It’s not news that both income inequality and rents have hit record highs, especially in expensive superstar cities and leading tech hubs. But to what extent do income inequality and rising rents go together?
This is the subject of a new study published in the journal Urban Studies. The study analyzes the rise of both income inequality and rental burdens in America’s largest metros, and documents how they work in tandem to hit low-income households the hardest—thus exacerbating the growing gap between America’s geographic clusters of the advantaged and disadvantaged.
To do this, the study’s author, Hongwei Dong, tracks the connection between inequality and rents in the 100 largest US metros, which account for roughly two-thirds of America’s population. Dong, who is an associate professor of Urban Planning and Geography at California State University, Fresno, zeroes in on the association between 507 counties within these metros, comparing data in the year 2000 with that between 2008-2012—the time when inequality skyrocketed and back-to-the-city movements hit high gear.
The study measures income inequality using the conventional measure of the Gini Coefficient. It measures rent burdens by the amount of income a household spends on rent. It defines as “severely rent burdened” those low income households which earn less than 80 percent of the local median income, comparing detailed data from HUD’s Comprehensive Housing Affordability database to data from the American Community Survey.
Using these measurements, the study finds a close connection between inequality and rent burdens for the low-income households in America’s largest cities. Take a look at the two scatter-graphs from the study (below), which depict the associations between the two. The first image compares inequality, measured by the Gini Coefficient, to the share low-income households with severe rent burdens. The red line shows the share of rent burdened households in 2000 and the blue represents rent burdened households in 2008-2012. Both lines track upward, showing the positive association between inequality and rent burdens. As income inequality rises, so too do the rent burdens of low income households.
The second graph tracks the association between the change in income inequality and the change in the share of rent burdened households between 2000 and 2008–2012. Here again the line slopes upward showing the positive association between the two. As income inequality rises across counties in large metro areas, so too does the share of low income households facing sever rent burdens.
To get at the broader connection between inequality and rental burdens, the study uses a statistical technique called Principal Components Analysis to correct for the association between the two, while controlling for factors such as poverty, unemployment, race, ethnicity, and other variables which also effect inequality and rent burdens as well as being correlated with one another.
Ultimately, the study finds that counties with higher levels of income inequality tend to have worse rental burdens. All else being equal, for every 0.1 increase in the Gini Coefficient, counties also experienced a 2.2 percent increase in rent burdened households in 2000. In the period between 2008 and 2012, these counties experienced an even higher 4.4 percent increase.
It also finds a causal relationship: A greater increase in income inequality leads to faster growth of rental burden.
This is not to say that income inequality is the only factor leading to very high rent burdens. Inequality is at its greatest in affluent counties. Manhattan (New York County) has the highest inequality of the 507 counties we studied. With a Gini Coefficient of 0.6, it is on par with some of the most unequal places on earth.
But rent burdens are at their highest in poorer counties. According to the study, the most rent burdened county in America is not an expensive area in New York or the Bay Area. Instead it is Orange County, Florida, which is just west of the coast, and includes destination hotspots like Orlando. Here, a whopping 53 percent of low-income households spent more than half of their income on rent. Indeed, 44 percent of low-income households in the state of Florida spent more than half of their incomes on rent in 2008-2012, making it tied with California as the most rent-burdened state in the nation.
Overall, however, income inequality has been associated with increased rent burdens. And both are growing together. The level of inequality in America for both market income and disposable income, is greater today than at any point in the past 40 years. And the study finds a steep increase in rent burdens over the period analyzed. In 2000, slightly less than a quarter (24 percent) of the low-income households in these 507 counties spent more than half their income on rent. By 2012, more than a third (35 percent) did—an increase of 11 percentage points.
As income inequality and rental burdens rise together, America’s low-income households suffer the most. This data sheds new light on yet another force exacerbating the gap between the rich and the poor in this country.