Affordability is a major concern for renters and that problem is likely to persist according to researchers who authored “America’s Rental Housing” report for the Joint Center for Housing Studies of Harvard University. A “good news/bad news” finding from the report is that rental stock is growing – but only for units renting at $850 or higher.
The JCHS report, prepared biannually, examines changing demographics and policy issues that are driving the rental component of the country’s housing supply.
Researchers found a growing number of the country’s 43 million residents who rent are cost-burdened, meaning they spend more than 30 percent of their income on housing costs. Those in rural areas are especially hard hit, with an estimated 40 percent considered burdened. (In nine of the nation’s largest metro areas, about half the renters are considered to be cost burdened.)
The segment that rents is growing at twice the rate of a decade ago, raising questions about the ability of developers to keep pace with demand. Hoyt Advisory Services, a consulting firm that works with decision-makers, estimates an additional 4.6 million apartments will be needed by 2030 or affordability problems will continue.
Researchers attribute sustained demand to a number of factors. These include immigration, historically high demand from retiring baby boomers, and rising demand from high earners.
The report noted renting now appears to have greater appeal for households that could afford to buy homes “if they desired.” Households earning $100,000 or more made up nine percent of renters in 2006, but ten years later that share jumped to 18 percent, representing a cumulative increase of 2.9 million renters.
High-end renters are faring better than their poorer counterparts, in part because developers are eager to create housing in desirable urban centers. Between 2013 and 2016, nearly 60 percent of unfurnished new units were built in the principal metro areas of cities, a 10 percent jump from the previous decade, according to the JCHS report.
Virtually all the 7.2 million rental units added in the decade between 2006 and 2016 rented for $850 per month or more. A whopping 53 percent commanded $1,500 and up. During the same timeframe, the number of units renting for less than $650 fell by 475,000 units.
Sharply rising costs for labor and materials are cited as a driver of higher rents. Tight land use regulations and lengthy approval processes further constrict the creation of affordable rentals.
Low-income renters continue to see their residual income drop along with their choices. For those in the bottom quartile of all U.S. incomes, just $500 per month was left, on average, after paying housing costs.
Rental choices for low wage-earners are shrinking in part because of a deferred repair backlog for public housing. HUD estimates 93 such units are affordable for every 100 very low-income renters, but of these, only 54 are both available and adequate. Other research conducted by the Hudson Institute indicated around 60 percent of the 15 million rentals affordable in 1985 (roughly 8.7 million units) were lost by 2013. Permanent removals and demolitions, conversions, and gentrification contribute to the demise of affordable units.
Harvard’s analysts reported increases in median rents have exceeded inflation for non-housing expenses by one percent during each of the past six years, noting “And it’s even worse in hot markets: median rents have risen at twice the national pace in cities such as Austin, Denver, and Seattle.”
(Editor’s note: As of March 2018, the average rent for Seattle’s one-bedroom apartments is $1,970; for two bedrooms it’s $2,675, according to Rainmaker Insights. Overall, the average rent in Seattle is $2,094, about 41 percent higher than the nationwide average of $1,480.
Researchers also noted stark differences in the net worth of renters versus owners: In 2016, renter households “stuck on a treadmill of monthly rent” had a net worth of only $5,000, according to the Survey of Consumer Finances. For homeowners, the average was $230,000.
Other findings a senior research associate at JCHS listed as “new or surprising” in the latest Rental Housing Report include:
- New rental starts dropped 9 percent year-over-year, continuing a slowdown that emerged in 2016 when permitting fell in nearly half the nation’s 50 largest markets. Despite the softening, rental starts are considered to be at a healthy level.
- Conversions of single-family homes to rentals have slowed. The stock of single-family rental homes increased by 4 million between 2001 and 2016, but the trend has shown signs of moderating. In fact, the American Community Survey reported that 2015 was the first year since 2006 when the number of single-family rentals declined.
- Renter households with incomes over $100,000 accounted for 30 percent of growth over the past decade. The trend is particularly pronounced in high-cost metros, notably San Francisco and New York City.
- Households age 50-plus made up more than half of renter household growth over the past decade. This cohort comprised 30 percent of all renter households in 2006, but jumped to 52 percent through 2016. In contrast, households under age 35 made up just 24 percent of renter household growth through 2016.
Alleviating the concerns for low income renters will require policy changes, the report’s authors suggest. Issues include access to capital for the multifamily industry, the cost of local regulations and requirements, and the growing challenge of housing affordability in numerous communities across the country.
“While the affordable housing challenge has many causes, this report offers evidence that it should continue to be a top issue locally and nationally for years to come,” the report concludes.
This year’s report, for the first time, includes interactive maps and charts so readers can compare rent growth, rent burden, changes in household growth and other data points by selected markets.
The Joint Center for Housing Studies provides research, education, and public outreach programs to help advance understanding of housing issues and to help inform policy for cities and communities. Leaders in government, business, and the civic sectors are among users of its research.