For most people, housing is their biggest expense – experts recommend spending no more than 30 percent of your income on a mortgage or rent.
However, the JCHS study shows a large percentage of American households surpass this guideline. Because of unaffordable housing, they have less money to spend on other essentials, putting them in difficult financial situations.
Here’s a breakdown of the research — and what you can do to improve your finances if you’re spending too much on housing costs.
In Harvard’s State of the Nation’s Housing 2017 report, researchers found that one-third of households are cost-burdened, meaning they spend over 30 percent of their incomes on housing. The number of cost-burdened households has doubled since 2001. Even worse, approximately 19 million Americans spend 50 percent or more on housing.
The increase of unaffordable housing is due to several different factors. For one, house prices rose 5.6 percent since 2016. But there’s also a lack of inventory on the market, especially for smaller, lower-cost homes. Between 2004 and 2015, completions of single-family homes under 1,800 square feet dropped from 500,000 units to just 136,000.
For renters, the issue becomes even more difficult.
“The problem is most acute for renters,” said Chris Herbert, JCHS’s managing director, in a press release. “More than 11 million renter households paid more than half their incomes for housing in 2015, leaving little room to pay for life’s other necessities.”
The nationwide rental vacancy rate dropped for the seventh year in a row. While that’s good news for landlords, it hurts renters. With such a low vacancy rate, there is increased demand for fewer units, so landlords can raise rental prices.
Impact of unaffordable housing
When so much of your paycheck goes towards a place to sleep at night, you have to reduce spending in other areas to make ends meet.
Some households are forced to lower essential costs like medical care, groceries, or utilities. This strategy can be especially harmful in homes with children.
Nearly 25 million children live in households dealing with a housing cost-burden. To afford a roof over their heads, families may cut back on the quantity or quality of food they purchase, stunting their children’s health and development.
Other families end up forgoing retirement or emergency funds. And for families with student loans, spending so much on housing can mean falling behind on payments and risking default.
Any of these scenarios can have long-lasting consequences and can hurt you for years to come.
Can you afford a house?
In a competitive housing and rental market, finding a home you can afford within the 30 percent threshold can be difficult. Here are five tips that may help:
1. Find a roommate
While it might not be the most appealing option, finding a roommate can dramatically reduce your housing costs. Real estate website Trulia found renters save 13 percent of their income, on average, by adding a roommate to their home. In high-cost areas such as New York or San Francisco, you could save hundreds or even thousands each month.
Beyond your savings on rent, a roommate could also help you cut down on other expenses, including utilities, internet, or household supplies. If you and your roommate can come up with a schedule, you can also cut down on groceries by meal-planning and cooking together.
2. Rent out a room on AirBnB
If a full-time roommate isn’t for you, consider renting out a room (or even just your couch) for a couple of nights a month on AirBnB. Cost-conscious travelers book rooms on the app as an alternative to hotels.
Renting out a room for just a few nights can help increase your cash flow and offset your housing costs, giving you more wiggle room in your budget.
3. Launch a side hustle
If you have a roommate already or have cut back your expenses as far as you can, increasing your income is key to improving your housing situation. If a raise at your full-time job isn’t in the cards, starting a side gig can be a huge help. You can work on your own schedule when you need the money. On average, people with side hustles make $500 a month.
4. Sign up for an income-driven repayment plan
If you have federal student loans and are struggling to keep up with both your housing payments and your loan bill, one option to consider is an income-driven repayment (IDR) plan.
Under an IDR plan, the government caps your payment at a percentage of your discretionary income, reducing your payments.
5. Refinance your loans
If you have high-interest private loans, another option is to refinance your loans to increase your cash flow. By refinancing, you could get a lower interest rate or extend your repayment term, lowering your monthly bill.
The JCHS report highlights how unaffordable housing can affect people in many different ways. If you are thinking about buying a home or renting a new apartment, make sure you understand why it’s so important to stay within the affordable range to protect your long-term finances.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.47% APR (with Auto Pay) to 7.59% APR (with Auto Pay). Variable rate loan rates range from 2.27% APR (with Auto Pay) to 6.89% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of August 15, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/15/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.37% effective July 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.27% – 6.89%1||Undergrad & Graduate|
|2.27% – 7.55%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.24% – 6.67%4||Undergrad & Graduate|
|2.37% – 7.95%5||Undergrad & Graduate|
|2.46% – 9.24%6||Undergrad & Graduate|