Thursday, June 2, 2016

Are Renter Worst Case Housing Needs Easing?

by Ellen Marya
Research Associate
Every two years, the Department of Housing and Urban Development (HUD) issues its Worst Case Housing Needs Report to Congress (WCN). This report highlights the challenges faced by low-income renter households in finding affordable, good-quality housing. In addition to data on characteristics of renter households and units, HUD’s report provides a count of renters facing worst case needsdefined as households who earn less than 50 percent of the area median income (AMI) who do not receive housing assistance from the government, who also are severely cost burdened (spending more than 50 percent on income on housing costs), and/or live in severely inadequate units. 

In its most recent WCN report released in May 2015, HUD noted a full 9 percent decline in the number of households with worst case needs, falling from 8.5 million in 2011 to 7.7 million in 2013. It was the first decline in that measure since a slight (1 percent) decrease in 2005-2007 and followed two periods of increases of about 20 percent. The change was surprising given that it coincided with a time of broadly stagnant incomes, rising rents, and a rapid increase in the number of renters. Do HUD’s numbers reflect genuine improvements in conditions for renters or are other factors at work?

A potential explanation for the decrease in worst case needs explored by HUD is a change in the income limits the agency uses to identify households earning less than 50 percent of AMI (very low-income households). Between 2011 and 2013, HUD reduced the maximum income for very low-income households by $516, decreasing the number of households in this group eligible to be counted among those with worst case needs by about 1 percent. When HUD compared the tallies of renters with worst case needs using the new and old cutoffs, however, it found that only 20,000 of the 750,000 total reduction 2011–2013 could be attributed to the new lower income limit.

Much of the decrease in worst case needs is due to a drop in households with severe cost burdens, which account for the vast majority of worse case needs. HUD reported that the total number of renter households with severe cost burdens fell from 10.4 million in 2011 to 9.7 million in 2013, a decline of over 6 percent. Counter to these findings, however, calculations from the Joint Center for Housing Studies (JCHS) using a different data source, the American Community Survey, found a negligible decline (just over 1 percent) in severely cost burdened renters, from 11.3 million in 2011 to 11.2 million in 2013.

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Notes: Severe burdens are defined as housing costs of more than 50% of household income. In HUD tabulations, households with zero or negative income are excluded unless they pay Fair Market Rent or more for housing. For households paying no cash rent, utility costs are used to represent housing costs. In JCHS tabulations, households with zero or negative income are assumed to have severe burdens, while renters paying no cash rent are assumed to be without burdens.
Sources: HUD Worst Case Housing Needs: 2015 Report to Congress and JCHS tabulations of US Census Bureau, American Community Surveys.

Several unique methodological differences help contextualize why HUD and JCHS estimates vary (Figure 1). The first key distinction between the measures reported by HUD and JCHS is the source data. HUD estimates of cost burdens rely on the American Housing Survey (AHS), a biennial survey jointly administered by HUD and the Census Bureau assessing characteristics of the housing stock and its occupants. JCHS calculates cost burdens using the American Community Survey (ACS), an annual Census Bureau survey of households designed to supplement the short form decennial census. The surveys vary in size and scope. The AHS reaches 50,000-70,000 housing units in its national longitudinal sample, gathering detailed information on housing quality and cost, assisted status, and location. The ACS reaches 3.0-3.5 million households in the years since its full implementation and collects information on many demographic, economic, and employment characteristics, along with selected housing cost and unit information.

In addition to their variations in design, the AHS and ACS use distinct methods for defining occupied units that result in different counts for the most basic variables of total households (equivalent to total occupied housing units) and households by tenure. While several reports have examined these differences in more depth, essentially the ACS uses a broader definition of occupancy and makes more attempts to contact sampled households. These features of the survey tend to increase the number of occupied units reported and can count households in a seasonal residence (often rented) rather than their usual residence (possibly owned), increasing the number of renter households over the AHS (Figure 2). While not unique to the 2011-2013 period to explain the divergent trends, this difference in methodology consistently results in about 2 million more renter households in the ACS over the AHS, likely contributing in part to a higher ACS count of burdened renters

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Sources: HUD Worst Case Housing Needs: 2015 Report to Congress and JCHS tabulations of US Census Bureau, American Community Surveys.

