Rental affordability crisis climbing
Thursday, April 23, 2020 from Floor Covering Weekly
These are some of the key findings from America’s Rental Housing 2020, recently released by Harvard University’s Joint Center for Housing Studies. After more than a decade of torrid growth, the number of renter households fell by a total of 434,000 in 2017 and 2018. But even amid the recent slowdown, the number of high-income renters continued to soar, climbing by 816,000 over the 2016-18 period. In fact, households with incomes of at least $75,000 (adjusting for inflation) accounted for nearly three-quarters of the growth in renters from 2010 to 2018, while the number earning less than $25,000 was essentially unchanged.
This shift has significantly altered the profile of the typical renter household. When the housing boom crested in 2007, 19 percent of renters earned $75,000 or more and 35 percent earned less than $25,000. By 2018, this large disparity in share had narrowed considerably, with higher-income households making up 26 percent of all renters and lowest-income households making up 31 percent.
The increase in renting among higher-income, older and larger households reflects a variety of factors. While public opinion surveys do not show a material change in the desire to eventually own homes, most respondents indicate satisfaction with their current rental situations — suggesting that life changes such as marriage, children and career advancement have less of an impact on the decision to buy homes. But these same surveys also point to affordability as a major barrier to homeownership. Consistent with this finding, all the net growth in homeowners since 2010 was among households with incomes of $150,000 or more.
Strong operating performance of rental properties have propelled apartment prices to record levels. Prices soared by 116 percent between 2010 and mid-2019, erasing all of the losses incurred during the recession and now standing at nearly twice their level in 2000. However, gains in valuation slowed to 5.4 percent at midyear, following seven straight years of better than 8 percent annual growth. Indeed, prices in a few major markets, such as Houston, Minneapolis, and Seattle, declined year over year as growth of new supply outpaced demand.
Rental market conditions have fundamentally changed since the Great Recession. With higher-income households accounting for much of the growth in demand since 2010, increases in supply have been concentrated at the upper end of the market. With more amenities and located in core parts of metro areas, these new units command rents that out of reach for even moderate-income households. At the same time, changes in the ownership and management of smaller apartment buildings has helped push up rents for these formerly modest-priced units and substantially reduced the existing stock of low-cost rentals.
The fallout from these changes is substantial. In markets around the country, growing numbers of renters with incomes between $30,000 and $75,000 are now facing cost burdens. Meanwhile, two-thirds of lowest-income renters pay more than half their incomes each month for housing, leaving little money left over for other basic needs, including food and healthcare. Not surprisingly, these conditions have also led to an increase in evictions and homelessness, particularly in high-cost states.
Copies of America’s Rental Housing can be downloaded for not cost at the Joint Center for Housing Studies” website (www.jchs.harvard.edu)