How Do We Proactively Preserve Unsubsidized Affordable Housing?

by David Luberoff
Deputy Director

Robust land bank and land trust partnerships, long-term lease-purchase programs, and low-interest renovation loans with affordability requirements are three tools that policymakers and mission-driven organizations can use to get ahead of real estate price appreciation, according to Proactive Preservation of Unsubsidized Affordable Housing in Emerging Markets: Lessons from Atlanta, Cleveland, and Philadelphia, a new working paper jointed published by the Joint Center for Housing Studies and NeighborWorks® America. Written by Matt Schreiber, a Master of Urban Planning student at the Harvard Graduate School of Design who was a 2017 Edward M. Gramlich Fellow in Community and Economic Development, the paper draws on work done by public and non-profit entities in all three cities.

North Philadelphia (Credit: Tony Fischer/Flickr)

In those places, Schreiber notes, median house prices range from $60,000 to $250,000, which suggests that they have an ample supply of affordable units. However, housing in those markets actually remains out of reach for so many residents, whose incomes are not growing as rapidly as house prices, which, according to Zillow's Home Value Index, rose by 8-11 percent in 2017. Such increases, and the fact that prices rose in more than 90 percent of the zip codes in those three cities, led Schreiber to ask what policymakers and the leaders of mission-driven organizations could do to get ahead of real estate price appreciation and, in doing so, proactively preserve their city's stock of affordable housing.

Schreiber used a four-part methodology to answer this question. First, he identified emerging markets; those areas that have not yet experienced the price appreciation effects of gentrification, but are likely to do so in the near future because they are close to each city's central business district, anchor institutions, or its other already-gentrified areas. Second, he reviewed the housing stock in these "likely-to-gentrify" areas, which made it clear that most of the affordable housing in these places are unsubsidized units located in one-to-four unit buildings. Third, he interviewed local stakeholders and national experts to learn their views on promising ways to find the balance between improving the quality of the housing stock while preserving its long-term affordability for low-income residents.

Those interview informed the fourth and final step: identifying and assessing three strategies that may address this challenge: building stronger partnerships between local land banks and local land trusts, creating lease-purchase programs that make homeownership more accessible for people of modest means, and offering low-interest loans that help owners renovate unsubsidized affordable units in return for long-term commitments to keep those units affordable for many years to come. Taken together, he notes, these strategies can help maximize the efficiency of the limited resources available to preserve and develop affordable housing. Moreover, the experiences in the three cities suggest "it is possible for mission-driven organizations and policymakers to get ahead of gentrification and proactively preserve vulnerable, unsubsidized affordable housing for low-income residents."

Using a Full Portfolio of Tools (Including Vouchers) to Expand Access to High-Opportunity Communities

by Barbara Sard
Center on Budget
and Policy Priorities

The three papers from the rich and provocative A Shared Future symposium that focused on what it would take for housing subsidies to overcome affordability barriers to inclusion in all neighborhoods provide a multi-faceted and nuanced set of approaches that would expand possibilities for lower-income, non-white families to live in higher-opportunity communities. While these are important approaches that should be part of the policy portfolio, efforts to expand opportunities should also recognize that tenant-based vouchers are, and will likely remain, the primary policy tool for enabling poor and near-poor families to live in higher-opportunity communities.

In his paper, Chris Herbert reminds us that, typically, the housing stock in high-opportunity communities is predominantly owner-occupied. So, as part of a comprehensive portfolio, it’s important to consider strategies to make it possible for low-income (and other) families of color to purchase homes in such neighborhoods, including those where rents are starting to rise. However, even a robust set of tools to overcome downpayment and credit barriers may not be sufficient to make for-sale homes in neighborhoods with good schools and other amenities in many regions within reach of low-income families.

Both Steve Norman and Margery Turner highlight the key role acquisition by committed owners of multifamily rental properties can play, both in keeping rents affordable in “emergent” (i.e., gentrifying) neighborhoods and in making more units available to families with housing vouchers in those and already higher-rent communities. Federal housing policy has neglected such acquisition strategies: grants are rarely available to reduce the amount of debt such purchases will require, and tax credits are restricted to new development or substantial rehabilitation. Like the King County Housing Authority, some other mission-driven organizations, such as the National Housing Trust, have patched together state or local assistance with private market debt (and potentially project-based vouchers) to make such acquisitions feasible. Facilitating loans and grants to purchase rental properties tied to long-term affordability restrictions – including obligations not to discriminate against voucher holders – should be a goal of federal housing policy, including housing finance reform.

