Are Renters and Homeowners in Rural Areas Cost-Burdened?

by Sonali Mathur
Research Assistant

As our latest report and interactive map illustrate, housing affordability is one of the biggest challenges faced by owner and renter households in most metro areas across the US. However, maps that use metro areas to display the local-level story miss the fact that cost burdens are also a major concern in non-metro/rural areas and are severely high for millions of low-income rural households. To address this gap in visibility, we created a set of interactive maps (Figure 1) using 2010-2014 American Community Survey (ACS) estimates. In doing so, we found that housing cost burden rates in some rural counties are significant. We also learned that rural counties of the Northeast and west, that are adjacent to high-cost metros, have even higher cost burden rates than those in parts of the Midwest.

 (Click to launch interactive map; may take a moment to load.)

Housing cost burdens are particularly stark for rural renters. Indeed, fully 41 percent of all rural renters are cost-burdened (meaning they spend 30 percent or more of their income on housing), including 21 percent who are severely cost-burdened (spending 50 percent or more of their income on housing). Among owners, 22 percent are cost-burdened including nearly 9 percent who are severely cost-burdened. Overall, nearly 5 million rural households pay more than 30 percent of their monthly income toward housing and more than 2.1 million rural households spend more than half of their income on housing.

And cost burdens have been growing in rural areas (Figure 2). Since 2000, housing costs in rural areas have increased over 5 percent and one in every four rural households is now cost-burdened. Comparing burden rates from 2014 to those from 2000 in the maps above shows the increasing cost burdens in many rural areas over the last decade, including areas in and around the traditional Black Belt counties of the Southeast and areas in the west and Northeast that are contiguous to areas that had high cost burdens in 2000.

Source: JCHS tabulations of US Census Bureau, American Community Survey 2010-2014 and census 2000 for all non-metropolitan census tracts. 

Rural affordability issues tend to receive less attention due to a perception that housing costs are lower in rural areas, which is true as compared to metro areas. According to the 2013 American Housing Survey (AHS) the median monthly rent in metro areas is $800, while the median monthly rent in non-metro areas is $530. Monthly owner costs are also fully 43 percent lower in non-metro areas than in metro areas. However, low incomes and poverty are prevalent in rural areas. According to estimates from the American Community Survey, fully 15 percent of all households in non-metro area census tracts earn less than $15,000 annually and nearly 36 percent earn less than $30,000. Poverty is a widespread problem in rural areas, with 18 percent of population living in poverty compared to 15 percent in metro areas.

In addition to poverty and affordability, rural areas face several other major housing challenges. The share of housing stock that would be considered inadequate, as measured by the number of units lacking complete plumbing or a complete kitchen, is higher in non-metro areas. The share of units lacking complete plumbing is 4 percent in non-metro areas, compared to 2 percent nationally.

Among units in non-metro areas that lack complete plumbing facilities, 10.3 percent also have more than one occupant per room (compared to 8.2 percent in metro areas). This suggests that in non-metro areas there is likely to be overcrowding in the same units that lack adequacy. It is probable that the households facing affordability problems are dealing with it alongside other issues.

While it is true that cost burdens are high and a growing problem in most metro areas across the country, it is important to remember that non-metro areas also face increasing housing affordability issues, in addition to other housing-related challenges and should not be forgotten in policy discussions of a comprehensive approach to the escalating housing affordability problem.

Housing Inadequacy Remains a Problem for the Lowest-Income Renters

Irene Lew
Research Analyst

In the early 1970s, in response to growing concerns about the housing conditions of poor families, the US Department of Housing and Urban Development (HUD) developed a measure of housing adequacy for its American Housing Survey (AHS) that continues to be used by the agency today. This adequacy measure was originally designed to evaluate the extent to which the national housing stock met the standard of “a decent home and a suitable living environment” established by the Housing Act of 1949. While the condition of the housing stock has improved over the past several decades, the rental stock is still three times more likely than the owner-occupied stock to be considered inadequate. And problems persist among the most affordable rentals.

