For many in the rental market, a lack of affordability related to increasing rents continues to be a significant concern, and it’s impacting not only lower-income earners, but the middle class as well. A recently released report from the Harvard University Joint Center for Housing Studies, “America’s Rental Housing 2020,” found there are several factors impacting the markets: increased rents, insufficient regulations, increased demand from high-income renters and even climate change.
Rising Rents Pose Challenge
Which segments are struggling the most? According to the report, U.S. residents earning median incomes—those between $30,000 and $75,000—are having trouble paying their rent. This segment of the population is now cost-burdened, paying more than 30 percent of what they earn toward housing expenses. Impacted even more severely, renters in the lowest income brackets are spending over half of their monthly income on housing.
“Despite the strong economy, the number and share of renters burdened by housing costs rose last year after a couple of years of modest improvement,” said Chris Herbert, managing director of the Joint Center for Housing Studies, in a statement. “And while the poorest households are most likely to face this challenge, renters earning decent incomes have driven this recent deterioration in affordability.”
What do the markets look like? According to the report, between 2012 and 2017, the number of units that rent for over $1,000 (or more) drastically increased by 5 million. Meanwhile, units renting for under $600 dropped by 3.1 million.
Low-income renters are struggling, with some left homeless and many put at risk for eviction. Between 2010 and 2018, renters earning below $30,000 annually fell by almost 1 million. Homelessness increased between 2016 and 2018 to 552,830—a problem especially in high-cost states such as California, Oregon and Washington, shows the report.
Who, then, are the markets catering to?
“Young, college-educated households with high incomes are really driving current rental demand,” said Whitney Airgood-Obrycki, a research associate at the Center and lead author of the report.
Increased Demand From High-Income Renters
High-income earners are transforming the rental markets. From 2016-2018, these renters increased by 545,000, and those making at least $75,000 made up over three-quarters of the overall renter growth between 2010-2018.
This is reshaping new construction, with most units catered to the high-end crowd. According to the report, new multifamily construction in 2019 was set to either match or exceed 2018 numbers, during which starts increased 6 percent to 374,100 units. Much of these, however, were only available to those earning at the higher tiers.
The median ask for unfurnished units completed between July 2018 and June 2018 was $1,620—a cost that typically accounts for amenities such as air conditioning and in-unit laundry. Under the thousand mark? That’s hard to find—only 12 percent of units were available in that price range during this time period. A bulk of new-construction units (about one in five) were on the market for at least $2,450.
The lack of new construction in lower-priced tiers, along with rising demands for luxury units, is causing a shrinking supply of low-cost rentals. Between 2012 and 2017, the number of units with rents below the $600 mark fell drastically by 3.1 million, bringing the national rental stock to 25 percent in 2017, down from 33 percent in 2012.
Regulation Hopes to Ease Rental Burden
In order to reverse the trend and ease the burden on low-income earners, several state and local governments have moved to lessen restrictions on land-use regulations, hoping to encourage the production of lower-cost homes.
Many have enacted plans to increase affordable supply and funding that can go toward reforming zoning that would allow higher-density construction. In Minneapolis and Oregon, for example, recently enacted reforms will lead to new multi-unit construction in areas that were previously zoned for single-family properties, according to the report.
“Last year, Minneapolis became the first large American city to end single-family zoning,” said Herbert. “This has the potential to greatly expand the rental supply and improve affordability in the city, but, ultimately, only the federal government has the scope and resources to provide housing assistance at a scale appropriate to need across the country.”
To address the increasing problem of homelessness and eviction for low-income earners, local governments have implemented programs to lower the costs of social services that support the homeless, as well as increase renter protections.
However, limited funds are available, leaving a growing gap in the affordability crisis that even government regulation is having trouble keeping up with. Many organizations—some tied to hospitals, universities and technology companies—have taken it upon themselves to develop solutions.
Climate Change Creating Obstacles
Another factor in affordability is the rising likelihood of natural disasters that impact the renter population.
Out of the 43.7 million renter households, 10.5 million are in areas that incurred at least $1 million in damages and losses to their business and homes because of natural disasters between 2008 and 2018. These catastrophic events often leave renters vulnerable—8.1 million renter households reported not having the financial resources necessary for evacuating in case of an emergency.
A Domino Effect on Homeownership
The challenge also lies on the impact these changes are having on homeownership rates. Due to rising costs and crunched affordability, renters are having trouble saving enough to own their own home.
The report shows that for those aged 35-64, who are more traditionally likely to own a home, especially married couples with children, renting has become more common. These families are now a larger share of renter households, at 29 percent, than owner households, at 26 percent.
“Rising rents are making it increasingly difficult for households to save for a down payment and become homeowners,” said Airgood-Obrycki.
To access the report, visit www.jchs.harvard.edu.
Liz Dominguez is RISMedia’s senior editor. Email her your real estate news ideas at email@example.com.