Tag Archives: low-income

Renting in America’s Largest Cities

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Following up on an earlier graphic they produced, the NYU Furman Center and Capital One have issued a report, Renting in America’s Largest Cities. The Executive Summary reads,

This study includes the central cities of the 11 largest metropolitan areas in the U.S. (by population) from 2006 to 2013: Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, New York City, Philadelphia, San Francisco, and Washington, DC.

The number and share of renters rose in all 11 cities.

The rental housing stock grew in all 11 cities from 2006 to 2013, while owner-occupied stock shrank in all but two cities.

In all 11 cities except Atlanta, the growth in supply of rental housing was not enough to keep up with rising renter population. Mismatches in supply and demand led to decreasing rental vacancy rates in all but two of the 11 cities in the study’s sample.

The median rent grew faster than inflation in almost all of the 11 cities in this study. In five cities, the median rent also grew substantially faster than the median renter income. In three cities, rents and incomes grew at about the same pace. In the remaining three cities, incomes grew substantially faster than rents.

In 2013, more than three out of every five low-income renters were severely rent burdened in all 11 cities. In most of the 11 cities, over a quarter of moderate-income renters were severely rent burdened in 2013 as well.

From 2006 to 2013, the percentage of low-income renters facing severe rent burdens increased in all 11 cities in this study’s sample, while the percentage of moderate-income renters facing severe rent burdens increased in six of those cities.

Even in the cities that had higher vacancy rates, low-income renters could afford only a tiny fraction of units available for rent within the last five years.

The typical renter could afford less than a third of recently available rental units in many of the central cities of the 11 largest U.S. metro areas.

Many lower- and middle-income renters living in this study’s sample of 11 cities could be stuck in their current units; in 2013, units occupied by long-term tenants were typically more affordable than units that had been on the rental market in the previous five years.

In six of the cities in this study, the median rent for recently available units in 2013 was over 20 percent higher than the median rent for other units in that year, indicating that many renters would likely face significant rent hikes if they had to move. (4)

While this report does an excellent job on its own terms, it does not address the issue of location affordability, which takes into account transportation costs when determining the affordability of a particular city. It would be very helpful if the authors supplemented this report with an evaluation of transportation costs in these 11 cities. This would give a more complete picture of how financially burdened residents of these cities are.

Housing, Out of Reach

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The National Low Income Housing Coalition has released Out of Reach 2015: Low Wages & HIgh Rents Lock Renters Out. The Introduction reads,

Since its founding in 1974 by federal housing policy expert, Cushing Dolbeare, NLIHC has used data to document America’s housing affordability crisis. As part of her original analysis, Cushing observed a fundamental mismatch between the wages people earn and the price of decent housing, what we now call Out of Reach. Today, housing is still out of reach for far too many, and the gap between what people earn and the price of decent housing continues to grow.

The 2015 Housing Wage is $19.35 for a two-bedroom unit, and $15.50 for a one-bedroom unit. The Housing Wage for a two-bedroom unit is more than 2.5 times the federal minimum wage, and $4 more than the estimated average wage of $15.16 earned by renters nationwide. The Housing Wage is an estimate of the full time hourly wage that a household must earn to afford a decent apartment at HUD’s estimated Fair Market Rent (FMR), while spending no more than 30% of income on housing costs. The data in Out of Reach illustrate the gap between wages and rents across the country. In 13 states and D.C. the 2015 Housing Wage is more than $20 per hour.

Many renters earn far less than the Housing Wage in their community and struggle to find an affordable place to live. This edition of Out of Reach highlights some of the economic challenges facing low income renters, including lagging wages, inconsistent job growth, and the rising cost of living. Undoubtedly, the lack of affordable housing remains the overarching problem for low income households, a problem made worse by these economic challenges.

Expanding and preserving the supply of quality, affordable housing is essential to any strategy to end homelessness, poverty, and economic inequality. As our nation’s policymakers seek ways of overcoming these societal ills, access to affordable housing must be a cornerstone of any proposal. (1, emphasis removed)

Some of the particular findings are disturbing. For instance, “There is no state  in the U.S. where a minimum wage worker working full time can afford a one-bedroom apartment at the fair market rent.” (1) This state of affairs reflects many trends, including the fact that the minimum wage has not kept pace with inflation and is worth less today than it was a few decades ago. It is worth unpacking this finding a bit.

The report defines “affordability” as costing “no more than 30% of a household’s gross income” for rent and utilities. (2) It defines “Fair Market Rent” as “the 40th percentile of gross rents for typical, non-substandard rental units.” (2) In some ways, this report overstates the affordability crisis because minimum wage workers may be able to afford housing that falls below the 40th percentile of gross rents. Perhaps a better measure would have been to determine how many units are available to the minimum wage workers in that jurisdiction. That being said, the report does document how “rents remain out of reach for many renters.” (2) For instance, 75% of extremely low income renters spend more than 50% of their income on housing costs . . ..” (5)

Income and wealth inequality have reached extreme proportions in America today. This report highlights how this is playing out in the context of the housing market. (I would also note, however, that the report does not account for how restrictive land use policies keep the supply of new housing from growing many communities, but that may just be a subject for another report.)

