New JCHS Study Analyzes the Loss 4 million Low-Cost Rental Homes Through the Lens of Individual States

Published by Peter Lawrence on Thursday, October 31, 2019 - 12:00am

Introduction

The U.S. as a whole has lost nearly 4 million low-cost (see definition below) rental homes since 1990, according to a recent working paper released by the Harvard Joint Center for Housing Studies (JCHS). “Documenting the Long-Run Decline in Low-Cost Rental Units in the U.S. by State” looks at the loss of affordable housing supply nationally and through an individual state analysis to view the magnitude of the loss, as well as the timing of the loss, variance across states. Though there are differences in numbers of low-cost rental homes lost and the timing of such losses, the paper finds there are certain trends that hold across states. These trends include the national loss of rental homes with rents of less than $600 a month, and a strong correlation between states that have lost a significant share of low-rent homes and states experiencing an increase in the number of cost-burdened low-income renters.

Basic Methodology and Definitions

JCHS used data pulled from the 1990 and 2000 U.S. Census Bureau Decennial Censuses as well as the 2000-2017 American Community Survey 1-Year Estimates. Both occupied and vacant rental home were included, and for consistency the contract rents were used instead of gross rents because utility costs are not reported for vacant homes.

JCHS acknowledged that the definition of a “low-rent” unit varies across states, due to the variance of cost of living across states that existed before the study began. For example in Arkansas, which the JCHS considers to be a low-cost state, low-rent is defined as homes with rents of less than $600 a month. In California, a high-cost state, low-rent homes are those with rents at less than $1,000 a month.

The Magnitude and Timing of National Loss

A common theme that occurred in all states and the District of Columbia was the decline in low-rent homes, and the increase in high-rent (which the JCHS defines as rent at or above $1,000/month) homes. All states and D.C. lost homes that rent for $600 or less per month. The graph below illustrates how rapid this loss was. By 2017, the trend of net decrease had spread to include higher-rent homes as well. Homes under $900 a month began to see a decline in supply.  The steepest decline in the number of low-rent homes occurred from 2012-2017, which JCHS contributes to the rebound from the foreclosure crisis. During the crisis from 2009 to 2012, rental homes were foreclosed upon, which provided an additional 1.3 million new homes nationwide that had a monthly rent of less than $600. According to JCHS, once the economy began to rebound in 2012, the trend of increasing supply of low-rent homes reversed and the demand soon exceeded the supply. By 2017 the share of low-cost rentals in the market fell to below even pre-recession levels. Homes renting for less than $700 declined by 3.9 million over just five years (2012-2017). The majority of these losses were homes in the $400 to $700 per month rent range.

JCHS Study Analyzes - Image 1
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This shortage of rental homes led to higher rents, and middle to low income renters have to move into homes that were previously occupied by extremely low-income renters. Even less supply for the extremely low-income renters means they are the demographic who feel the squeeze the most.

Variations and Timing of Loss across States

Most states have had a steady decline of low rent homes. The exception are states that were affected the most from the foreclosure crisis, and had the highest foreclosure rates. These states saw a slight increase around 2010-2012 as the market rebounded before a steep decline in low-cost rental homes occurred.

High-cost states, such as California, had less variation in the share of homes with rents of less than $600 even during the high foreclosure period seen during the Great Recession. Of all states, California lost the smallest amount of homes with rents less than $600. According to JCHS, this lack of variation can be attributed to the fact that these homes were already in small supply; for this reason JCHS considers homes in California that rent for less than $1,000 per month to be low-rent. Homes with rents less than $1,000 suffered a 19 percent decrease in supply from 2012 to 2017 in California. Other states that followed similar trends include Hawaii, New Jersey, and Massachusetts. In contrast to the trends found in high cost states, low cost states, such as Arkansas, saw the greatest decline occur among homes with rents at or less than $400 per month. See the table below for a sample of key states and the U.S. that show the loss of affordable housing market share.  Compounding the loss of these homes is that many of these low-cost states contain vast rural areas, which suffer greatly from the housing affordability crisis.

JCHS Study Analyzes - Image 2
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JCHS Study Analyzes - Image 3
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Link to Rising Cost Burdens

Sometimes the number of houses lost do not properly illustrate the full effect that peoples in the renter market experience. In order to see this, it is useful to look at the losses in market share. One strong relationship that was found in this paper was the correlation between market share and the percentage of cost-burdened renters (renters who are paying more than 30 percent of their income on rent). States that lost the largest market share of affordable housing compared to the entirety of their housing market had the sharpest increase in renters who are cost-burdened.  The diversity of these states in demographics and economic conditions speaks to the strength of this trend. An example of a state where this correlation is strong is Texas. Texas saw a drop of 38 percentage points in its share of homes with monthly rents less than $600 between 1990 and 2017, and in response the cost burdened rate for households earning less than $24,000 per year rose from 84 percent in 1990 to 92 percent in 2017. States with similar trends include many in the West (Idaho, Utah, and Wyoming) and in the South (Louisiana and Tennessee). The strong relationship between decline in share of low-cost homes and the rate of cost-burdened households, can also be seen on the other side of the spectrum. In these cases, a smaller decline in share of low-cost homes still creates more cost—burdened households, but at a smaller rate. For example, one can look at New Jersey, where the share of low-cost homes renting at $600 per month or less declined by only 9 percent. During this same time period in New Jersey, the cost burdened rates for low-income households annually rose by 5 percent. Examples of states that follow this trend include California, New York, Connecticut and others. The JCHS suggests that this correlation be researched further to analyze the impact of other variables, such as changes in the numbers of higher-income households who may be seeking lower-cost homes.

How LIHTC Continues to Address Lack of Supply

According to JCHS, there are three factors that have contributed to the scarcity of affordable housing: market forces that make it difficult for developers to build new low-cost homes; the lack of “downward filtering,” in which higher-rent homes shift to lower rent levels over time; and, that there seems to be an abundance of “upward filtering,” in which low-rent homes are shifted to high rent homes. These three factors occurring in tandem have led to a severe lack of supply for affordable housing, and must be addressed.

New construction of low-rent homes should be encouraged, and preservation of existing low-rent homes must be emphasized. The low income housing tax credit (LIHTC) accomplishes both new construction and preservation goals. According to the National Council of State Housing Agencies, LIHTC has created more than 3 million homes for low-income households since its inception in 1986. Without LIHTC, the amount of low-rent housing lost in the span from 1990 to 2017 would be even higher than the 3.9 million homes this JCHS paper cites. Several provisions of the Affordable Housing Credit Improvement Act (AHCIA) of 2019 could finance more than 550,000 affordable homes. These provisions include, but are not limited to: a 50 percent increase in allocations, expanding private activity bond recycling, setting a permanent minimum 4 percent rate for LIHTCs used to finance the acquisition of property or generated by tax-exempt private activity bonds, the increase of the population cap on DDAs, and the 30 percent basis boost for rural areas. Those in the affordable housing field should advocate for the AHCIA in order to encourage more construction and substantial rehabilitation of affordable rental housing that could ease the current crushing demand for affordable housing.