February 15, 2019

Mind the Gap

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A family eating dinner

Where in the country – and at what income levels – is it toughest to find an affordable rental?

As awareness of and attention to the shortage of affordable rental housing in the U.S. has grown in recent years, much of the conversation has focused on the income gap between what renter households earn and what the housing market charges for rents.

Spoiler alert: in every state in the U.S., it takes more than a full-time minimum-wage income to be able to afford a modest one-bedroom rental home.

While useful for highlighting demand-side shortages in housing affordability, such approaches ignore supply-side options for addressing the need for more affordable housing.

Supply-Side Solutions: Successful but Not Meeting Demand

Supply-side solutions to affordable housing focus on providing more lower-rent units that low-income households can afford without a direct subsidy or income supplement. These include programs like the Housing Credit, which offers a tax incentive to developers who commit to setting aside a portion of their units at rent levels affordable to low-income households.

Income limits in tax credit properties are generally capped at 60 percent of area median income (AMI), and more than 42 percent of Housing Credit units are occupied by extremely low-income households earning less than 30 percent of AMI.

While the Housing Credit has been successful at developing and preserving affordable rental housing for low-income populations, the program does not provide enough resources to meet demand. To improve or expand supply-side options for low-income renters, however, we need to better understand exactly where and for whom the greatest rental affordability gaps exist.

Interactive Map of the Need for Affordable Housing

Using data from the U.S. Census Bureau’s 2017 American Community Survey, we’ve created an customizable map that compares the number of renter households with incomes below a given share of their state’s median household income to the number of rental homes affordable at that income threshold (i.e., costing no more than 30 percent of that income monthly).

The ratio of affordable units to households represents the share of the need for affordable units that is being met at each income threshold by state, with values under 100 percent indicating a shortage and those over 100 percent a surplus.

Using data from the U.S. Census Bureau’s 2017 American Community Survey, we’ve created a customizable map that compares the number of renter households with incomes below a given share of their state’s median household income to the number of rental homes affordable at that income threshold (i.e., costing no more than 30 percent of that income monthly).

The ratio of affordable units to households represents the share of the need for affordable units that is being met at each income threshold by state, with values under 100 percent indicating a shortage and those over 100 percent a surplus.

Unsurprisingly, the lower the income threshold, the smaller the ratio of affordable rental homes to renter households. At 30 percent of state median incomes, for example, no state (including the District of Columbia) has enough affordable rentals to meet all the demand from renter households within that income range. The share of need met ranges from a low of 22 percent in Nevada to 84 percent in South Dakota.

At 50 percent of state median income, availability improves, with 10 states – including most of the Northern Plains and Alaska – reporting sufficient supply to meet the affordability needs of renter households earning up to that amount. At 60 percent of state median income, that number rises to 27 states, and at 80 percent of median income, only four states – California, Florida, New York and Hawaii – still show affordability shortages.

It is important to note that these figures are rough measures, as they are calculated based on counts of households and units at or below the respective maximum income levels and corresponding affordable rent. As such, they do not adjust for the distribution of either renter incomes or rental costs below that threshold.

For example, in a state with a $50,000 median household income, renters earning up to 30 percent of that would have a maximum income of $15,000, which equates to an affordable rent of $375 per month. A renter household that earns only $14,000 a year, however, would have to pay over 30 percent of their income (32 percent to be exact) to afford a $375 per month unit, even though such a unit would count as affordable in their income group.

Affordable Doesn’t Always Mean Available

Compounding the shortage of homes affordable to the lowest-income renters, households with above-threshold incomes often occupy “below-threshold” affordable units – that is, they could afford a more expensive home but still rent a unit that would be affordable to someone with a lower income. Our interactive chart of rents paid by renters at different income levels demonstrates this mismatch within each state.

Note that this data uses percentages of area median incomes (AMI) that are adjusted for household size and calibrated to local metro or county income distributions. Among the homes with the lowest rents, a significant number are rented by households earning more than 60 percent, 80 percent, and even 120 percent of AMI.

In Vermont, for example, fully one-third of units renting for under $200 a month are occupied by households earning between 80 and 120 percent of AMI. In six other states, at least 19 percent of households paying less than $200 a month in rent earn over 120 percent of AMI.

At the same time, significant numbers of lower-income households are living in higher-priced units, despite the availability of more affordable options within their state. Some renters pay these higher rents – and sacrifice other financial needs such as food or healthcare to make up the cost – to access better units or neighborhoods.

For example, in the Northern Plains states that have enough units to meet the needs of renters earning up to 50 percent of the state median income, between 14 and 29 percent of renters with incomes under 50 percent of AMI are spending at least $1,000 a month on housing. These households have median incomes between $14,000 and $17,000, which translate into affordable rents between just $350 and $425.

Finally, the geographic distribution of renters and affordable rental units within a state may compound shortages. For example, the least-expensive rents are often found in rural areas, even as most renter households live in urban and suburban communities. The analysis above, which accounts for intra-state differences in local area median incomes but not in rents, demonstrates this dichotomy by showing the large numbers of low-income renters who pay higher rents to remain in their neighborhoods, even when cheaper options may exist elsewhere within their state.

Tackling the Housing Affordability Gap

No family should be priced out of an affordable place to call home. This data highlights the need for more rental housing affordable to low-income households – especially for those earning under 50 percent of median income – across the country.

Housing vouchers and other income subsidies can only do so much to improve affordability without warping the overall housing market with an excess of demand, especially in markets that are already supply-constrained. And while building more housing at a range of rent levels will contribute to the long-term moderation of housing costs, adding dedicated affordable units is a critical near-term activity to help low-income renters find housing affordability and stability.

Fortunately, more advocates and legislators are recognizing the need for both demand-side and supply-side solutions. For example, the Opportunity Starts At Home campaign – a multi-sector coalition of organizations promoting policies to protect and expand affordable housing for low-income people – recently released their national policy agenda, Within Reach: Ambitious Federal Solutions to Meet the Housing Needs of the Most Vulnerable People (more information about this campaign is available from Enterprise’s daily newsletter, Community Developments).

Among the report’s recommendations is a call to increase the supply of rental housing affordable to low-income households, through expansion of the National Housing Trust Fund (NHTF) and deeper income targeting in some new Housing Tax Credit developments.

There are also several state and local policy options available to help preserve and expand the supply of affordable rental housing. Prior research from Enterprise has looked at different approaches available to states and municipalities to tackle the affordability gap in their communities, including cost-saving strategies to incentivize development and leveraging publicly-owned parcels for affordable housing.

A recent report also suggests ways that private developers can help retain unsubsidized affordable properties in the face of rising rents in metro Atlanta. When paired with policy efforts to preserve the existing supply of subsidized project-based rental housing, such actions could go a long way towards alleviating rental affordably gaps.

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