Affordable Housing Units Needed for Low Income Renters

by devteam May 4th, 2011 | Share

Almost every American is a renter at some point in his lifernbut today both economic conditions and demographic forces are increasing rentalrndemand, reversing trends that have prevailed from the mid-1990s. </p

Harvard’s Joint Center on Housing Studies hasrnjust issued a report on the state of rental housing in this country and itsrnrenewed importance.  While American’srnRental Housing – Meeting Challenges, Building on Opportunitiesdoesrnnot use the word “crisis” in regards to the rental market, it is hardrnto read the report without the sense that one is looming.</p

Renters are as diverse as the citizenry but more likely tornbe young, single, and low income than the population in general.  Renting is a common choice for young adultsrnand many of them who become homeowners return to renting at least once as they divorce,rnrelocate for employment, or fail in homeownership.  Even during the housing boom the rental sharernnever fell below 30 percent.  </p

Today 40rnpercent of renters are single persons and 13 percent are elderly households.  Renters are ethnically and racially diversernbut becoming less so.  Minorities accountedrnfor 89 percent of the 4 million new rental households that formed between 2000rnand 2010 with Hispanics contributing 42 percent and blacks 25 percent.  However, with the recession slowing the raternof immigration and the rising foreclosure rate, whites somewhat reversed therntrend in the last half of the decade and accounted for nearly half of new rentalsrnbetween 2005 and 2010.</p

Reflecting their disproportionately large share of single,rnyoung, and minority households, renters are heavily concentrated in the bottomrnhalf of the income distribution; nearly three-quarters have incomes below thernmedian income for all households including 41 percent in the bottom quartilernand 30 percent in the lower-middle one. rnOnly about 10 percent of renters are in the highest income quartile.</p

A growing number ofrnrenters are becoming cost-burdened.  Thernreport says that the decrease in affordability of rentals may not seem dramaticrnin the short term but over the longer sweep of time it is alarming.  The usual standard of affordability is thatrnrent and utilities should consume less than 30 percent of householdrnincome.  Between 30 and 50 percent thernburden is considered moderate and above 50 percent severe.  In 1960 24 percent of renters were at leastrnmoderately burdened and half of those severely so.  By 2000 these shares were 38 and 20 percentrnand by 2009 49 percent were moderately burdened including 26 percent who werernseverely so.  </p

Lack of affordability is a factor of both rent andrnincome.  Over the last 30 years thernmedian incomes of renters has generally risen during good times, giving backrnits gains during subsequent downturns. rnFollowing the 2001 recession, however incomes did not rebound and now remainrnbelow their 1980 level.  Rents which stagnatedrnfor nearly a decade after the 1980s building boom rents are now 15 percentrnabove the 1980 level.  Utility costsrnwhich are paid separately by 80 percent of renters have risen steadily sincern2000. </p

The affordability burden is most acute among the lowestrnincome (duh).  Among low-income renters 49rnpercent had severe burdens and 28 percent had moderate burdens; among thernextremely low income 63 percent reported severe burdens and 15 percentrnmoderate.</p

These affordability problems are creeping up the incomernladder.  “Over the past decadernmoderately cost burden renters in the lower-middle income quintile jumped fromrn32 percent to 41 percent.”  Therernwas an even larger increase in the moderate category, from 9 to 20 percent, forrnrenters with income in the middle quintile.</p

At the same time, a lot has been happening to the housingrnstock. Census Bureau data indicates the rental vacancy rate has fallen 0.9 percentage points to 9.7 percent since 1Q 2010. Also, professionally managed apartment buildings reported a 1.7rnpercentage-point drop in vacancies and a 2.3 percentage-point annualizedrnincrease in rents as of the fourth quarter of 2010.  At the same time Moody’s reported itsrncommercial property index was up 12 percent year-over-year.  While supply and demand are nearing balancernthe Report sees the ingredients for demand to surge.   Thernrecession has stalled the formation of new households and slowedrnimmigration.  As the job market returnsrnto normal both may climb quickly.</p

The available stock is also disappearing.  Federal housing support is of two types -rnproject based where units in a multi-unit building are dedicated to low incomernoccupants and tenant based where the tenant is given a voucher to use for anyrnrental property willing to accept it.  Atrnpresent there are about 7 million federally assisted units, enough for only arnquarter of the lowest income renters. rnThe project-based stock now numbers 3.1 million units and isrndwindling.  More than 700,000 units werernlost between 1995 and 2009.  The numberrnof vouchers during this period increased, but not enough to keep pace withrnunits that either deteriorated or converted to market rents.</p

The majority of the nation’s low-cost rental stock is notrnfederally assisted.  Among the inventoryrnrenting for less than $400 per month the report says 2.1 million units werernassisted and 3.0 million were unassisted in 2009 and private units renting forrn$400-$600 units numbered 7.1 million. rnThis private stock, however, is disappearing.  11.9 percent of units with rents below $400rnwere demolished between 1999 and 2009; on net more than 28 percent of the lowrncost stock available in 1999 was gone by 2009. rnThe current stock of older and smaller residential buildings is, at arnmedian age of 38, older than it has ever been and the cost of maintenance isrnrising.</p

All of the factors above have widened the gap between veryrnlow-income renters and the homes they can afford.  In 2003 there were 16.3 million veryrnlow-income renters competing for 12 million affordable and adequate rentals; byrn2009 the number of such renters had increased to 18 million and the number ofrnunits had dropped to 11.6 million </p

The Joint Center estimates that the number of renterrnhouseholds could increase by 360,000 to 470,000 annually over the next tenrnyears and most of this growth will be among those most likely to rent multifamilyrnhousing – older and younger households, minorities, and single persons.  It seems certain, the report says, thatrnwithout a dramatic expansion of federal assistance and a shift in local landrnuse and building regulations the affordability burdens will remain or evenrnincrease and current attempts to trim the deficit endangers even the status quo.  The administration needs to support private effortsrnto meet housing needs through both preservation and new construction, perhapsrnthrough tax treatments of investments for housing.  The federal government could follow thernexample of state and local governments which have provided incentives torndevelopers to include low-income units in return for concessions on land use orrnbuilding requirements and affordability can be improved by targeting improvedrnenergy efficiency in older rental housing. rnThere is also a need to provide a means of adequate financing forrndevelopment of new housing, particularly smaller multifamily properties </p

The report concludes that rental is increasingly recognizedrnas an integral part of anti-poverty strategies, neighborhood redevelopment andrntransportation planning.  “Inrntoday’s challenging budgetary environment, investments in affordable rentalrnhousing thus offer opportunities to improve the well-being of low incomernfamilies while also building stronger communities.” </p

“With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom inrn the housing market”, says MND’s Managing Editor Adam Quinones. “We already know there is dearth of affordable rental housing</a available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."</prn

Homeownership Out of Favor. Rentals in Demand</p

Home Remodeling a Forward Indicator of Housing Bottom?</prnrn

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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