Renting On the Rise
New Harvard study predicts the future of the American housing market
The combined effects of the Great Recession and changing demographics have created rising demand for rental housing, according to a new report by Harvard University’s Joint Center for Housing Studies. As rental vacancy rates in markets across the country reach historic lows, rents have risen. This trend, expected to continue for the next decade, poses a unique challenge to affordable housing. As rents rise, how can low-income households continue to pay their bills?
The Greater Des Moines rental market mirrors this national trend. The 2013 Apartment Survey from CBRE Hubbell Realty shows a sharp decrease in vacancy rates from 9.6% in 2006 to 4.2% in 2012, the lowest rate in nearly 20 years. The vacancy rate among tax credit projects is even lower, at 2.2%. During that same period, average rent for a two-bedroom apartment has increased from $650.00 to $750.00 per month. Increases on larger units are even higher. Altogether, affordable rental units are becoming increasingly scarce. As demand for rentals increases, low-income families could be priced out of their homes.
This problem will not end with the recession. Several major demographic shifts will continue to create demand for rental housing well after the housing market recovers. The Baby Boomers will create half of this new rental demand as they downsize into smaller rental options in their neighborhoods. Immigrant families, the fastest-growing segment of American households, are more likely to rent than non-immigrants. Further, young people are delaying marriage, and thus delaying their entry into homeownership. All of these shifts are putting pressure on the rental market. In total, the report predicts that the number of renter households will increase by over 4 million by 2023.
To meet the increased demand for rental housing, the report suggests that national policy changes are needed. Half of all renters nationwide pay over 30% of their income for rent, and this number is even higher among low-income households. According to the report, the problem can be boiled down to this: “the cost of providing decent housing exceeds what low-income renters can afford to pay.”
Programs like LIHTC, while tremendously helpful for creating new affordable housing, do not provide deep enough subsidies to serve the lowest-income renters, as PCHTF research has recently shown. Rental subsidies are needed to help these families find affordable places to live. Existing voucher programs have not kept up with demand – there were 225,000 new vouchers added between 2007 and 2011 while the number of eligible households rose by 3.3 million. In addition, efforts should be made at the local level to allow smaller units like accessory dwelling units and to increase density. Both of these strategies are suggested in The Tomorrow Plan, and will be discussed as possible policy solutions for Greater Des Moines in the coming year.
Flexible funding sources like the PCHTF will become increasingly important as tools to create housing for the poorest households. To work toward our mission, our policies must change with the market. We will use this information as we move forward in helping all households find affordable and safe housing.
To read the full “America’s Rental Housing” report by the Harvard University Joint Center for Housing Studies, click here.