December 14, 2017
State of America’s Rental Housing
The Joint Center for Housing Studies of Harvard University has released America’s Rental Housing 2017. I was a bit surprised that the report spent so little time addressing the types of restrictive zoning that depress the supply of new rental housing. Loosening those restrictions seems like a key component of any national affordability strategy for the rental sector. Some highlights of the report include the following selections from the Executive Summary:
After a decade of broad-based growth, renter households are increasingly likely to have higher incomes, be older, and have children. The market has responded to this shift in demand with an expanded supply of high-end apartments and single-family homes, but with little new housing affordable to low- and moderate-income renters. As a result, part of the new normal emerging in the rental market is that nearly half of renter households are cost burdened. Addressing this affordability challenge thus requires not only the expansion of subsidies for the nation’s lowest-income households, but also the fostering of private development of moderately priced housing.
Renter Household Growth in a Slowdown
Rental housing markets have seen an unprecedented run-up in demand over the last decade, with growth in renter housholds averaging just under one million annually since 2010. But the surge in demand now appears to be ending, with the three major government surveys reporting a sharp slowdown in renter household growth to the 136,000–625,000 range in 2016. Early indications for 2017 suggest a further deceleration, with one survey showing essentially no increase and another posting a substantial decline (Figure 1). While these estimates are notoriously volatile from year to year, the consistent trend across surveys provides some confidence that growth in renter households is indeed cooling.
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Evolution of the Rental Supply
Soaring demand sparked a sharp expansion of the rental stock over the past decade. Initially, most of the additions to supply came from conversions of formerly owner-occupied units, particularly single-family homes, which provided housing for the increasing number of families with children in the rental market. Between 2006 and 2016, the number of single-family homes available for rent increased by nearly 4 million, lifting the total to 18.2 million. While single-family homes have always accounted for a large share of rental housing, they now make up 39 percent of the stock.
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Rental Markets at a Turning Point
Rental construction led the housing recovery, rebounding nearly four-fold from the market trough in 2009 to 400,000 units in 2015— the highest annual level since the late 1980s. But after moving sideways in 2016, the pace of multifamily starts has fallen 9 percent through October 2017. The slowdown has occurred in markets across the country, but is most evident in metros where multifamily construction had been strongest.
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Slight Easing of Affordability Pressures
With the economy continuing to improve and income growth accelerating, the share of renters with cost burdens (paying more than 30 percent of income for housing) fell in 2016 for the fourth time in five years, to 47 percent (Figure 5). The number of cost-burdened renters also fell for the second consecutive year, declining from 21.3 million in 2014 to 20.8 million in 2016, with the number of severely burdened households (paying more than 50 percent of income for housing) dipping from 11.4 million to 11.0 million. However, this progress comes only after a decade of steep increases. At the average rate of improvement from 2014 to 2016, it would take another 24 years for the number of cost-burdened renters to return to the 2001 level.
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Shortfall in Rental Assistance
Need for housing assistance continues to grow. HUD’s Worst Case Housing Needs 2017 Report to Congress shows that the number of very low-income households receiving rental assistance increased by 600,000 from 2001 to 2015. Over the same period, the number of very low-income households (making less than 50 percent of area median) grew by 4.3 million, with extremely low-income households (making less than 30 percent of area median) accounting for more than half (2.6 million) of this increase. As a result, the share of renters potentially eligible for assistance and that were able to secure this support declined from 28 percent to 25 percent (Figure 6). Meanwhile, the share of very low-income renters facing worst case needs—that is, paying more than half their incomes for housing and/or living in severely inadequate units—increased from 34 percent to 43 percent.
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Outlook
Slower growth in rental housing demand could be good news if it helps to check the rapid rise in rents. But even if the homeownership rate stabilizes near current levels, the number of renter households is likely to continue to increase at a healthy clip, driving up the need for additional supply. And given that a broader array of households has turned to renting, this also means a growing need for a range of rental housing options. (1-6)
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