The housing bust horror flick is now giving way to a very unwelcome sequel: a big squeeze on the cost of renting.
The number of renters paying more than half of their income towards rent has hit record levels, according to a new study by the Joint Center for Housing Studies (JCHS) of Harvard University.
Rental affordability is a critical issue for seniors, who live on fixed incomes and already are coping with low yields on their savings, fast-rising healthcare expenses and stagnant Social Security benefits. Yet the struggle with affordability is found most often among low-income Americans; JCHS found that 75 percent of renters in the lowest quartile of income are spending more than half of their income on housing. JCHS also found that lower-middle class renters also are having trouble finding affordable rental housing.
For example, 33 percent of renters with annual income of $14,500 to $30,000 are facing “severe burdens” in finding affordable rent. And the problem is growing most rapidly among demographic groups traditionally less likely to have affordability problems, including younger households, married couples with children and renters with some college education.
“These are astounding numbers,” says Eric Belsky, managing director of JCHS. “If you are spending half of your income on housing, you have very little to spend on everything else.”
The problem stems from a mismatch of supply and demand of affordable rental housing in the wake of the housing crash. The recession pushed up vacancy rates, and depressed rents, property values and new multi-family unit construction. Meanwhile, the foreclosure crisis has sparked a substantial increase in the number of former owners who now need to rent— just at a moment when development of new affordable housing units has stalled:
The supply gap for very low-income renters (with incomes up to 50 percent of area medians) also increased. In 2003, 16.3 million of these households competed for 12.0 million affordable, available, and adequate units. In 2009, these renters numbered 18.0 million while the supply of units dipped to 11.6 million, widening the gap from 4.3 million to 6.4 million units.
Meanwhile the recession has depressed income, further affecting affordability. Median monthly renter income, adjusted for inflation, has fallen during this decade from $2,950 in 2000 to $2,659 last year.
Rental rates fell through the economic downturn, but were rising at a 2.3 annualized rate last year, according to data quoted by JCHS from MPF Research (see chart). And that rate is expected to accelerate further as the recovery gains steam.
Households headed by adults over age 65 account for about 13 percent of renters, according to JCHS, with another 10 percent headed by adults age 55-64.
How are seniors coping? In part by sharing housing with family members, according to Richard Baron, chief executive officer of McCormack Baron Salazar, a St. Louis-based for-profit developer of affordable housing. “People are doubling up, because they don’t have other options.”
The AARP Public Policy Institute reported earlier this month that the recession has sparked a sizable increase in intergenerational households, from 6.2 million in 2008 to 7.1 million last year – a faster rate of growth than AARP found in the last eight years combined.
The country’s looming age wave also will be a factor driving rents upward in the years ahead, notes Christopher Herbert, director of research at JCHS. “The retirement of boomers will push up the total number of older renters,” Herbert says. “It’s not that more of them will convert from home ownership to renting, but simply that those who rent now will continue to do so – and they represent some very large numbers.”
Like all housing matters, federal programs and policy loom large in matters of affordable rentals. But federal housing policy hasn’t kept pace with the changing rental market. The most significant existing federal program is the Low Income Housing Tax Credit (LIHTC), which aims to stimulate availability of capital for the purpose of replenishing affordable housing stock. An array of vouchers and other subsidies also help some renters.
But the JCHS study notes that the federal programs are focused mainly on the lowest-income renters, so won’t address the growing need in higher income brackets.