Harvard Joint Center 2023 State of the Nation’s Housing Study Highlights Increased Cost Burden for Low-Income Renters; Current Legislation Could Help Address Shortage
Published by Peter Lawrence on Monday, June 26, 2023 - 12:00AM
The segment of renters with the lowest incomes–those earning $30,000 annually or less–saw their rent increase while their income decreased leading into 2022, as the affordable housing crisis intensified. That’s according to the State of the Nation’s Housing 2023 Report, published last week by the Joint Center for Housing Studies (JCHS) of Harvard University.
All renters feel the increasing housing cost burdens, including those renters earning a little more than the low-income housing tax credit (LIHTC) income limits, but particularly those at the lower end of the income scale. According to the report, overall median monthly rent increased 3% from 2019 to 2021–the key period leading into and through the COVID-19 pandemic–while median renter income fell 2%. That was exaggerated for those earning less than $30,000, whose rents rose 5% and incomes fell by 6% during that period, according to the report.
The report says that the median residual income–money left over after paying housing costs–fell by 5% during that period for all renters, but by 22% for those earning less than $30,000 annually, leaving them a median of just $380 per month after paying other necessities (such as food, health care, transportation and other expenses), the lowest such figure in two decades.
The report provides a snapshot of a rapidly decreasing inventory of homes for low-income Americans, one that could be addressed by provisions of the Affordable Housing Credit Improvement Act of 2023 (AHCIA, S. 1557, H.R. 3238).
Overview: Housing Shortfall of 1.5 million Homes
The JCHS report tells the tale of a housing market with declining new construction of for-sale homes and a boom in multifamily construction, albeit primarily for higher-income renters.
The report concludes that, “millions of households are now priced out of homeownership, grappling with housing cost burdens or lacking shelter altogether, including a disproportionate share of people of color.” The report says the nation has a housing shortfall of at least 1.5 million homes.
It also says, “there is growing urgency for public and private investment to address longstanding disinvestment in underserved communities of color, adapt the housing stock to increasing risks of climate change and expand options for older adults to age safely in their communities.”
Multifamily Construction Hot, But Mostly for Higher-Income Tenants
Housing construction in 2022 focused on multifamily properties, but the news provides little relief to lower-income tenants. Many of the conclusions were discussed in a March Novogradac Journal of Tax Credits column by Michael Novogradac, which considered the rate of new construction, household formation and the gap between LIHTC-financed properties and market-rate apartments in multiple markets.
The JCHS report says the rate of single-family home building dropped by more than 10% in 2022, while the number of multifamily starts rose 15.5% (from an already-high figure in 2021). That resulted in the 547,000 new multifamily homes, the highest such level since 1986. That trend continued: According to the report, of the nearly 1.7 million homes under construction in March, 960,000 were multifamily.
However, most were for higher-income renters. In the third quarter of 2022, the median asking rent for new rental homes was $1,805, an increase of 7% (adjusted for inflation) from seven years earlier. During that seven-year period (from 2015 to 2022), the share of newly completed rental homes with high-end rents ($2,050 or more) nearly doubled, going from 19% of all rental homes to 36%, while those with asking rents below $1,050 dropped from 22% of all rental homes to 5%.
According to data in the report, the median asking rent for newly completed multifamily homes in 2022 was $1,800. That means to meet the 30%-of-income standard for most affordable housing, tenants would have to earn $72,000 or more annually to afford the median new rent.
Rapid Decline in Available, Affordable Homes for Low-Income Tenants
The JCHS study points out the lack of available, affordable housing for lower-income tenants.
In 2021, only 17.1% of rental homes offered contract rents below $600, which is the maximum amount affordable (using the 30% of income for housing standard) to households earning $24,000 or less. Those tenants constitute 30% of all renter households.
A decade earlier, 26.7% of rental homes fit that description when adjusted for inflation, but the overall market lost 3.9 million rental homes with contract rents of less than $600 over that time, a trend that picked up pace as time passed.
The JCHS study says that for every 100 renter households earning less than 50% of the AMI, only 55 rental homes are affordable and available. That is complementary information to The Gap 2023: A Shortage of Affordable Homes, the annual study produced by the National Low Income Housing Coalition, which says that there are 33 affordable, available homes for every 100 extremely low-income renters, those earning at the federal poverty level or less than 30% of the AMI, whichever is higher.
The number of cost-burdened renters–those spending more than 30% of their income on housing–increased by 1.2 million to a record 21.6 million households between 2019 and 2021. Among all renters, 49% are cost-burdened and among households with incomes below $30,000, 68% are cost-burdened.
The report calls out the risk of LIHTC housing converting to market-rate housing and estimates that 10,000 low-income rental homes are lost annually due to that. The dwindling stock of public housing, which federal legislation caps at 1999 levels, creates an additional crisis, one that is partially addressed by HUD’s Rental Assistance Demonstration program.
AHCIA, DASH Act Would Help
The report calls for further federal support for affordable housing and the AHCIA is one obvious way to meet some of the needs.
Novogradac estimates that the major LIHTC and private activity bond (PAB) financing provisions of the AHCIA would lead to the creation of an additional 1.9 million affordable rental homes over a decade. Among the key provisions are a 50% increase in the 9% LIHTC allocation over two years (including a restoration of the 12.5% increase that expired in 2021), a potential 50% basis boost for extremely low-income households), a lowering of the 50% financed-by test for PAB-financed housing and more. Research conducted by the National Association of Homebuilders indicates that more than 4.5 million low-income residents could be housed by the additional homes built due to the AHCIA provisions.
A Middle-Income Housing Tax Credit (MIHTC)–which is part of the Decent, Affordable, Safe Housing for All (DASH) Act of 2023 (S. 680) introduced earlier this year–could also address the increasing cost burdens for households that earn a little more than the LIHTC income limits. As the JCHS report highlighted, the housing cost burden isn’t limited to the lowest-income renters, although that’s where it’s most extreme. A Novogradac study of the 2021 version of the DASH Act’s MIHTC found that it would finance nearly 350,000 homes for households just above the LIHTC income limits.
The Harvard study shows that things are getting tighter for renters at the lower end and middle of the earnings scale, adding to the fire showing the need for legislative and regulatory action to address America’s affordable housing shortage.