There are also important distinctions in how cost burdens are measured and what adjustments are made to the data. According to its WCN report, HUD excludes households reporting zero or negative income when calculating cost burdens, unless these households report paying the local Fair Market Rent (FMR) or more for housing. In this case, HUD assumes the negative income reported to represent a temporary situation and imputes a higher income for the household. If these households pay more than FMR and live in adequate, uncrowded housing, an income slightly higher than the local area median is assigned, again assuming a temporary period of income loss. HUD also makes adjustments for households that report paying no cash rent. For these households, HUD relies on reported utility costs to represent housing costs and identify housing cost burdens.

In contrast, JCHS assumes all households reporting zero or negative income to be severely cost burdened and all those paying no cash rent to be unburdened (in the case of a household reporting both zero or negative income and no cash rent, the household is assumed to be unburdened). The difference in adjustments may have had an especially large impact in 2011-2013 as JCHS tabulations of the AHS find the number of renter households reporting zero or negative income rose by nearly 13 percent, about four times the rate of growth of renters reporting positive income. ACS numbers do not mirror this rise, as renters reporting zero or negative income increased by 3 percent 2011-2013. Excluding zero or negative income households may better isolate households with perennially low incomes from those potentially higher-wealth households reporting temporary annual business losses. However, excluding these households from ACS analysis finds that severe cost burdens still do not drop nearly as much in 2011-2013 as HUD methods shows. Subtracting all households with zero or negative incomes from the ACS burden count shifts the totals to 10.4 million severely burdened renters in 2011 and 10.3 million in 2013, a decline of just 1.4 percentmuch smaller than that reported by HUD for the period. Conversely, if all zero or negative income households in the AHS were considered burdened regardless of rent level, the decline in renters with severe cost burdens 2011–2013 would be about 4.6 percent.

In addition to varying counts of zero and negative income households, a disparity in median renter income patterns between 2011 and 2013 may also explain part of the divergent cost burden trends in that period. HUD cites an increase in median renter income of 7.2 percent in 2011-2013 in real terms as a factor driving down the number of severely burdened renters. While JCHS estimates of ACS data also find an increase in real median renter income in that timethe first increase since 2006-2007the gain is a distinctly smaller 5.2 percent. HUD notes in its WCN report that some of the observed increase in median income may be due to newly formed higher income renter households, but does not further explore this possibility. Analysis of ACS data indeed shows that an influx of higher income renters occurred over this time. Of the net 1.7 million increase in renter households measured in the ACS 2011-2013, fully 1 million or 60 percent had incomes of $75,000 or more, over twice the median renter income (Figure 3). With this group pulling up the median figure, aggregate income gains may not have impacted lower income households sufficiently to meaningfully decrease the number of severely burdened renters.

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Source: JCHS tabulations of US Census Bureau, American Community Surveys.

Indeed, analysis of the most recent 2014 ACS reveals the number of severely burdened renters is once again on the rise, climbing to 11.4 millionthe highest number on record. Whether new AHS data expected in the upcoming months and the next WCN report due the following spring confirm this trend or show a further drop in severely burdened renters, the results of both surveys again underscore the acute unaffordability of housing for millions of renter households. Understanding whether affordability pressures are worsening or easing is therefore crucial to making informed decisions concerning rental assistance and other housing policy actions. Given additional data showing persistent rent growth and  tightness in the rental market, the larger sample size of the ACS, the benefit of an added year of ACS data showing rising burdens, and the unusually large recent shifts in renter incomes in the AHS, it seems likely that the enduringly high severe cost burden levels reported by the ACS are more accurate and affordability pressures for renter households continue to build.

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