As New Rental Demand Settles In, Are Low-Income Renters Left Out?
by Veronica Gaitán and Maya Brennan
For a decade, the United States has experienced sharply rising rental demand, but that trend may be over, according to a new report by the Joint Center for Housing Studies of Harvard University. Although an average of nearly a million renter households joined the market annually during the highest-growth years from 2010 to 2015, demand increased more slowly in 2016 and may have further slowed in 2017. Although the surge may be ending, rental markets have added nearly 10 million households since 2004.
The new normal
Shaped by this new demand, today’s rental housing landscape looks much different than it did more than a decade ago. Although home sales have risen, many high-income households are opting to rent. Since 2006, the number of renter households earning $100,000 or more a year increased by 2.9 million. In addition to being wealthier, renters are now older (median age is 40). To attract these renters, much of the new rental housing stock being constructed is located in high-rise buildings downtown.
Analysis in the Harvard report finds that in 2016, 40 percent of new rental housing charged $1,500 or more per month, compared with 15 percent in 2001, adjusting for inflation. They estimate that these new units are affordable to households earning at least $59,000, but the median renter income is just $37,000.
Although higher-rent properties fill a supply gap for the new high-income renters, the share of moderate- and low-cost rental stock has only modestly increased, in part because of rising construction costs and regulations that drive up land prices or add approval uncertainty and delays. Properties affordable to lower income renters are older, often built before 1970, and even these units are experiencing rent increases because of high demand. In the past six years, increases in median rent have exceeded inflation in nonhousing costs, and in rapidly growing metropolitan areas, rents in low-cost neighborhoods rose a percentage point faster each year than in high-cost neighborhoods. Demand has been too strong for rental housing to become gradually more affordable as new supply comes in. “The units are not filtering,” noted Pam Patenaude, deputy secretary of the US Department of Housing and Urban Development, at a release event for the new report.
What does this new picture mean for low-income renters?
Research shows that access to stable, safe, and affordable housing and neighborhoods improves opportunity. They affect parents’ and children’s mental health, influence future economic mobility and opportunities for social inclusion, improve health outcomes, and promote academic achievement, among many other factors related to well-being and success. Missed housing opportunities are missed life opportunities.
Although the share of cost-burdened renters (households that spend more than 30 percent of income on rent) has declined, nearly half of renters are cost burdened. Meanwhile, rental assistance is becoming increasingly unattainable. From 2001 to 2015, the number of US households with very low incomes increased by 4.3 million, but the number of very low–income households receiving rental assistance rose by just 600,000. This shortage of subsidy access could get worse, as public housing repair needs pile up and other affordable housing developments near the end of their subsidy periods. Meanwhile, a tax bill that is expected to be signed into law by Christmas would cut expected corporate tax liabilities, thereby reducing interest in tapping Low-Income Housing Tax Credits.
How do we find solutions?
Tackling the nation’s rental affordability problems will require an “all-hands-on-deck” approach, as Patenaude said at the Harvard report’s release event. The facts suggest that improvements in housing affordability would call for solutions from all levels of government and beyond. So far, adding supply at higher-income levels is not relieving rent pressures at lower-income tiers, and the capacity to fund new low-income housing has been weakened by reduced corporate tax liabilities in the new tax bill. Meanwhile, the number of households eligible for rental assistance has so outpaced rental assistance programs that even a significant expansion—which is not expected—would likely leave a gap.
An all-hands-on-deck approach might pair a targeted expansion of federal rental assistance with a requirement for state and local action to evaluate and reform regulations that lead to higher rents. State and local governments can then provide additional subsidies and affordable housing incentives, such as inclusionary zoning, to supplement and not replace the federal role.
Improving rental affordability for low-income households matters for everyone. Research shows that stable, affordable housing is the key to success in many areas in which we struggle as a society—from education to health outcomes to economic success. Adopting effective solutions is crucial. Federal rental assistance works, and state and local policies that lead to lower market rents can help it work better.