Harvard’s 2015 State of the Nation’s Housing Illustrates Ongoing Rental Housing Crisis

Published by Peter Lawrence on Monday, July 6, 2015 - 12:00am

On June 24, Harvard University’s Joint Center for Housing Studies (JCHS) released State of the Nation’s Housing 2015, an annual, comprehensive report on housing market data and trends. The report describes a continuing modest housing market recovery, buoyed by improvements in the homeownership market and the strong performance of rental properties. And while the report did document a modest reduction of severely burdened renters, the number of moderately burdened renters grew by a larger amount. The number of moderately burdened renters set a new high of 20.8 million households, which is just less than half of all U.S. renters. The report also found that renters in general and low-income households in particular continue to struggle to find safe, decent affordable housing.

Indeed, the main headline from the report—the homeownership rate is at a 20-year low, continuing the steady decline from a decade ago—also illustrates that more Americans are becoming renters. This trend further exacerbates the gap between the demand for rental housing, especially for low-income households and the limited supply. Combined with the stagnating renter incomes, the report confirms our nation’s continuing rental housing affordability crisis.

Those struggles continue to demonstrate the vital importance of the low income housing tax credit (LIHTC), prompting the report to note that the “LIHTC program is a critical source of investment capital” and the “competing demands—for new construction as well as for preservation have put the tax credit program under extreme pressure and raised the question of whether the tax credit program ought to be expanded.”

The nation continues to experience robust rental housing demand.

Rental household growth from 2004-2014 averaged 770,000 households annually. This is the highest 10 year growth period since the late 1980s. Part of this growth is the result of increases in younger and/or minority households, which historically are more likely to rent. However, more counter-intuitively, there have been significant increases in rental rates for households with 45-64 year-olds, which are typically seen as the prime age for homeownership. Rental demand could further increase if household formation and net immigration rates continue to move closer to historical norms as the economy improves.

The construction rate is improved, but still there is insufficient supply.

Meanwhile, new multifamily construction starts are not keeping pace with the growth in the number of rental households. Overall residential construction is increasing, but the report determined the rate of construction is lower than any level from 1959-2007. Although multifamily construction continues to be more robust than single-family construction, and multifamily starts specifically targeted for rental (rather than condominiums) are at the highest level since 1987, the fact that multifamily development for many years were well below the median rates of the 1970s and 1980s means that there is a significant supply to make up. The overall vacancy rate for rental housing dipped to 7.6 percent, its lowest point in nearly 20 years. Furthermore, much of the recent construction activity has been for moderate and high-income renters, not low-income ones, so the vacancy rate for lower rent properties is even less.

On affordable housing supply, the report continues to document the lack of affordable housing for low-income households. In 2013, 11.2 million renters with extremely low-incomes (earning as much as 30 percent of area median income (AMI)) competed for 7.3 million affordable units leaving a shortfall of 3.9 million units. But because many of those existing affordable units are occupied by higher income households, there were only 34 affordable units for every 100 extremely low-income renters. Despite a slight improvement in recent years, the gap between the number of extremely low-income renters and the supply of units they can afford nearly doubled from 2003-2013.

And this already insufficient affordable housing inventory is at risk. The report found there are 2,176,705 units of dedicated affordable housing with use restrictions that expire between 2015 and 2025. More than 1.2 million of at-risk rental units are in LIHTC developments whose compliance periods are set to end. Previous JCHS reports found that the U.S. lost almost 13 percent of its affordable housing stock since 2001.

Wages are not keeping pace with rising housing costs.

The challenges of increased demand and insufficient supply of the rental market could be better addressed if renter incomes were keeping up. Alas, they are not. The 2013 national median household income of $51,900 is equivalent to incomes in 1995 when adjusted for inflation, and is 8 percent less than median income in 2007. At the same time, rents rose last year at a 3.2 percent rate, twice the rate of inflation.

Cost burdens remain high and are creeping up the income ladder.

The report found that from 2003-2013 the number of cost burdened households (paying more than 30 percent of income on housing costs) increased by 16 percent to 39.6 million (34 percent of all households) even with slight improvements from 2012-2013. And the situation for renters is even worse. Nearly half of all U.S. renters are cost burdened, with more than 11.2 million families severely-cost burdened (paying more than 50 percent of income on housing).

The number and percentage of cost burdened renters increased at all income levels and there has been a two-thirds increase in the number of fully-employed, severely-cost burdened rental households. The cost-burdened share of renters with incomes in the $30,000–$45,000 range rose 7 percentage points between 2003 and 2013, to 45 percent. The increase for renters earn­ing $45,000–$75,000 was almost as large at 6 percentage points, affecting one in five of these households. On average, in the 10 highest-cost metros—including Boston, Los Angeles, New York and San Francisco—three-quarters of renters earning $30,000–$45,000 and just less than half of those earning $45,000–$75,000 had disproportionately high housing costs.

And these high housing cost burdens are not only terrible for the economy. The report found that high cost burdens have numerous negative effects on a family’s health and well-being. JCHS’s data tabulations show that as housing costs increase, expenditures on food and healthcare decline across the income spectrum. This situation is particularly stark for severely cost burdened households in the bottom income quintile, who spent approximately 40 percent less on food and 70 percent less on healthcare than the average household in the same income range.

Conclusion

As the economy continues to improve from the Great Recession it’s important to not lose sight of the ongoing affordable housing crisis that remains. The findings released by Harvard’s Joint Center for Housing Studies are stark and further support what the affordable housing community has been calling for in recent years: additional federal investment in affordable housing via key tools such as the LIHTC.