households pay HOA fees, compared to 25% nationally.
Overall, the “hidden” costs and fees of homeownership, such as home insurance and especially home insurance on larger homes, are increasing at a higher rate (5.7% vs. 2.7%) than rents.
Cost burden among homeowners pales in comparison to cost burden among renters
Despite increasing fees and costs, most homeowners seem to have their housing costs under control, especially the 25% of households nationally that do not have a mortgage.
Using the traditional 30% rule, the 2023 American Community Survey gives us some additional insight into housing affordability.
Nationally, 49.7%, or nearly half, of renters are considered cost-burdened, and even places with the highest rates of homeowner cost burden, have even higher rates of renter cost burden. In Hialeah, FL, where 59% of owners are cost-burdened, 63% of renters are. In Charlotte, the rate is in line with the nation as a whole, with 49.6% or renters being cost-burdened. As mentioned above, this figure likely undercounts the true burden of housing costs, especially among lower-income renters.
What’s happening in Charlotte?
Homeowners in Charlotte seem to be doing relatively well, despite the increasing costs of homeownership. Renters however, face a significant burden, just as they do in many U.S. cities.
It is possible that the robust rental market in Charlotte, combined with the increasing costs of new housing construction (including associated costs), means that it is easier for lower-income households to be funneled into the rental market. We would also see an especially large gap in household incomes between renter and owner households – which is exactly the case for the Queen City.
In Charlotte, owners have a median household income of $110,719, compared to $59,506 for renter households – that is owners earn, on average, 1.87 times as much as renter households. This however, is not significantly different from the gap among households in the United States as a whole, where owners earn 1.85 times as much as renters.
The places where homeowners are struggling the most with housing affordability appear to be places where longtime residents might be struggling with increasing costs. In places like Charlotte, and the U.S. more broadly, a more mobile and higher income population can more easily absorb the costs associated with homeownership, at least for the time being. However, renters everywhere are struggling, despite slower growth in rental costs.
Renters already live on about half the income of an owner household and, whether you are looking at the 30% rule, residual housing costs, or both, that $40,000-$50,000 makes a huge difference in covering everyday expenses.
Homeowners in Charlotte aren’t necessarily more prudent than homeowners in any other U.S. city, but rather factors specific to each city and region impact the costs of housing and the burden households feel as a result of that cost. But here…:
- Robust construction in Charlotte helps keep housing relatively affordable compared to places like New York City or Los Angeles. Although the number of cost-burdened households means supply is still insufficient, particularly for lower-income households.
- The cost of homeownership is increasing, especially in the Southeast. This is something to keep an eye on in Charlotte, and especially North Carolina more broadly.
- Lower incomes among renters, and the high costs of housing and other goods and services, means that, at least in Charlotte, these households are being squeezed the most – something that residual cost burden can help us understand better.
Any article that purports to rank cities and their residents on a scale of “good” or “bad” is missing a lot of nuance. It never hurts to take a deeper look at the data to see how your city really compares.
References
1 American Community Survey, 1-year estimate, 2023