The State of the Nation’s Housing Finds that Renter Cost Burden Has Reached an All-Time High
The number of severely cost-burdened renters - those paying more than half of their income in rent - has reached an all-time high of 11.4 million households, according to the Harvard University Joint Center for Housing Studies’ (JCHS) newly released The State of the Nation’s Housing 2016. In their annual report on housing trends, the JCHS finds that our nation’s affordable housing shortage will continue to worsen without significant policy changes, giving rise to wide-ranging consequences for low-income households.
Factors Contributing to the Increase in Severely Cost Burdened Renters
Rental demand has increased in recent years, with a net increase of 1.4 million renter households in the past year alone - the largest-ever single year increase. The increase in rental demand is closely linked to stagnation in homeownership, with the U.S. homeownership rate now the lowest it has been in nearly 50 years. Though rental demand has increased among all age groups, much of the growth is attributed to a major uptick in middle-aged and older households entering the rental market: the number of renter households in their 50s and 60s rose by 4.3 million in the past 10 years, and the number of renter households in their 70s and over increased by more than 600,000 over the decade.As demand for rental housing has increased, so have rental prices. Rents rose by more than 3.6 percent in 2015, far outstripping the pace of inflation and growth in wages. Incomes have increased just 1.2 percent in the past year, making rents increasingly unaffordable.
The Impacts of Severe Cost Burden
In order to afford rent, many low-income households face difficult choices: sacrificing other basic needs like food and transportation, living in inadequate or overcrowded apartments and/or facing financial instability,which can result in eviction and even homelessness. Severely cost-burdened households were found to spend
41 percent less on food and substantially less on healthcare than other households. One in five low-incomefamilies of four or more live in overcrowded apartments, meaning more than two people per bedroom. And one in 10 low-income renters live in inadequate units - meaning they lack complete plumbing, experience frequent breakdowns in major systems or have other physical defects.Unaffordable rents also put families at risk of eviction - a threat faced by over two million low-income families each year - which also threatens families’ financial stability, employment prospects and school performance. For many families, paying the rent means forgoing other necessities - for example, in 2013 roughly 18 percent of very low-income renters received utility shutoff notices or had their utilities shut off for nonpayment.
A Growing Shortage of Affordable Rental Housing
With apartments in the private market rapidly becoming more expensive, the need for affordable housing is at an all-time high. The affordable housing supply, however, has fallen far short. The National Low Income Housing Coalition’s recently-released Out of Reach report found that for every 100 extremely low-income renter households, there were only 31 affordable apartments available.The share of eligible low-income households receiving rental assistance has also declined. Over the past 20 years, the number of very low-income households eligible for federal rental housing assistance grew by 3.8 million, but the number of households receiving rental assistance increased by only 532,000 over that time period - resulting in a drop in the share of income-qualified renters receiving federal assistance from 29 to 26 percent.
The finding that the number of severely burdened renters has reached an all-time high after declining for several years points to an alarming trend. According to the report, rental demand is expected to remain robust as millennials begin to form new households and homeownership for households in their 30s and 40s continues to drop. “Without public subsidies,” the report predicts, “the cost of a typical market-rate rental unit will remain out of reach for the nation’s lowest income households.”In 2015, Enterprise partnered with the JCHS to further explore how many and what types of renters will be severely cost-burdened in the coming years in Projecting Trends in Severely Cost-Burdened Renters: 2015-2025. The report found that demographic trends alone (assuming current economic conditions remain constant) will result in an 11 percent increase in the number of severely burdened renters to 13.1 million in 2025. However, if rent gains continue to outpace income growth, the number could reach 14.8 million severely cost-burdened renter households. Our analysis also found that this growing trend will disproportionately affect older people (ages 65 and older), nonwhite - particularly Hispanic - households, married couples and single people. These projections confirm that the number of severely cost burden renters will only worsen if more isn’t done to meet the significant and burgeoning need for affordable housing.
The JCHS report cites several policies that could make significant strides towards meeting the affordable housing needs of low-income renters. “Current proposals to expand the Low-Income Housing Tax Credit program, as well as to reform the public housing and other rental assistance programs, may help broaden access to affordable housing for the nation’s most vulnerable households,” the report states.
The JCHS notes that applications for the Low-Income Housing Tax Credit (Housing Credit), our nation’s primary tool for financing new affordable housing, far exceed the supply. Recognizing that this tool could be expanded to make a meaningful dent in the shortage of affordable housing, Senator Maria Cantwell (D - Wash.) and Senate Finance Committee Chairman Orrin Hatch (R - Utah) recently introduced legislation that would expand the Housing Credit by 50 percent over its current allocation.
The JCHS also notes the importance of other gap financing sources like the HOME program to help make apartments financed by the Housing Credit apartments affordable to the lowest-income households, and criticizes the severe cuts to the program over the last decade for making it more difficult to finance affordable housing.
With regards to expanding and reforming HUD’s rental assistance programs, the JCHS finds that most cities’ waiting lists for housing vouchers are years long or even closed, pointing to a need to expand these resources. In addition, the report credits HUD’s Rental Assistance Demonstration with providing new flexibility to use the Housing Credit and private capital to rehabilitate and preserve the aging public housing inventory.
The report also touches on local housing policies, noting an increase in inclusionary housing policies. These policies, which now exist in more than 500 local jurisdictions, “typically provide long-term affordability, which is important in high-cost areas and in gentrifying neighborhoods where low-income households are at risk of displacement.”Finally, local governments can address some of the structural problems that contribute to the affordability crisis. In particular, municipalities should permit increases in the overall housing stock, and rental housing in particular, to allow supply to better meet demand. The positive impact of increasing funding for dedicated affordable housing will not be fully felt if zoning policies continue to promote high housing costs.