When it comes to housing, the past decade has been anything but relaxing for millions of U.S. residents. The 2002-2006 run-up in real-estate prices was as dizzying for homeowners as it was appalling for would-be buyers. Then came the subprime crash, Great Recession and a massive asset melt-down — median household wealth dropped 47% from 2007 to 2010, much of that in real estate losses. Unemployment more than doubled, going from 4.4% in October 2006 to a high of 10% four years later. Skilled jobs continued to disappear, cutting incomes and pushing many once middle-class Americans into lower-tier jobs, leaving less money for basic needs such as housing.
These and other economic and social factors have been particularly hard on lower-income Americans who rent, according to 2013 research by the Joint Center for Housing Studies at Harvard University. The report, “America’s Rental Housing: Evolving Markets and Needs,” edited by Marcia Fernald, examines the demographics of those who rent, the housing stock and its condition, construction trends and public-policy challenges now and in the future. The authors note that, while renting can have many advantages over buying, the recent surge in demand, rising rents, and falling incomes have caused an increasing number of households to pay a crushing share of their income for housing.
The report’s findings include:
- In 2011, renters paid an average of $725 a month excluding utilities. With utilities, the median total rent burden was $843, or $10,116 annually. While this can sound modest to some, for lower-income renters it often represents more than 30% of their income, the standard for affordability. “Households would have to earn at least $33,700 a year — several thousand dollars more than the median renter income — to afford this home,” the report states. “And for the nearly one-quarter of renters with incomes of $15,000 or less, rent plus utilities would have to total well under $400 a month to be affordable. Only 8% of units have such low costs, although another 14% receive some form of public subsidy that helps to close the gap between the demand for affordable housing and the private supply.”
- Half of all renters paid 30% or more of their income for housing in 2010, an increase of 12 percentage points over a decade. Much of the rise was for those who pay half or more of their income for rent, 27%; in 2012, more than 21 million households did so. “These levels were unimaginable just a decade ago, when the fact that the severely cost-burdened share was nearly 20% was already cause for serious concern.”
- For renters earning less than $15,000 annually in 2011, 83% were considered housing-cost burdened (paying more than 30% of income for housing), and 71% with severe burdens (paying more than 50%).
- Housing-cost burdens of 30% or more lead to significant financial hardship for families. On average, such renters spend $130 a month less on food, and also cut back on health care and retirement. Even renters earning up to $30,000 — twice the rate for full-time minimum-wage work — cut back on food by a similar amount.
- The shortfall in affordable units for lower-income renters continues to grow: “In 2011, 11.8 million renters with extremely low incomes (less than 30% of area median income, or about $19,000 nationally) competed for just 6.9 million rentals affordable at that income cutoff — a shortfall of 4.9 million units. The supply gap worsened substantially [from 2001 to 2011] as the number of extremely low-income renters climbed by 3 million while the number of affordable rentals was unchanged. Making matters worse, 2.6 million of these affordable rentals were occupied by higher-income households.”
- As the housing-cost burden for renters has increased, assistance efforts have not kept up: “Rental subsidies are generally targeted at households with very low incomes…. Between the onset of the Great Recession in 2007 and the latest count in 2011, the number of such renters soared by 3.3 million while the number able to obtain housing assistance expanded by just 225,000. As a result, the share of income-eligible households receiving assistance shrank from an already modest 27.4% to 23.8%.”
Because low-cost rentals bring in little income to building owners, they’re particularly vulnerable to being removed from the rental market or demolished:
- In 2001, 34.8 million such units existed; by 2011, only 32.9 million remained, a drop of 1.9 million, or 5.6%. The number of units renting for less than $400 declined even more, by 12.8%. “Although making up only a small share of the overall rental supply, homes renting for less than $400 thus accounted for more than a third (650,000) of total removals.”
- The older a rental unit is, the more likely it is to be removed: Loss rates for those built before 1960 are approximately 8% over the period studied. Those for single-family homes and two- to four-unit apartment buildings are also relatively high.
- Loss rates were higher outside metropolitan areas than in city centers: “8.1% of rental units in non-metro areas were lost from the stock over the decade, compared with 5.7% in central cities and 4.7% in suburbs. High losses in rural areas reflect the greater presence of mobile homes, particularly in the South and West where they account for more than 10% of rentals.”
- Newly constructed rental units tend to be on the upper end of the rental scale: “The 2011 [American Housing Survey] reports that the median monthly gross rent for units built in the preceding four years was $1,052 — affordable only for households earning at least $42,200 a year. Only 34% of new units had rents below $800.”
While the demographics of renters are more varied than popularly imagined — for example, families with children account for nearly half of all renters and many are former owners — certain general characteristics can be found:
- Even when excluding real estate, homeowners had more wealth than renters: In 2010, the net worth of homeowners, excluding their homes, was $72,520; for renters, the figure was approximately $5,180 — just one fourteenth as much. Even older renters with higher incomes lagged behind comparable homeowners: Those aged 35 to 44 in the upper-middle income quartile had less than one fifth the median net worth of homeowners, $13,300 compared to $69,700.
- Renters’ incomes are often low, with nearly 25% earning less than $15,000 annually, the equivalent of full-time work at the 2013 federal minimum wage of $7.25 per hour. A similar percentage of renters earn between $15,000 and $30,000, and approximately 33% take home between $30,000 and $75,000. (Related research on the minimum wage shows that in real terms, the current rate is significantly less than that paid in 1968.)
- Minorities will account for the vast majority of the additional rental households over the next decade, and more than 50% of those will be Hispanic or Latino. Of minority households between 25 and 44 years of age, an additional 1.8 million and 2.2 million will rent.
“The affordability problem fundamentally reflects the simple fact that the cost of providing decent housing exceeds what low-income renters can afford to pay,” the report concludes. “Consider the case of renters with $15,000 in annual income. To meet the 30%-of-income affordability standard, they would have to find housing that costs no more than $375 a month. By comparison, the 2011 median monthly cost for housing built within the previous four years was more than $1,000. Less than 34% of these new units rented for less than $800, and only 5% for less than $400.”
To improve the situation, the authors suggest a number of approaches to increase the supply of affordable housing. These include amending regulations that limit higher density developments or prevent the construction of “accessory dwelling units” (popularly known as “mother-in-law” apartments); allowing smaller dwellings, including “micro apartments”; and reducing parking minimums that can significantly increase the cost of construction and thus make apartments less affordable.
Keywords: poverty, @leightonwalter, @journoresource