2024 Harvard JCHS Rental Housing Report Shows All-Time High in Cost Burdens Among Renters in 2022
Published by Peter Lawrence on Monday, February 5, 2024 - 10:52AM
Affordability issues continue to plague American renters, according to America’s Rental Housing 2024 Report from Harvard’s Joint Center for Housing Studies (JCHS). The latest edition of the annual report shows that half of renter households were cost burdened–paying more than 30% of their income on housing–in 2022.
The report details how as housing-related pandemic social safety nets ended in 2022, homelessness soared to record highs. In addition to a lack of affordability, the current supply is physically inadequate and underprepared for emerging issues such as the increased need for senior housing and the climate crisis. Though the current rental market has high rents and a lack of supply, experts do predict that rents in the market-rate rental housing will become less expensive this year as the inventory increases. Currently, there are around 1 million homes being built, which will provide some necessary relief in upcoming years.
Though the Growth Rate of Rent Prices is Slowing, Affordability is at an All-Time Low
JCHS reported that rent growth peaked at a record-breaking 15% annual increase during the first quarter of 2022. Rent growth slowed by the third quarter of 2023, growing by just 0.4%. For lower- and higher- quality apartments, rent growth was under 1.0% in the third quarter of 2023. During the same period, 5.5% of professionally managed apartments were vacant, which is higher than the pre-pandemic average of around 4.0%. The report states that despite increasing availability and a slowing rate of growth in rents, a record-high 22.4 million renter households–50% of renters–spent more than 30% of their income on rent and utilities, an increase of 3.2 percentage points from 2019.
According to JCHS’ 2024 report, renters earning less than $30,000 per year had an all-time low residual income–or the amount of money available after paying for rent and utilities to cover other needs, such as food, transportation and health care–in 2022, with a median of just $310 per month. For cost-burdened individuals earning less than $30,000 per year, this residual income dropped to just $170. JCHS cited the Economic Policy Institute stating that a single-person household in the most affordable counties still needs around $2,000 per month for non-housing needs. This means that low-income renters are forced to make sacrifices in other expenses to pay rent.
While increases in the number of cost burdened renter households have been seen across all income levels, the lack of supply of rental homes affordable to low-income households has caused the burdens to be most devastating for low-income renters. The report data shows that for the 26% of renters who earn under $24,000, there was a loss of 2.1 million homes that had contract rents below the maximum amount affordable for their income level (under $600 a month, adjusted for inflation) since 2012. In the same period, the market lost 4.0 million homes with rents between $600 and $999. More than 500,000 low-rent homes were lost between 2019 and 2022. Making matters worse, renters’ incomes have only risen 2% during the same period, which is causing an increase in cost burden renters.
According to JCHS’ recent analysis of Census Bureau Data, moderate-income earners with annual incomes of $45,000 to $75,999 saw the greatest percent change in cost burdens; 41% of these moderate-income households were cost burdened in 2022, a 5.4 percentage points increase over 2019. This growing problem was addressed in Congress recently with the introduction of the Workforce Housing Tax Credit Act (H.R. 6686, S. 3436), which would assist renters who earn too much to be eligible for rental housing financed by the low-income housing tax credit (LIHTC) up to 100% of the area median income. The bill would create a middle-income housing tax credit (MIHTC) that adopts the LIHTC allocation and administration infrastructure, which would finance an estimated 344,000 affordable rental homes, based on Novogradac analysis.
Homelessness Soars to Record Highs as Social Safety Nets Disappear
In its report, JCHS noted that pandemic-era social safety nets such as renter protections, income supports, like the $46 billion Emergency Rental Assistance (ERA) programs, and housing assistance reduced eviction filings. Many states had depleted their ERA funds by mid-2023, meaning assistance that held many households stave off evictions was no longer going to be available. The report notes that while three states and 12 local governments have since enacted right-to-counsel programs to provide legal representation for those at risk of eviction, homelessness hit an all-time high of 653,100 people in January 2023. The report goes on to state that the number of people experiencing homelessness increased by nearly 71,000 from 2022 to 2023, including 22,780 people staying in places not intended for human habitation. To address the nation’s homelessness crisis, the Biden Administration has allocated an unprecedented $3.1 billion to the U.S. Department of Housing and Urban Development’s (HUD’s) Continuum of Care (CoC) Program. The CoC Program provides funding for state and local governments, and nonprofits to promote access and increase utilization of programs that work to end homelessness.
The loss of pandemic-related assistance is exacerbated by the gap between the number of people who are eligible for federal housing assistance and those who received it. While the number of low-income renter households grew by 4.4 million between 2001 and 2021, assisted low-income households only increased by 910,000 due to lack of federal funding. According to the report, “60 percent of very low-income households, or 8.5 million, who were eligible for but did not receive rental assistance spent more than half of their income on housing or lived in severely inadequate housing conditions–sometimes both.”
Another issue highlighted by the report is the fact that the supply of affordable housing is also becoming more threatened. In addition to the loss of affordable rental homes noted above, in 2022, there was a $90 billion backlog for maintenance of the public housing supply which further threatens the overall affordable supply. The report outlines how the LIHTC, Rental Assistance Development (RAD) program, Housing Choice Vouchers and the USDA’s Section 515 Rural Rental Housing program all present their own advantages and challenges when it comes to increasing the housing stock and addressing threats.
