Middle-class Americans who have felt that they are losing ground financially need to know that it has not been their imagination.
The Pew Research Center reports that the U.S. middle class has shrunk so much since 1971 that this year it no longer is the nation’s economic majority. The analysis of U.S. census and Federal Reserve data shows that 120.8 million adults, or 49.8 percent, were in middle-class households, compared with 121.3 million Americans who filled the combined ranks of lower- and upper-income households.
In 1971, 61 percent of the U.S. adult population lived solidly in the middle class.
Just as disturbing is another report showing that 51 percent of people in rental housing are now older than 40. That’s up from 47 percent in 2005 and 43 percent in 1995, a Harvard University Joint Center for Housing Studies analysis of census data shows.
Homeownership peaked in 2004 and then was hit hard during the Great Recession, as 8 million foreclosures evicted many people from that part of the American dream.
“By income, the largest increase in renters — 4 million — was among households earning less than $25,000 annually, both because low-income households are much more likely to rent and because their numbers had swelled following the recession,” the housing studies report said.
Rental housing responded to the increase in demand, adding 8.2 million units from 2005 to 2015. A similar expansion has occurred in Kansas City, with old office buildings downtown being converted to rental housing and new complexes opening in the River Market, downtown, the Crossroads and midtown.
But the rents generally are high, hitting $1,372 last year, a 26 percent increase from 2012 “and well above what the typical renter could afford under the 30-percent-of-income standard,” the housing studies report noted.
The 25-story, $80 million, 315-unit One Light apartment tower at 50 E. 13th St. downtown had its opening celebration this week. One- and two-bedroom apartments rent for $1,500 to $2,250 a month. Units on the top two floors rent for $3,000 to $3,750 a month.
That’s catering to upper-income earners. The Pew Research Center report shows they can afford it.
“Fully 49 percent of U.S. aggregate income went to upper-income households in 2014, up 29 percent in 1970,” the Pew report notes.
Middle-income Americans are those whose annual household earnings are two-thirds to double the national median of $42,000 to $126,000 annually in 2014 dollars for a household of three, the Pew study notes. In 2014, the upper-middle income households with three people got by on $126,000 to $188,000 and the highest-income household lived on more than $188,000.
“Upper-income families more than doubled their wealth from 1983 to 2007 as it climbed from $323,402 to $729,980,” the report said. “Despite losses during the recession, those families recovered somewhat since 2010 and had a median wealth of $650,074 in 2013, about double their wealth in 1983.”
Middle-income earners have not been so fortunate.
“In 2014, the median income of these households was 4 percent less than in 2000,” the Pew report said. “Moreover, because of the housing market crisis and the Great Recession of 2007-2009, their median wealth (assets minus debts) fell by 28 percent from 2001 to 2013.”
None of these trends is good for the country. Homeownership enables families to use the equity in a house to invest in their kids’ college education, start a business or serve as a retirement shelter.
Take that away and it’s easy to see why young people today are burdened with high student loan debt, which then affects their ability in the future to own a home.
“The youngest adults, ages 18 to 29 (millennials), are among the notable losers with a significant rise in their share in the lower-income tiers,” the Pew report noted.
“Not coincidentally, the poverty rate among people 65 and older fell from 24.6 percent to 10 percent in 2014,” the report said. “Evidence shows that rising Social Security benefits have played a key role in improving the economic status of older adults.”
Among racial and ethnic groups, blacks advanced but were more likely to be in lower-income groups and less likely in the upper tier than whites were. Latinos lost income status overall. From the Pew report, it’s easy to see why more multinational corporations are targeting the growing middle class in other countries such as China and Brazil for products and services, with less of a focus on the middle class in the United States.
The two reports should add fuel to the 2016 presidential race, where some candidates are offering more tax cuts as a cure-all for the sputtering economy and others are advocating an increase in the minimum wage and changes in government policies to stop the bleeding of the middle class and reduce income disparity.