While it’s important to include for-sale and multifamily acquisition strategies in a comprehensive strategy portfolio, tenant-based vouchers will likely remain the primary tool for enabling more poor and near-poor families to live in higher-opportunity communities. That’s true, given vouchers’ current scale — more than 2.2 million Housing Choice Vouchers are now in use — and their flexibility to rent virtually any type of decent-quality dwelling at a wide range of price points.

Yet vouchers can do much more to expand housing choice. The implementation of HUD’s new Small Area Fair Market Rent (SAFMR) policy is a promising step, but other federal policy changes are needed to create stronger incentives for housing agencies to promote better locational outcomes. It’s also vital to make more funding available, from public as well as philanthropic sources, to meet agencies’ additional administrative costs of promoting voucher mobility. And federal policy should not only permit but encourage agencies to target vouchers combined with mobility assistance to families with young children living in the most severely distressed neighborhoods.

Such efforts to foster inclusion may cost more, though experience with SAFMRs shows this isn’t always the case. But if we really care about outcomes for families over the long term, we can’t wait until there are sufficient resources to make housing affordable to all before we start paying attention to the types of neighborhoods families live in. The desperation and long-term harm of homelessness and housing insecurity create understandable pressure to spread the limited subsidy resources to help as many families as possible. Yet mounting evidence demonstrates the real long-term harm of growing up in a very poor, violent neighborhood and attending low-performing schools. Affordable housing alone doesn’t improve life chances; where families are able to live must also be a first-order concern, not one that we’ll pay attention to if and when we remedy the shortage of subsidies.  

While housing practitioners work to do the best job possible with the available resources, we must also build the political will to expand investments in housing subsidies, so that more families have the chance to overcome affordability barriers and live in communities of their choice. The Center for Budget and Policy Priorities, along with the National Low Income Housing Coalition and others, has just launched the Opportunity Starts at Home campaign, a long-term effort to achieve this goal. 

Have Incomes Kept Up with Rising Rents?

by Whitney
Airgood-Obrycki

While renters’ median housing costs rose, in real terms, by 11 percent between 2001 and 2016, their incomes fell by two percent, according to our latest America’s Rental Housing report. Moreover, these changes were unevenly distributed across renter households, primarily affecting those who are least able to afford it. Housing costs (rents plus utilities) consumed an increasing portion of household income for renters who made less than the median income for all households. In contrast, incomes increased more than housing costs for higher-income renter households (Figure 1).

Notes: Income quartiles include both owners and renters. Median housing costs and household incomes are in constant 2016 dollars, adjusted for inflation using the CPI-U for All Items. Housing costs include cash rent and utilities. Indexed values are cumulative percent change.

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

Illustratively, the median monthly income for renters in the bottom income quartile fell by $50, dropping from $1,270 in 2001 to $1,220 in 2016 (a 4 percent decline). However, their median monthly housing costs increased by $70, rising from $690 to $760 (a 10 percent increase). This means that after paying for housing, renters in the bottom income quartile had less than $500 left to cover all other expenses (Figure 2), such as food, health care, insurance, transportation, and savings they could use for emergencies, retirement, education, repairs, or other needs.

Notes: Income quartiles include both renters and owners. Housing costs include cash rent and utilities.

Source: JCHS tabulations of 2016 American Community Survey.

While residual incomes for the lowest-quartile group are slightly higher than they were in recent years, they are still 18 percent less than in 2001, when these households had $600 in residual income (in inflation adjusted dollars). Moreover, 48 percent of households in the lowest-income quartile consist of more than one person, and 27 percent have at least one child present.