While fairly complex, the AHS adequacy measure factors in various housing problems related to plumbing, heating, electrical wiring, and maintenance. Using this AHS measure, the majority of the nation’s rental housing stock is in physically adequate condition. As of 2013, just 3 percent of occupied rental units were categorized as severely inadequate and 6 percent were moderately inadequate. In fact, the adequacy of the rental stock has improved over the past decade, with the share of rentals categorized as physically inadequate declining from about 11 percent in 2003 to 9 percent in 2013. 

Notes: Inadequate units lack complete bathrooms, running water, electricity, or have other deficiencies. 

Source: JCHS tabulations of HUD, American Housing Surveys.

Stricter building codes have certainly helped to encourage higher quality, particularly the construction of units with complete plumbing and heating systems. As a result, severe physical deficiencies have been rare among the rental stock, especially among newer rentals. Just 1 percent of rentals built 2003 and later was classified as severely inadequate, compared to 4 percent of those built prior to 1960.

It is noteworthy, however, that the AHS adequacy measure does not account for certain health-related quality issues such as the presence of mold or structural issues such as holes in the roof or foundation, so housing quality problems may in fact occur at higher rates than the survey reports. And although physical deficiencies have become less common among the nation’s rental housing stock, housing problems disproportionately appear in units occupied by the lowest-income renters. In 2013, 11 percent of units occupied by extremely low-income renters (those with incomes less than or equal to 30 percent of area medians) were physically inadequate, compared to just 7 percent of those with incomes above 80 percent of area medians.

Notes: Extremely low / very low /  low income is defined as up to 30% / 30–50% / 50–80% of area median income. Inadequate units lack complete bathrooms, running water, electricity, or have other deficiencies.

Source: JCHS tabulations of HUD, 2013 American Housing Survey.

The lowest-income households also accounted for the largest share of renters reporting overcrowded conditions and physical housing problems such as toilet breakdowns, exposed electrical wiring, heating equipment breakdowns lasting six hours or more and the presence of rats in the unit. 

Notes: Extremely low / very low /  low income is defined as up to 30% / 30–50% / 50–80% of area median income Overcrowded conditions refer to units where there are more than two people per bedroom. Holes in the floor are those that are about four inches across.  

Source: JCHS tabulations of HUD, 2013 American Housing Survey.

Matthew Desmond’s most recent book, Evicted, vividly captures these statistics, drawing attention to the grim housing conditions of families in low-rent units in inner-city Milwaukee who must live with the constant presence of roaches and other vermin, clogged sinks and bathtubs, holes in their windows, and broken front doors.

Rentals occupied by extremely low-income households in central cities have the highest physical inadequacy rates, especially those located in small multifamily buildings with 2-4 units. Indeed, 16 percent of these units were categorized as inadequate, compared to 12 percent of those in buildings with 50 or more units. As I pointed out in a previous post, small multifamilies are a critical source of low-cost housing because they tend to charge lower rents than those in much larger structures, but much of this stock is rather old and at higher risk of loss from the affordable stock due to deterioration.

As this recent NPR piece suggests, the narrow margins for mom-and-pop landlords operating in low-income neighborhoods do not provide sufficient incentive for landlords to make improvements or repairs in a timely manner. Indeed, according to the American Housing Survey, 13 percent of extremely low-income renters reported in 2013 that the owner of their unit usually did not start major repairs or maintenance quickly enough, compared to less than half that share (6 percent) among higher-income renters with incomes above 80 percent of area medians.

The prevalence of housing deficiencies among units occupied by the lowest-income renters highlights the importance of bolstering building code enforcement efforts at the state and local levels. However, municipalities are often faced with tight budgets that lead to dwindling code enforcement teams. Indeed, according to one estimate in 2013, Cleveland and Detroit, among others, have cut their code enforcement workforce by about half since the middle of the last decade. Cities like Baltimore, Portland, and the San Francisco Bay Area are also facing shortages of building inspectors that make it difficult to deal with building code violations. While increased code enforcement can identify landlords who are failing to maintain their properties, this could also lead to unstable housing situations for current tenants. Renters may withhold rent or call local building inspectors as a tactic to push landlords to make necessary repairs, but this could lead to eviction threats or the initiation of a formal eviction process due to nonpayment of rent.