Equitable Transit-Oriented Development

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Forest Hills RR Station

Enterprise Community Partners has issued a white paper, Promoting Opportunity Through Equitable Transit-Oriented Development (eTOD): Making the Case. The Executive Summary opens,

Investments in transportation infrastructure can catalyze regional growth and improve mobility. Given limited public funds, public officials and transportation planners have increasingly recognized the benefit of coordinating transportation investments with land use, housing and economic development investments and policies. In particular, there has been a specific emphasis on facilitating transit-oriented development (TOD) – a growth model characterized by compact development, a mix of land uses, and multi-modal transportation connectivity. When properly planned, such development can support transit ridership and revenues, boost property values and enhance economic competitiveness.

While TOD can take many forms, for a variety of reasons there has been increased demand for transit-oriented neighborhoods with a critical mass of population, neighborhood-serving retail establishments, employment opportunities and/or economic activity. Some prefer these transit-oriented, amenity-rich neighborhoods based on lifestyle preferences. However, for others – particularly people with lower incomes or for whom driving is difficult or impossible – the accessibility that TOD offers is crucial to reaching jobs and life’s other necessities in an efficient and economical manner.

Unfortunately, a number of factors – most notably the prevalence of zoning codes that separate residential from commercial and retail uses – have limited the number of compact, mixed-use, multi-modal neighborhoods. To the extent that demand for housing in such neighborhoods – as a result of either choice and/or necessity – remains strong, scarcity of housing in these neighborhoods can increase property values. Significant price increases can lead to additional cost burdens, potential displacement and/or barriers to entry for low- and moderateincome households. If these households are displaced it can also reduce likely riders’ access to transit and limit employees’ and customers’ access to businesses.

One solution to these challenges is equitable TOD (eTOD), which is well-planned and implemented development near transit that accounts for the needs of low and moderate-income people, largely through the preservation and creation of affordable housing. eTOD can expand mobility options, lower commuting expenses and enhance access to employment, child care, schools, stores and critical services. This development model also conveys ancillary benefits to the broader community, the economy, the environment and the transportation system. (5-6)

This is all to the good, but the report does not struggle with a fundamental problem: local governments do not want to build housing for low- and moderate-income households because they tend to be a net drain on municipal budgets a opposed to the typical household living in a single-family home. Even local politicians who are sympathetic to eTOD will face many roadblocks from their constituents if they try to make it happen. Enterprise promises a second report that will address barriers to eTOD. Hopefully, it will address this issue head on.

Wednesday’s Academic Roundup

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What Do People Do When Mortgage Payments Drop?

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I went to an interesting presentation today on a technical paper, Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging. While the paper (by Marco Di Maggio, Amir Kermani & Rodney Ramcharan) itself is tough for the non-expert, it has some important implications that I discuss below. The abstract reads,

Do households benefit from expansionary monetary policy? We investigate how indebted households’ consumption and saving decisions are affected by anticipated changes in monthly interest payments. We focus on borrowers with adjustable rate mortgages originated between 2005 and 2007 featuring an automatic reset of the interest rate after five years. The monthly payment due from the average borrower falls by 52 percent ($900) upon reset, resulting in an increase in disposable income totaling tens of thousands of dollars over the remaining life of the mortgage. We uncover three patterns. First, the average household increases monthly car purchases by 40 percent ($150) upon reset. Second, this expansionary effect is attenuated by the borrowers’ voluntary deleveraging, as a significant fraction of the increased income is deployed to accelerate debt repayment. Third, the marginal propensity to consume is significantly higher for low income and underwater borrowers. To complement these household-level findings, we employ county-level data to provide evidence that consumption responded more to a reduction in short-term interest rates in counties with a larger fraction of adjustable rate mortgage debt. Our results shed light on the income channel of monetary policy as well as the role of debt rigidity in reducing the effectiveness of monetary policy. (1)

The paper cleverly exploits

the anticipated changes in monthly payments of borrowers with adjustable rate mortgages (ARMs) originated between 2005 and 2007, with a fixed interest rate for the first 5 years, which is automatically adjusted at the end of this initial period. These cohorts experience a sudden and substantial drop in the interest rates they pay upon reset, regardless of their financial position or credit worthiness and without refinancing. These cohorts are of particular interest because the interest rate reduction they experienced is sizeable: the ARMs originated in 2005 benefited from an average reduction of 3 percentage points in the reference interest rate in 2010. (3)

