HUD Aims to Correct Rental Housing Misconceptions


Affordable rental housing is the focus
of the second edition of Evidence Matters, the Department of Housing and Urban Development’s (HUD’s) new quarterly
publication devoted to housing and community development issues. 

This edition focuses on several proposals that
came out of the Next Generation Housing Policy Conference held last October.   The
Conference, sponsored by the White House, HUD and the Departments of Treasury
and Agriculture, brought together prominent housing experts and practitioners
to discuss, among other topics, the role affordable rental housing plays in
improving life outcomes, particularly for children, families and the homeless. The discussions that took place at the
conference fell into four distinct topic areas:

  • The
    mortgage interest deduction;
  • Multibank
    Consortia and their role in affordable rental housing
  • Informing
    the Next Generation of Rental Housing Policy

The fourth
topic was defined by a conference participant, University of Southern
California economist Richard Green who suggested that the concept of rental
housing needs re-branding.  Rent, he said,
carries a negative connotation and should be replaced with an alternative name
such as “leased housing.”
The editors of Evidence
point out that this is just one of many misconceptions about rental
housing that need to be addressed.  For
example, the image of towering multi-family structures providing rental housing
in general and affordable rentals in particular is belied by the reality that
these large multi-family developments provide only about a tenth of the rental
housing stock.

So, in
order to discuss rental housing it is necessary to define the terms with a profile
of the rental market and rental market research. For example, the article suggests
that rental housing should be defined by tenure choice rather than structure
type.  Although most multifamily
properties are utilized as rentals, small single family properties (one to four
units) make up nearly half of all rental housing and these plus developments of
five to 49 units account for nearly 70 percent. 
“Therefore,” the report points out, “policies tailored to massive
multifamily development will affect only a portion of the rental stock.”

In the
same way that rental housing is conflated with multi-family housing, affordable
housing is assumed to be subsidized. 
This applies to the most affordable rental units, but not to families earning 50 percent of the area median income (AMI). These units are
not subsidized.  The American Housing
suggests that of the 17 million units affordable to households at 50
percent of AMI, only about 30 percent are subsidized.  In urban areas this unassisted housing tends
to be older, smaller properties in
low-income neighborhoods which are typically owned by “mom and pop” landlords. This
type of housing has been ignored by federal housing policy for years so local
financial institutions have stepped into provide affordable financing.
small operations are critical sources of housing but their age, high
maintenance demands, and low profit margins mean they have high loss
rates.  “Preserving these structures is
an important element of a broader strategy to ensure quality, affordable rental
homes for low income Americans, but it is not a substitute for basic rental

More than 70 percent of HUD’s budget
is devoted to some form of rental housing assistance and, even though no
consensus exists on how best to measure it, rental housing affordability is the
biggest measurable housing problem that HUD programs must address.  The approach that most policy makers have
adopted to assess affordability is rent-to-income ratios and the current
standard is whether gross rents account for less than 30 percent of a tenant’s
monthly income.  Worse case need is
defined as very low-income renters (earning less than 50 percent of AMI) who do
not receive assistance and pay more than 50 percent of their income for housing
or live in severely inadequate housing or both. 
As a result of the recent recession nearly 7.1 million households are
considered to have worst case needs – the highest level on record in both
absolute and percentage terms.

Another measure is the difference
between the numbers of low-income renters and the units affordable to
them.  In 2009 there were 10 million
extremely low-income renters (earning less than 30 percent of AMI) and just 6.2
million units that they could rent and pay no more than 30 percent of their
income for housing.

Another definition that is necessary
is one that takes local nuances into account. Constraints on new construction,
employment growth, immigration, housing prices can all create frictions which
differ across markets so Federal housing policy should promote market-sensitive
investments that recognize how housing stresses play out in different

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