Almost every American is a renter at some point in his life but today both economic conditions and demographic forces are increasing rental demand, reversing trends that have prevailed from the mid-1990s.

Harvard's Joint Center on Housing Studies has just issued a report on the state of rental housing in this country and its renewed importance.  While "American's Rental Housing - Meeting Challenges, Building on Opportunities" does not use the word "crisis" in regards to the rental market, it is hard to read the report without the sense that one is looming.

Renters are as diverse as the citizenry but more likely to be young, single, and low income than the population in general.  Renting is a common choice for young adults and many of them who become homeowners return to renting at least once as they divorce, relocate for employment, or fail in homeownership.  Even during the housing boom the rental share never fell below 30 percent. 

Today 40 percent of renters are single persons and 13 percent are elderly households.  Renters are ethnically and racially diverse but becoming less so.  Minorities accounted for 89 percent of the 4 million new rental households that formed between 2000 and 2010 with Hispanics contributing 42 percent and blacks 25 percent.  However, with the recession slowing the rate of immigration and the rising foreclosure rate, whites somewhat reversed the trend in the last half of the decade and accounted for nearly half of new rentals between 2005 and 2010.

Reflecting their disproportionately large share of single, young, and minority households, renters are heavily concentrated in the bottom half of the income distribution; nearly three-quarters have incomes below the median income for all households including 41 percent in the bottom quartile and 30 percent in the lower-middle one.  Only about 10 percent of renters are in the highest income quartile.

A growing number of renters are becoming cost-burdened.  The report says that the decrease in affordability of rentals may not seem dramatic in the short term but over the longer sweep of time it is alarming.  The usual standard of affordability is that rent and utilities should consume less than 30 percent of household income.  Between 30 and 50 percent the burden is considered moderate and above 50 percent severe.  In 1960 24 percent of renters were at least moderately burdened and half of those severely so.  By 2000 these shares were 38 and 20 percent and by 2009 49 percent were moderately burdened including 26 percent who were severely so. 

Lack of affordability is a factor of both rent and income.  Over the last 30 years the median incomes of renters has generally risen during good times, giving back its gains during subsequent downturns.  Following the 2001 recession, however incomes did not rebound and now remain below their 1980 level.  Rents which stagnated for nearly a decade after the 1980s building boom rents are now 15 percent above the 1980 level.  Utility costs which are paid separately by 80 percent of renters have risen steadily since 2000.

The affordability burden is most acute among the lowest income (duh).  Among low-income renters 49 percent had severe burdens and 28 percent had moderate burdens; among the extremely low income 63 percent reported severe burdens and 15 percent moderate.

These affordability problems are creeping up the income ladder.  "Over the past decade moderately cost burden renters in the lower-middle income quintile jumped from 32 percent to 41 percent."  There was an even larger increase in the moderate category, from 9 to 20 percent, for renters with income in the middle quintile.

At the same time, a lot has been happening to the housing stock. Census Bureau data indicates the rental vacancy rate has fallen 0.9 percentage points to 9.7 percent since 1Q 2010. Also, professionally managed apartment buildings reported a 1.7 percentage-point drop in vacancies and a 2.3 percentage-point annualized increase in rents as of the fourth quarter of 2010.  At the same time Moody's reported its commercial property index was up 12 percent year-over-year.  While supply and demand are nearing balance the Report sees the ingredients for demand to surge.   The recession has stalled the formation of new households and slowed immigration.  As the job market returns to normal both may climb quickly.

The available stock is also disappearing.  Federal housing support is of two types - project based where units in a multi-unit building are dedicated to low income occupants and tenant based where the tenant is given a voucher to use for any rental property willing to accept it.  At present there are about 7 million federally assisted units, enough for only a quarter of the lowest income renters.  The project-based stock now numbers 3.1 million units and is dwindling.  More than 700,000 units were lost between 1995 and 2009.  The number of vouchers during this period increased, but not enough to keep pace with units that either deteriorated or converted to market rents.

The majority of the nation's low-cost rental stock is not federally assisted.  Among the inventory renting for less than $400 per month the report says 2.1 million units were assisted and 3.0 million were unassisted in 2009 and private units renting for $400-$600 units numbered 7.1 million.  This private stock, however, is disappearing.  11.9 percent of units with rents below $400 were demolished between 1999 and 2009; on net more than 28 percent of the low cost stock available in 1999 was gone by 2009.  The current stock of older and smaller residential buildings is, at a median age of 38, older than it has ever been and the cost of maintenance is rising.

All of the factors above have widened the gap between very low-income renters and the homes they can afford.  In 2003 there were 16.3 million very low-income renters competing for 12 million affordable and adequate rentals; by 2009 the number of such renters had increased to 18 million and the number of units had dropped to 11.6 million

The Joint Center estimates that the number of renter households could increase by 360,000 to 470,000 annually over the next ten years and most of this growth will be among those most likely to rent multifamily housing - older and younger households, minorities, and single persons.  It seems certain, the report says, that without a dramatic expansion of federal assistance and a shift in local land use and building regulations the affordability burdens will remain or even increase and current attempts to trim the deficit endangers even the status quo.  The administration needs to support private efforts to meet housing needs through both preservation and new construction, perhaps through tax treatments of investments for housing.  The federal government could follow the example of state and local governments which have provided incentives to developers to include low-income units in return for concessions on land use or building requirements and affordability can be improved by targeting improved energy efficiency in older rental housing.  There is also a need to provide a means of adequate financing for development of new housing, particularly smaller multifamily properties

The report concludes that rental is increasingly recognized as an integral part of anti-poverty strategies, neighborhood redevelopment and transportation planning.  "In today's challenging budgetary environment, investments in affordable rental housing thus offer opportunities to improve the well-being of low income families while also building stronger communities."

"With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market", says MND's Managing Editor Adam Quinones. "We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."



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