Homeownership can be an important path to building wealth, but making the transition from renter to homeowner is a bigger financial challenge for renters living in mainly black or Hispanic areas, our sister publication, Research Alert, is reporting.
Across the nation, renters in predominantly black neighborhoods can expect to spend 43.7% of their income on rent, and renters in Hispanic communities can expect to spend 48.1% of their income on rent. That’s significantly higher than in white neighborhoods, where renters can expect to spend 30.7% of their income on rent, essentially in line with the standard rule of spending about 30% of income on housing.
In markets that offer the best opportunities for social mobility, paying the rent in minority communities is an even bigger financial burden, mainly due to significantly lower incomes in these communities.
In San Francisco, for example, rent in predominantly black neighborhoods requires nearly three-quarters of the median income there. In largely Hispanic neighborhoods, renters can expect to spend 62.5% of their income on monthly rent.
When housing costs consume such a significant share of income, renters often have to make financial sacrifices, like putting off saving for a down payment, medical care and planning for retirement.
“This research sheds light on another example of inequality in the housing market,” said Zillow Chief Economist Dr. Svenja Gudell. “Renters in African-American or Hispanic neighborhoods find themselves in a Catch-22 situation — while owning a home is a great way to build wealth, you need to save up some cash to be able to buy. If you’re spending close to half of your income on rent, saving up that down payment is going to be incredibly difficult.”
Rent affordability across the nation has diminished since 2011, as housing costs have outpaced income. It has worsened more in minority areas than it has in predominantly white neighborhoods.
Over the past five years, the share of household income needed to pay monthly rent in black and Hispanic neighborhoods has increased by four percentage points and seven percentage points, respectively. In white communities, the share of income needed to pay rent has increased by three percentage points.
For those who are able to save up for a down payment and buy a home, monthly mortgage payments are much more affordable than rents across racial communities.
In black communities, mortgage payments required 13.6% of the median household income. In Hispanic communities, they require 22.8% of the median income, and in white communities, 15.2%.
| Metropolitan Area | Share of income Needed to Pay Rent in White Communities, 2016 | Share of income Needed to Pay Rent in Black Communities, 2016 | Share of income Needed to Pay Rent in Hispanic Communities, 2016 |
| United States | 30.7% | 43.7% | 48.1% |
| New York/Northern New Jersey | 37.8% | 57.5% | 67.5% |
| Los Angeles-Long Beach-Anaheim, CA | 50.0% | 63.7% | 63.0% |
| Chicago, IL | 29.6% | 51.6% | 42.4% |
| Dallas-Fort Worth, TX | 30.4% | 41.1% | 39.8% |