The situation is particularly bleak for renters in the lowest income quartile who spend more than 30 percent of income on housing. These cost-burdened renters had a residual income of only $360 per month in 2016, down 18 percent since 2001. In contrast, households in the same quartile that weren’t cost burdened had a residual income of $1,180 in 2016, down 6 percent since 2001. Part of this difference is due to the higher rates of cost burden among the very lowest-income renters within the quartile. Even so, cost burden reduces residual income.

As noted above, the story is quite different for higher-income renters. Monthly housing costs for renters in the top income quartile rose by $320, increasing from $1,360 to $1,680 (a 24 percent rise). However, their monthly incomes rose by $890, increasing from $10,440 to $11,330 (a 9 percent rise). As a result, these renters saw their residual incomes increase from $9,030 in 2001 to $9,660 per month in real terms.

Is Rent Growth Finally Slowing?

by Elizabeth La Jeunesse
Research Analyst

Rents rose faster than inflation in almost three-quarters of the nation's major housing markets, according to analyses done for our latest America's Rental Housing report. However, there are multiple signs that while rents are still on the rise, the rate of increase is slowing in most areas, and the long-standing gap between the increases in rents and rise in the cost of other goods is shrinking.

In particular, as our new interactive chart (Figure 1) shows, according to the US Bureau of Labor Statistics’ (BLS) Consumer Price Index, contract rents for primary residences (which covers the broadest range of rental property types) rose by 3.8 percent annually in both November and December 2017. This not only was a tenth of a percentage point lower than the annual rate in September and October (3.9 percent), it was also the first sign of easing rent growth in the CPI measure in over seven years (since late 2010, when rent growth slowed to a near standstill).

Figure 1: Rent Growth Relative to Inflation

United States Midwest Region Northeast Region South Region West Region Anchorage (AK) Atlanta (GA) Boston (MA) Cincinnati - Hamilton, OH-KY Chicago - Gary - Kenosha, IL-IN-WI Cleveland - Akron, OH Dallas - Fort Worth, TX Denver - Boulder - Greeley, CO Detroit - Ann Arbor - Flint, MI Honolulu (HI) Houston - Galveston, Brazoria, TX Kansas City (MO) Los Angeles - Riverside - Orange County, CA Miami - Fort Lauderdale, FL Milwaukee - Racine, WI Minneapolis (MN) New York - Northern New Jersey - Long Island, NY-NJ-CT-PA Philadelphia - Wilmington - Atlantic City, PA-NJ-DE-MD Pittsburgh (PA) Portland - Salem, OR-WA San Diego (CA) San Francisco - Oakland - San Jose, CA Seattle - Tacoma - Bremerton, WA St. Louis (MO) Washington - Baltimore, DC-MD-VA-WV

The chart also illustrates that, despite slowing somewhat, increases in rents still outpaced increases in the cost of non-housing goods nationally, regionally, and in all but one of the 25 metros tracked by the BLS (the exception was Anchorage). However, the national gap, which expanded from mid-2012 to mid-2016, has fallen from 4.9 percentage points in late 2016 to 2.3 percentage points in late 2017.  Moreover, the gap between increases in rents and inflation in non-housing goods narrowed in all four regions of the US, and in 22 of the 25 metros tracked by the BLS.  

Data on rents in professionally managed apartments in 100 markets, provided by RealPage through the third quarter of 2017, also indicate that nominal rent increases outpaced inflation in almost three quarters of the 100 markets tracked by that firm. However, as another of our interactive tools shows (Figure 2), the pace of growth slowed in most areas. Indeed, in 70 of these same 100 apartment markets, average annual rent growth as of the third quarter of 2017 was less than annual rent growth as of the third quarter of 2016. The differences were particularly notable in several markets in the West and South. In Nashville, for example, apartment rents, which grew by 7.0 percent annually through the fall of 2016, rose by only 1.1 percent through the fall of 2017. Similarly, in Portland, rents rose by only 2.1 percent through the fall of 2017, compared to 6.8 percent for the same period in 2016.

Figure 2: Rent Increases Moderated in Many But Not All Markets in 2017

These shifts are significant because changes in rent growth for professionally managed units tend to be a leading indicator of broader trends in rents and, as such, can help identify turning points in the national rental market. Therefore, looking forward, the critical question is whether (and how quickly) the slowdown that appears to be occurring in professionally-managed markets will broaden to the rental market’s other segments and, if it does, whether the gap between the pace of rent increases and non-housing inflation rate will close or even be reversed. 

