The Rental Housing Affordability Crisis


A new study from the Harvard Joint
Center on Housing Studies in conjunction with the McArthur Foundation looks at
the growing importance of rental housing in the U.S. as households reverse
their long upward trend in homeownership and increasingly turn to renting.  The renter share of households climbed from
31 percent in 2003 to 35 percent in 2013 or 43 million households.

The study, America’s Rental Housing:
Evolving Markets and Needs, looks at the factors contributing to the growing
reliance on rentals, how likely the trend is to continue and the human and
policy impacts of the trend.  Of
particular importance, the study concludes, is the crisis presented to the
country by the growing burden housing is placing on low and very low income households.

The trend toward renting has been driven
by several factors.   The Great Recession
brought high levels of sustained unemployment and a flood of foreclosures while
highlighting some of the risks of homeownership and the benefits of renting; greater
ease of moving, the ability to better budget for housing, and freedom from
maintenance responsibilities.

The shift toward renting has affected
all but the oldest age groups with most cohorts exceeding the overall 4 percent
increase.  Only high homeownership rates
among the oldest age groups moderated the increase which made the 2000s the
strongest decade of growth in renter households in half a century.



The Center expects this growth to
, but not at the current pace. Depending on the trajectory of
immigration, they project renter household to increase by 4.0 to 4.7 million
over the next ten years.  While this
would represent a considerable slowdown from the current rate, it would still outstrip
growth in both the 1960s and 1990s.

Mirroring overall population growth, minorities
will contribute virtually all of the net increase in renters over the coming decade,
with Hispanics alone accounting for more than half of the total. Significant shares
of the younger renter households will be married couples with children and single-parent
families, which together will account for another 30 percent of new renters. This
group of households will seek more spacious homes to accommodate their larger families
and in locations with access to good schools and employment opportunities.  The rapid increase in the senior population
will lead to their higher numbers of renters. 
This population will require some level of adaptive housing to
accommodate them as well as assisted living.

While renting is more common among young
adults, more than a third of renters are aged 35 to 54, about the same as their
population share.  Even at stages when
homeownership is greatest people still move in and out of the rental market. Against
stereotype, families with children account for as many renters as single
persons.  Renters’ incomes are
disproportionately low.  Nearly a quarter
have annual incomes under $15,000 while only 13 percent of all households fall
into that category.  2

Unlike owner-occupied housing, rentals come
in a variety of configurations.  About four
out of ten
properties are single-family homes, another fifth are in two to four
unit buildings and 30 percent are in buildings with 10 or more units. Rental housing
is more likely to be located in urban areas and tends to concentrate in low-income



Much of the demand from the recent
increase in renter households was met by the 3.0 million units, mostly single
family, that changed from owner occupied to rental property between 2007 and
2011, pushing the share of single-family rentals up 4 percentage points, to 35 percent,
in 2011.  Institutional investors also began
buying up single-family properties for rentals, testing new business models that
may further expand rental housing options.

Rental housing has bounced back from the
Great Recession faster than the rest of housing.  Demand forced down vacancy rates and led to
rent increases and increases in landlord operating income and property values.  Multi-family housing starts jumped 54 percent
in 2011 and the improvement has been wide spread across markets.

The study says one aspect of the rental market
that does bear watching is multifamily finance. 
Credit sources dried up there as elsewhere during the downturn with
activity sustained through government channels. 

The situation for renters who were cost
burdened before the recession worsened during and after it.   After 2007 the share of renters paying more
than 30 percent of their income for housing rose from 38 to 50 percent.  Most of the increase was felt by those
severely burdened, i.e. paying more than 50 percent of their income for housing
by 2010.



Housing cost burdens are nearly ubiquitous
among the lowest-income renters. “An astounding 83 percent of renters with incomes
of less than $15,000 were housing cost burdened in 2011, including a dismal 71 percent
with severe burdens. But the largest increases in shares in 2001-11 were for moderate-
income renters, up 11 percentage points among those with incomes of $30,000-44,999
and 9 percentage points among those with incomes of $45,000-74,999,” the study

Unemployment accounted for some of the
increase in housing burden but it has been even worse among households with full-time
workers where the cost-burdened share of renters rose by nearly 10 percentage points
or by 2.5 million between 2001 and 2011.

The consequences for those unable to
find affordable housing the Center says is dire.  They spend about $130 less on food, 40
percent less than those living in housing they can afford.  Thus housing is clearly linked to hunger in
the U.S.  They also spend significantly
less on health care and retirement savings.

A family with a $15,000 in annual income
would have to find housing that costs no more than $375 a month to stay under
the 30 percent level.  By comparison, the
2011 median monthly cost for housing built within the previous four years was more
than $1,000. Less than 34 percent of these new units rented under $800, and only
5 percent for less than $400.”

Thus the gap between the demand for and
the supply of affordable units continues to grow.  In 2011, 11.8 million renters with extremely low
income competed for just 6.9 million rentals affordable at that income level. Making
matters worse, 2.6 million of these affordable rentals were occupied by higher-income
households.  The study also evaluates
energy costs and concludes that these costs also fall disproportionately on low
income renters, either directly or as pass-throughs from land lords. 

Housing that is affordable to low income
renters tends to be older and more likely to be in poor condition and so at
greatest risk of being demolished or otherwise lost from the housing stock. Over
the 10 years ending in 2011, 5.6 percent of all units available for rent were removed
from the inventory as were 12.8 percent of those renting for those renting for less
than $400.

Rental subsidies are also reaching fewer
very low income households.  Between 2007
and 2011 the number of such renters increased by 3.3 million while the number
able to receive subsidies expanded by only 225,000 and the share of eligible
households receiving assistance shrunk from 27.4 percent to 23.8 percent.  The number of renters with worse case needs
receiving no assistance jumped by 2.6 million to 8.5 million.



Even where funding for assistance
increased, rising rents and falling incomes raised cost and limited the reach
to more households.   About $26 million
in capital investments for public housing remains unfunded and privately owned
housing is rapidly aging and assistance contracts are expiring.  Mandatory budget cuts under sequestration
could reduce vouchers by 125,000 this year.

So far, the Low Income Housing Tax Credit
(LIHTC) program has been spared from sequestration but its subsidies are
inadequate to make units affordable for extremely low-income tenants, so it is often
combined with other forms of assistance. The program may be endangered when debate
about tax reform begins in earnest.

The study looks at the two factors which
it says will influence rental growth over the next decades; the growth of
households and prevailing attitudes toward homeownership.  While economists can give some estimates of
the first, the second is subject to so many influences it is nearly impossible
to predict. 

The study points to other issues that
can impact rental housing going forward; the aging housing stock, barriers to
construction, and the looming reform of the government related sources which
currently provide most of the financing for rental units. 

The study concludes that, despite the
magnitude of the affordability crisis and the clear need for new thinking about
assistance, active debate on rental housing policy has just begun.  There are promising approaches from both
government and advocates, but as the country faces difficult choices and an
aging population and rising health care costs strain the federal budget, it
would be all too easy for rental housing concerns to get lost in the

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