Real Estate Realities for Renters by Paulie Sabol

The Ticking Time Bomb of Financial Serfdom for Wage Slave Tenants:

Could appreciation, inflation, and joblessness (or simple underemployment) be leading to a complex housing crisis?

According to the article above, mathematically, a full-time, minimum wage earner cannot afford the rent and utilities of a 1- or 2-bedroom flat.

For a two-bedroom rental alone, the typical worker must earn at least $15.37 an hour - nearly three times the federal minimum wage, the National Low Income Housing Coalition said in its annual "Out of Reach'' report.

The methodology they show online uses a 30 percent of gross income rent and utility calculation. These numbers are close to the housing ratio suggested by SmartMoney.com. However, typically the housing ratio is defined as a "PITI" (Principal Interest Taxes and Insurance) cap. So could 2% of income go to utilities? (Here's a report on the impact of utility pricing on HUD Sec-8 rent subsidy programs from a law and economic consulting firm.) It seems, the most aggressive metrics allow these expenses to be as much as 35% of gross income. Conclusion: The report is fair with the numbers.

The median hourly wage in the United States is about $14, and more than one-quarter of the population earns less than $10 an hour, the report said.

The median wage is the wage at which 50% of the people earn it or less and 50% of the people earn it or greater. So, ignoring the 2-7% income shift factor for utilities, this suggests that as many as 50% of the people of America singles don't earn enough to rent (much less own?) homes. And, as many as, 25% of American couples lack sufficient funds to be comfortable tenants.

The wage calculation claims to be "hourly wage earners" so it also includes part time workers, minor children, and some other low level biasing data. However, despite any weighting to the data, the University of Minnesota agrees.

The report quoted federal Bureau of Labor Statistics data that showed hourly wages rising about 2.6 percent over the past year, slower than the 2.9 percent rise in rents recorded in the Consumer Price Index.

I do question the validity of national data in this case. Why? Because in general the last 4-8 years have been hard for rentals with improvement being relatively recent. The "rental gap" (The difference in the cost between renting and owning) has falling and many people joined the ranks of home owners in the environment of easy borrowing.

The real challenge is how to devise and economic model with the fewest variables so real estate investors, landlords, etc. can provide solid, secure housing to 100% of the people who wish to rent and are employed full time.

There is an opportunity here. And it will do good to do well with it.