At the federal level, budgetary constraints have also impacted efforts to address the physical deficiencies among the aging public housing stock, which was largely built before 1970. Federal appropriations for the public housing capital fund fell by 34 percent over the past decade and HUD is faced with an estimated backlog of $26 billion in capital maintenance and repairs (as of 2010). HUD’s housing choice voucher and project-based rental assistance programs, which subsidize rentals for low-income households in the private market, require landlords to pass annual or biennial inspections for housing quality. However, the public housing stock is not subject to regular inspections and has largely been prohibited from using private capital to finance capital needs and repairs. As a result, compared to other types of assisted rentals, physical housing problems are more common among the public housing stock. In 2013, over half (53 percent) of public housing units had more than two heating equipment breakdowns lasting at least six hours and 13 percent of units had water leaks due to equipment failures within the previous 12 months.

Living in unsafe, physically inadequate housing can lead to adverse health and developmental outcomes for low-income families. Indeed, recent research confirms that children exposed to defects such as leaking roofs, broken windows, rodents, and nonfunctioning heaters or stoves were more likely to experience emotional and behavioral problems. Among five housing characteristics studied—quality, stability, affordability, ownership, and receipt of housing assistance—poor physical quality of housing was the most consistent and strongest predictor of emotional and behavioral problems in low-income children and adolescents. Poor housing conditions such as mold, chronic dampness, water leaks, and heating, plumbing, and electrical deficiencies, are also associated with health risks like respiratory illness and asthma. These findings underscore the urgent need for cities to prioritize code enforcement and work collaboratively with nonprofit tenants’ rights groups to deal with landlords who are not responsive to requests for necessary repairs.

How Much of the Damaged Housing Stock Was Rebuilt After Hurricanes Katrina and Rita?

by Jon Spader
Senior Research Associate

Ten years ago, Hurricanes Katrina and Rita created unprecedented damage in communities along the Gulf Coast. In addition to the human toll of the storms, the physical damage to the housing stock left many residents without a home to return to. On the 10^th anniversary, we now have a clearer picture of the extent to which homes damaged by the storms were eventually repaired or replaced with a new home.

In the months following the storms, FEMA conducted extensive damage assessments of residential properties to estimate the amount of damage that occurred during the storm. (While the FEMA assessment data are not exhaustive of every property that experienced hurricane damage following Hurricane Katrina, they are the most comprehensive source of information on damaged units.) In early 2010, a second assessment was conducted on a representative sample of these properties using a structured observation method, in which observers working from the street or sidewalk identified repair needs associated with hurricane damage, such as missing shingles and observable flood lines. Figure 1 shows the results of these observations for properties that experienced at least $5,200 in damage, the standard FEMA used to define “major” damage.

Notes: Estimates are representative of 1-4 unit residential properties that experienced more than $5,200 in damage from Hurricane Katrina or Rita. Source: Analysis of property observation data collected by Abt Associates.

These observations show that 17 percent of properties continued to show visible damage more than 4 years after the storm. A property was categorized as a ‘damaged structure’ if it showed one or more observable repair need and the observer did not deem the overall condition of the property to be good or excellent. Almost half of the properties still showing visible signs of hurricane damage (8 percent of all observed properties) contained structures that did not meet the Census definition for a ‘habitable’ structure. Under this definition, a housing unit need only be closed to the elements with an intact roof, windows, and doors, and no posted sign or other evidence that the property is to be condemned or demolished. The remaining properties contain a combination of rebuilt structures (70 percent) and cleared lots (13 percent).

Beyond these overall rebuilding rates, the data reveal clear differences in rebuilding outcomes across geographies and by tenure status. First, substantial variation exists in the percent of rebuilt properties across parishes, counties, and other subgeographies, ranging from 42 percent in MidCity Planning District to 96 percent in Jefferson Parish. These differences reflect a number of factors, including variation in the initial severity of damage and the resources available to residents to support rebuilding.

