Agents: how much income do your clients spend on housing costs? For renters, the rent-to-income share is growing at an alarming pace, especially here in California.
Cost-burdened households are those who pay more than 30% of their income on housing. These households often have difficulty affording necessities such as food, clothing, transportation, and medical care, according to the U.S. Department of Housing and Urban Development’s (HUD’s) Office of Policy Development and Research (PD&R).
In August 2021, the typical U.S. renter household spent 30.3% of its income on rent, just over the 30% threshold at which a household is considered rent burdened, according to a Zillow analysis of race, rent and income. For Black and Latinx renters, the housing costs-to-income ratio is even higher.
Across the nation, as of August 2021, Black and Latinx renters spent more of their incomes on rent than white and Asian renters. The share of income spent on rent is:
- 34% for Black households;
- 32% for Latinx households;
- 29% for white households; and
- 26% for Asian households.
Unsurprisingly, renters tend to spend even more of their income on rent here in California. Across California’s major metros, Black renters are the most cost burdened.
In San Jose, the rent-to-income ratio paid by each rental household is:
- 53% for Black households;
- 36% for Latinx households;
- 34% for Asian households; and
- 25% for white households.
In San Diego, the rent-to-income ratio paid by each rental household is:
- 53% for Black households;
- 39% for Latinx households;
- 34% for white households; and
- 33% for Asian households.
In Sacramento, the rent-to-income ratio paid by each rental household is:
- 52% for Black households;
- 37% for Latinx households;
- 33% for Asian households; and
- 31% for white households.
In Riverside, the rent-to-income ratio paid by each rental household is:
- 40% for Black households;
- 36% for Latinx households;
- 36% for Asian households; and
- 34% for white households.
In Los Angeles, the rent-to-income ratio paid by each rental household is:
- 41% for Black households;
- 35% for Asian households;
- 33% for Latinx households; and
- 31% for white households.
In San Francisco, the rent-to-income ratio paid by each rental household is:
- 43% for Black households;
- 33% for Latinx households;
- 27% for Asian households; and
- 24% for white households.
This data only further emphasizes California’s ongoing housing crisis. Wages have not increased at the same rate as housing prices, and that means renters end up with less disposable income. People of color (POC) can’t even afford to rent anymore without sacrificing basic necessities.
To make ends meet, renters are forced to move in with relatives or roommates. This doesn’t just impact renters, but also real estate agents. A renter paying more than 30% of their income on rent will never be able to save up for a down payment on a house. Without a steady stream of first-time homebuyers, agents’ businesses will ultimately suffer.
The effects of redlining continue in 2021
The fact that most renters who are housing cost burdened are people of color is no surprise.
This disparity between rentals available to POC and white communities in our current housing market is the direct result of decades of racial discrimination. This includes years of institutionalized redlining from which many communities are still recovering.
Redlining is the practice of denying mortgages and under-appraising properties in minority communities based on demographics. It led to a decline in the quality and quantity of housing in majority-POC communities. Redlining essentially isolated people of color in areas that would suffer lower levels of investment than in majority-white areas. The Housing Financial Discrimination Act of 1977 outlawed the practice in California, but the effects continue today.
Redlining of POC communities also impacted factors critical to social success, including educational achievement, income, access to credit and health. Stripped of the opportunity to fairly sell and buy in the housing market, people of color were boxed into leftover areas like urban housing projects and racial ghettos where the quality of housing and resources dramatically decreased.
Unable to sell an under-appraised property, people of color were forced to sell their land for a lot cheaper or remain in poverty. Those who wanted to buy faced rejected mortgages and self-segregating homeowners who fought to keep their communities white.
As time went on, the quality and quantity of housing in POC communities decreased, and so did the value of the land. People of color were stripped of the opportunity to fairly invest in housing and acquire their own land wealth. This greatly contributed to the racial wealth gap we see today, especially in housing. This is why we see so many people of color renting now, instead of as successful, established homeowners. People of color are decades behind their white counterparts when it comes to investing and acquiring land.
The generational wealth is just not there.
Reparations are in order. California legislators have yet to address the detrimental effects of redlining. Back in 2019, then-California Senator Kamala Harris revealed a $100 billion plan to invest in Black homeownership to tackle the U.S. racial wealth gap, as detailed in CNN politics. This plan aimed to assist homebuyers who rent or live in historically redlined communities by granting up to $25,000 to assist with down payments or closing costs. However, this plan never came to fruition, proving just how far we still need to go to overcome these housing inequities.
Agents’ businesses depend on a balanced demographic of real estate participants. Brokers have a duty to advise their agents and employees of anti-discriminations rules and conduct. The broker is not only responsible for their own conduct, but also for ensuring their employees follow anti-discrimination regulations when acting as agents on their behalf.
Agents can support non-white homeownership by keeping an eye out for predatory lending and discriminatory housing practices, which both contribute to the low rate of non-white homeownership.
To learn the basics of housing discrimination or to file a complaint, visit the U.S. Department of Housing and Urban Development.
Editor’s note — Mandatory anti-bias training may soon become part of agent and brokers’ regular licensing and continuing education courses. Senate Bill 263, which requires anti-bias training as part of the required course load for real estate licensees and license applicants beginning in January 2023, is heading toward the governor’s desk at the time of this writing. Follow along for updates at firsttuesday’s Legislative Gossip page.