The LIHTC, which has financed the creation or preservation of more than 3.8 million homes since its inception in 1986 according to the National Council of State Housing Agencies, plays an instrumental role in the affordable housing market. However, the report suggests that the affordability periods for more than 325,000 LIHTC homes are set to expire between 2024 and 2029, with 7,000 additional homes lost prematurely each year due to opt-outs after the initial 15-year compliance period. While RAD has been instrumental in converting hundreds of thousands of public housing homes into Section 8 Housing, other resources must be used in addition to increase the housing stock. Housing Choice Vouchers also exhibit their own challenges, as most private market landlords are not required to accept them, which can cause difficulties in finding a rental home. Lastly, the Section 515 program serves 378,000 households in rural areas, but has not financed new housing in recent years even while supply is dwindling.
Issues that will Negatively Impact Housing Affordability Gain Attention
As the current housing stock ages, maintenance and preservation are becoming increasingly important. JCHA reported the median age of rental housing increased from 34 years old to 44 from 2001 to 2021, and nearly 4 million renter homes are physically inadequate. It would cost $51.5 billion to address the physical deficiencies of the occupied rental stock in 2023. The report continues on to address the fact that since a larger share of Americans are growing older due to advances in modern medicine, the need for accessibility in housing is increasing. This was explored in a recent Notes from Novogradac blog that detailed how affordable housing and health are inherently linked. America’s Rental Housing 2024 Report also stated that nearly half of renters with disabilities responded in a survey that their homes are minimally or not at all accessible.
The rental housing market also needs adjustments to battle the ongoing climate crisis. The report states that not only do older homes–especially rental homes in small multifamily buildings–use more energy than newer or owner-occupied homes, but they are much less prepared for the increasing rate and associated costs of natural disasters. The report continues to say that while the Weatherization Assistance Program and the Inflation Reduction Act (IRA) of 2022 have provided billions of dollars to support the switch to clean energy and energy efficiency, more incentives are needed to update the current rental stock in order to prepare for more frequent and intense natural disasters. More than 18 million occupied rental homes are located in areas that are predicted to experience significant losses from these climate events, which has caused turmoil in the insurance market. The risks of climate change have caused insurance premiums to rise and insurance companies are more frequently withdrawing coverage from high-risk markets. The report cited a National Multifamily Housing Council survey that showed that a third of firms had experienced limited or reduced coverage amounts, with two-thirds of firms noting an increase in price. The LIHTC could be used as a solution to this by allowing certain insurance costs to be included in LIHTC eligible basis.
Significant Investments into the Current Rental Housing Market are Needed
In a recent JCHS article, it was found that the estimated shortfall of affordable housing is not universally agreed upon. However, it is evident that more affordable housing is needed. The National Association of Homebuilders claimed that there was a shortage of 1.5 million total homes for rent and ownership in 2021, while the National Association of Renters stated the United States was 5.5 million total homes for rent and ownership short in the same year. Meanwhile, Freddie Mac estimated that there was a 3.8 million home shortfall in 2020 for both rent and ownership. The JCHS article also cited the National Low Income Housing Coalition (NLIHC) Gap report’s claims that 7.3 million homes are available to the nation’s 11 million renters. This emphasizes that not only do we need more rental housing, but it also needs to be affordable to protect economically vulnerable households.
During a report release event, speakers noted what is being done federally to address the country’s housing shortage and other issues. Chris Herbert, the managing director of the JCHS, stated that there is bipartisan support for measures to expand affordable housing. The House Ways and Means Committee passed Jan. 19 the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), a bipartisan, bicameral tax bill, which includes two key provisions for the LIHTC. The bill would decrease the private activity bond (PAB) financing threshold for 4% LIHTCs from 50% to 30% for 2024 and 2025, and restore the 12.5% increase in annual 9% LIHTC allocation for 2023 through 2025. If passed, both provisions would provide more than 200,000 new and preserved affordable rental homes, according to Novogradac. On Jan. 31, the House voted 357 to 70 to approve this bill. The strong bipartisan support of this bill in the House provides momentum to help the bill pass the Senate in the coming weeks. After the House passed the bill, Senate Finance Committee Chair Wyden, D-Oregon, stated, “It’s a real victory to have such strong momentum behind this bill that will help 16 million American kids from low-income families get ahead.”
Ethan D. Handelman, the Deputy Assistant Secretary for Multifamily for HUD, stated during the event that the Biden-Harris administration’s housing supply action plan uses all tools available and asks for more funding to increase the housing supply. He elaborates that the administration is taking extra steps with Federal Housing Administration (FHA) multi-family insurance that would expand the LIHTC and make it easier to use. Handelman states that the usage of the IRA’s renewable and clean energy provisions will also work towards strengthening the housing supply in preparation for climate change.
Novogradac’s LIHTC and Renewable Energy (RE) Working Groups continue to discuss how tax credits can be used to address issues affecting the country’s housing market. For membership Inquiries, please fill out the appropriate forms for LIHTC and RE Working Groups. Novogradac will also be hosting its Novogradac 2024 Affordable Housing Conference May 2-3 in San Francisco.