I will leave it to individual readers to work through how they designed this research project and move on to its implications:

The magnitude of the positive income shock for these households is large indeed: the monthly payment falls on average by $900 at the moment of the interest rate adjustment. Potentially, this could free up important resources for these indebted and mainly underwater households. We show that households increase their car purchase spending by more than $150 per month, equivalent to a 40 percent increase compared to the period immediately before the adjustment. Their monthly credit card balances also increase substantially, by almost $200 a month within the first year after the adjustment. Moreover, there is not any sign of intertemporal substitution or reversal within two years of the adjustment. . . . However, we also show that households use 15% of their increase in income to repay their debts faster, almost doubling the extent of this effort. (38-39)

There are all sorts of interesting implications that follow from this study, but I am particularly intrigued by its implications for “debt rigidity — the responsiveness of loan contracts to interest rate changes.” (6) While the authors are interested in how debt rigidity can impact monetary policy, I am interested in how it can impact households. There is much in the American housing finance system that keeps households from refinancing — high title insurance charges and other fees, for instance — but we do not often focus on the impact that rigid mortgage contracts have on the broader economy. This paper demonstrates that the effects are not borne by consumers alone. This paper quantifies the effects on the consumer economy to some extent and reveals that they are quite significant. Policy makers should take note of just how significant they can be.

Abusive Non-Rent Fees for Rent Stabilized Tenants

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The Urban Justice Center’s Community Development Project has issued a report, The Burden of Fees: How Affordable Housing is Made Unaffordable. The introduction reads,

Tenants in New York City’s poorest neighborhoods are under attack. Despite the existence of laws such as rent stabilization to protect tenants from high rents, landlords are creating new ways to push rent stabilized tenants out of their homes. One such tactic is the use of non-rent fees, a confusing and often times unwarranted set of charges that are added to a monthly rent statement . . .. These include fees on appliances (air conditioner, washing machine, dryer, and dishwasher), legal fees, damage fees, Major Capital Improvement (MCI) rent increases and other miscellaneous fees. Often these fees appear on a tenant’s rent bill without any explanation. If a tenant fails to pay, even if they are unaware of why the fee was imposed, they are sent letters that make them feel that they are being harassed and are threatened with eviction by the landlord. Most tenants have a right to object to many of these fees, and landlords are legally prohibited from taking tenants to Housing Court solely for non-payment of additional fees. But many tenants don’t know their rights about the fees and often pay them when they shouldn’t. For low-income and working class tenants who struggle each month to pay rent, these fees add up and make their housing costs unaffordable. While some of the fees are legal, many of them are not, and the consistency and pattern of the way the fees are being charged and collected suggests that some landlords are intentionally increasing tenants’ rent burdens to push out long- term, rent stabilized tenants.

This problem is proliferating in the Bronx, where New Settlement’s Community Action for Safe Apartments (CASA) works to improve living conditions and maintain affordable housing. This is particularly apparent in buildings owned by Chestnut Holdings, a company that is fast becoming one of the biggest landlords of rent stabilized buildings in the Bronx.

*     *     *

All survey respondents live in rent stabilized buildings owned by Chestnut Holdings. In total, the coalition collected 172 surveys from 23 buildings, representing 13% of the number of apartments in those buildings. The research sample accounts for 4% of all the apartments that Chestnut Holdings owns, and 28% of the buildings. Researchers also collected rent bills and other supplemental materials (including letters to and from landlords, housing court decisions, and more) from 196 Chestnut Holdings tenants. Coalition members chose to focus on these buildings because they are rent stabilized and located in the neighborhoods where each organization is actively working. Data in this report comes from surveys, recent rent bills collected from Chestnut Holdings’ tenants and interviews with tenants.

Overall, we found that the problem of non-rent fees is serious and widespread in the Bronx. 81% of the tenants we surveyed had been charged some sort of fee. From the rent bills we reviewed for this report, the average tenant had $671.13 in non-rent fees on their most recent rent bill. (1-2)

This document is obviously an advocacy document and not a piece of objective scholarship. Moreover, its methodology may not be rigorous enough to allow us to extrapolate much from its findings. That being said, the survey responses themselves reveal a serious problem: alleged average non-rent fees of nearly $700 for each survey respondent seems very, very high, even if we limit the findings to the respondents themselves.

In the 1970s, predatory landlords hired bruisers with bats and pit bulls to frighten tenants into leaving their homes. In the 2000s, a new generation of predatory landlords used abusive court filings to achieve the same purpose. There is a very real risk that high non-rent fees represent a new tactic for predatory landlords to drive out rent-regulated tenants with under-market rents. To the extent that non-rent fees represent a new tactic to harass tenants, government regulators should actively seek to end it and punish those who employ it.

Wednesday’s Academic Roundup

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