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It's Not Just the Poor Who Can't Make Rent

Image: A "For Rent" sign stands in front of a house

A "For Rent" sign stands in front of a house on May 31, 2011 in Chicago, Illinois. Scott Olson / Getty Images file

It's not just low-income Americans who struggle to pay their rent every month, or find an affordable place to live when they move. New research from Harvard says that even renters with annual incomes of $45,000 face unaffordable rents in many cities, with potentially far-reaching effects.

"It's moving up the income ladder," said Chris Herbert, Managing Director of the Joint Center For Housing Studies at Harvard. The group found that roughly half of families who earn between $30,000 and just under $45,000 a year and rent spend more than 30 percent of what they make on rent.

For the first time ever, most US renters are older than 40 0:27

The financial situation of these renters isn't as dire than their low-income counterparts: Last year, more than four out of five renters earning less than $15,000 spent more than 30 percent of their income on rent, and nearly three quarters spent half their income on rent.

For these families, the choice is often stark: Buy food or medicine, or pay the rent.

Related: Study says most American's now aren't middle-class

This is less likely to be the case for families in the middle, but the cutbacks they have to make are more likely to hurt the broader economy or threaten their financial security in retirement.

"It still means they have to cut back on a variety of things... If you're spending 30% or more on your income on housing you have less to spend," Herbert said. "I think there's a spillover on other parts of the economy."

This situation is the result of a perfect storm of growing rental demand, especially from wealthier families, a shrinking pool of moderately-priced rentals and stagnant wages that haven't kept up with rent inflation, which is rising faster today than it has in 30 years.

A swelling rental population brings growing demand, but developers are mostly targeting only the top of the income spectrum, Herbert said.

"Profit opportunities will be greater at the higher end of the market," he said.

While the median rental last year was $934, only 10 percent of new rentals in multi-family buildings coming onto the market have rates of $850 or less, while more than a third are $1,650 or higher.

Although Herbert said there could be some relief for middle-income renters once developers saturate the market for pricey properties, in the meantime, they're stuck. With a growing percentage of their money going towards rent, they have less opportunity to save for a down payment, putting them at the mercy of the rental market for even longer.

They're also less able to save for retirement, which means that any advances into homeownership they do make could be in jeopardy once they reach their senior years.

But in the more near term, it's the drag higher rents put on the discretionary spending of these families that has the potential to cause the most economic heartburn.

"It does stand to reason that if you're paying that much for rent, you have much less to spend on everything else," Herbert said. "Eating out, clothes, cars... it will have a tailwind for other parts of the economy."