Really?! Ten Surprising Findings from the America's Rental Housing Report

by Jonathan Spader
Senior Research Associate

Following the release of our America's Rental Housing report last month, one of the most common questions has been: "Which findings are new or surprising to you?" This is never an easy question to answer, and different readers are likely to find different aspects of the report surprising.

Nevertheless, the list below contains the 10 findings that were, in some way, new or surprising to me. Some reflect new trends, some are the result of new analyses and/or data sources, and some are longstanding findings that I continue to find astonishing.

1. The rental stock grew, and all growth has been among units renting for over $850/month. 

While the total number of rental units in the US increased by 7.2 million between 2006 and 2016, in constant dollars, there was nearly no increase in the number of units renting for less than $850 per month, and the number of units renting for less than $650 fell by 475,000 units. In contrast, units renting for $850 or more accounted for the entirety of the growth, with 53 percent coming from units renting for over $1,500 per month. As our interactive tool shows, the lack of growth in low-cost units occurred in a wide variety of metro areas.

2. New rental starts slowed in 2017. 

Construction starts of new multifamily units are down 9 percent year-over-year through October 2017 on a seasonally-adjusted basis. The slowdown was first evident in 2016 when permitting fell in nearly half of the nation’s 50 largest markets. While this slowdown suggests that the recent rental construction boom is softening, new rental starts nonetheless remain at a healthy level.

3. The rental market is softening, particularly for high-cost units. 

After declining for years, the national vacancy rate rose from 6.9 percent in the third quarter of 2016 to 7.2 percent in the third quarter of 2017. The softening is concentrated among high-cost units. RealPage data shows that the vacancy rate for Class A properties increased by 1.5 percentage points year over year through the third quarter of 2017, whereas the vacancy rate for Class C units ticked up only slightly and remains near its post-recession low.

4. Conversions of single-family homes to rentals have slowed. 

The number of single-family rental homes increased by 4 million between 2001 and 2016, driven by conversions of formerly owner-occupied properties during the foreclosure crisis. However, this trend moderated in recent years. According to the American Community Survey, 2015 was the first year since 2006 when the number of single-family rentals declined. While growth turned positive again in 2016, it remained well below levels of the prior decade.

5. The number of renter households jumped by nearly a third between 2004 and 2016. 

The number of renter households increased from 33 million in 2004 to 43 million in 2016—an increase of 10 million renter households in just over a decade! This isn’t a new finding, per se, but it amazes me every time I see it. And several aspects of this growth are new…

6. Renter households with incomes over $100,000 account for 30 percent of growth over the past decade. 

While renters with incomes of $100,000 or more made up just 9 percent of all renters in 2006, they accounted for 30 percent of renter household growth through 2016. As another one of our interactive tools shows, this trend is particularly pronounced in high-cost metros. Renters with incomes over $100,000 accounted for 93 percent of renter household growth in San Francisco and 65 percent in New York City during this period.

7. Households over 50 accounted for more than half of renter household growth over the past decade. 

While renters age 50 and over made up 30 percent of all renter households in 2006, they accounted for 52 percent of renter household growth through 2016. In contrast, households under age 35 made up 42 percent of renter households in 2006 but accounted for just 24 percent of renter household growth through 2016.

8. Older renters are almost twice as likely to live in large multi-family buildings than in single-family homes. 

Among renter households age 75 and over, 48 percent lived in large multi-family properties (those with 20+ units) and just 26 percent lived in single-family homes. For comparison, across all rental units, just 21 percent of units are in large multi-family properties and 39 percent are single-family homes. Older adults’ preference for large multi-family buildings may in part reflect the improved accessibility features in these buildings such as no-step entry, single-floor living, and extra wide hallways and doors to accommodate a wheelchair.

9. Almost 40 percent of rural renters are cost burdened. 

In rural areas—defined as areas with less than 10,000 in population that are outside the Census-defined metropolitan and micropolitan areas—39.5 percent of all renter households are cost burdened, paying more than 30 percent of their income for housing costs. While this figure is below the 51 percent cost burden share observed in the nation’s nine largest metropolitan areas, it is striking because rural areas are likely to have the fewest obstacles to adding new units that would tend to keep housing costs down. As our online map shows, rural areas with relatively high cost burdens can be found throughout much of the country.

10. Low-income renters have seen their residual income decline by 18 percent since 2001. 

Renters with incomes in the bottom quartile of all U.S. incomes had, on average, just $600 left over per month in 2001 after paying for housing costs. By 2016, this figure fell to below $500, an 18 percent decline. In contrast, among renters with above-median incomes, income growth has outpaced the rising cost of rental housing, leaving them with more to spend after paying for housing than similar renters in 2001.

Low-Cost Rental Housing Increasingly Difficult to Find

by Elizabeth La Jeunesse
Research Analyst

While rental markets are cooling nationally, market conditions remain extremely tight at the low end of the market, offering little relief to affordability pressures faced by renters with the lowest incomes, according to our new report, America’s Rental Housing 2017.

In fact, by several metrics, lower-priced housing is increasingly hard to find not only in high-cost coastal areas but also in many inland areas where rents are generally lower. Illustratively, vacancy rates for less expensive units – those with rents below the median for their metropolitan area – were below those for more expensive units in 42 of the nation’s 50 largest metros, including all but one of the nation’s largest 15 metros. Moreover, in 14 of the 50 largest metros, vacancy rates for less expensive units were less than or equal to 5 percent last year, compared to 2006, when just three metros had such tight conditions. The tightest markets were in San Francisco, Los Angeles, Seattle, and Portland, where vacancy rates for less expensive units were under 3 percent (Figure).

Notes: Less (more) expensive units are defined as those below (above) the area median contract rent in the same calendar year. Source: JCHS tabulations of US Census Bureau, 2016 American Community Survey.

Such ultra-low vacancy rates are unusual, at least compared to a decade ago. In San Francisco and Denver, for example, vacancy rates for units renting for less than the area median were closer to 8.5 percent in 2006 (a similar period of relative market strength), but by 2016, they had fallen to 2.0 and 3.4 percent, respectively. Similarly, in Seattle and Portland, vacancy rates for less-than-median-rent units were 5.8 and 5.6 percent respectively in 2006. However, in 2016, the vacancy rate for these units had fallen to just 2.9 percent. In fact, the only major metro to see consistently low vacancy rates in the lower-cost segment during both periods was Los Angeles, where the rate declined from 3.4 percent in 2006 to 2.9 percent in 2016.

Metro areas with the steepest drops in the vacancy rate for less expensive units from 2006 to 2016 generally had high vacancy rates to begin with. For example, in Cincinnati and Kansas City lower-rent vacancy rates declined from 16.7 and 14.2 percent, respectively, in 2006 to 7.5 and 6.7 percent in 2016. The Nashville and Detroit rental markets were also transformed over this period, with vacancy rates for low-rent units dropping from 10.0 and 10.9 percent, respectively, to 4.7 and 6.1 percent.

Data from RealPage, Inc., which classifies professionally managed apartment markets into three segments (according to quality and cost for the area) confirm these trends. Within the 100 markets they track, vacancy rates in the highest-priced Class A segment rose 1.5 percentage points over the past year to 6.0 percent while those in the mid-priced Class B segment rose 1.0 percent to 4.6 percent. In contrast, vacancy rates in the low-cost Class C segment remained relatively unchanged from the past year at 4.1 percent in the third quarter of 2017—their lowest level since the early 2000s. Moreover, in a handful of markets, including Miami, San Jose, Honolulu, San Diego, Sacramento, Minneapolis, Portland, and Orlando, vacancy rates in the Class C segment were below 1.5 percent.

The bottom line is that while rental markets are cooling nationally, households in need of modestly-priced rental housing still face challenging conditions in many areas. Many previously low-demand markets heated up over the past decade, while markets for less-expensive units tightened further in metros that were already expensive. With vacancy rates for less expensive units at rock-bottom levels, relief from market cooling is unlikely to be felt soon by low-income families.

Full data for all metro areas, including median rents, is available in Table W-19 of the report’s appendix tables.