Within these geographies, properties occupied by homeowners had consistently higher rates of rebuilding than rental properties (Figure 2). Interpreting these differences is complicated by underlying differences in the siting, insurance coverage, and owner resources of homeowner and small rental properties. Nonetheless, some portion of the differences is likely attributable to the prioritization of homeowners in the programs established for providing rebuilding assistance. For example, in Louisiana, 59 percent of homeowner properties with major damage received Road Home rebuilding grants, compared to only 12 percent of rental properties. The average amount of the rebuilding grants provided to homeowners was $77,010. A more complete discussion of these programs and the allocation of rebuilding assistance is available in Turnham et.al. (2010).

The set of properties with damaged structures is also not evenly distributed across neighborhoods or properties. Instead, properties with remaining damage were frequently clustered together on blocks where at least one property contained a rebuilt structure. Sixty percent of owner-occupied properties with remaining damage—and 76 percent of rental properties with remaining damage—had a damaged structure on at least one of the two nearest properties on their block that also experienced hurricane damage. Yet very few damaged structures appeared on blocks that had been largely abandoned, containing only damaged structures or cleared lots. The resulting image is one of clustered pockets of remaining damage scattered among properties where other property owners returned to rebuild.

Taken together, these rebuilding outcomes highlight the extent of sustained damage more than four years after the storms. Today, it has been another five plus years since the property observations were conducted, so another round of observations might provide useful information about whether the damage remaining in 2010 was eventually resolved or whether it continues to appear on these structures today. In the interim, these estimates provide useful insight into the reconstruction of the housing stock following Hurricanes Katrina and Rita. More information is provided in Spader and Turnham (2014) and in an article in the forthcoming issue of Cityscape titled “Will My Neighbors Rebuild? Rebuilding Outcomes and Remaining Damage following Hurricanes Katrina and Rita.”

Challenges Ahead in Housing America’s Very Low-Income Older Adults

by Jennifer Molinsky
Research Associate

The nation’s older population has grown tremendously since the first of the baby boomers turned 50 in the mid-1990s, with the number of 50-64 year olds nearly doubling between 1990 and 2010. As the baby boomers continue to age, the population aged 65 and older is projected to soar to 73 million by 2030, an increase of 33 million in just two decades. Given a larger older population, and assuming that the current income distribution remains the same, we can expect to see an increase in the numbers of lower-income older adults; indeed, in just a decade we estimate that households 65 and over earning less than $15,000 annually will increase by 37 percent to 6.5 million. Ensuring these low-income older adults are safely and affordably housed will require a great deal of leadership, creativity, and planning, particularly in the present federal budget environment.

Currently, the majority of low-income households aged 65 and over live in housing considered “unaffordable:” fully 73 percent of those with annual incomes under $15,000, and 48 percent of those with incomes between $15,000 and $30,000, were housing cost burdened in 2013 according to the American Community Survey, paying  more than 30 percent of their income on housing. Housing-cost burdened households have less to spend on critical needs like food, healthcare, and transportation (Figure 1), and for those in their pre-retirement years, on retirement savings—which has consequences not just for quality of life today, but also for financial security in the future.

Notes: Moderately (severely) cost  burdened households spend 30–50 percent  (more than 50 percent) of income on housing costs. Lowest spending quartile is a proxy for low-income households. 
Source: JCHS tabulations of the US Bureau of Labor Statistics, 2013 Consumer Expenditure Survey.

We’re already seeing a growth in the older low-income population. The number of households aged 62 and over earning less than 50 percent of area median income (a common eligibility threshold for rental assistance programs for the “elderly”) increased by 21 percent from 2003 to 2013 to almost 4 million. At latest estimate in 2011, only about a third of this group benefits from rental assistance (HUD, 2013). Of those who do not, a substantial number face worst case housing needs – defined as living in severely inadequate units, paying more than 50 percent of their income on housing (with the repercussions of reduced spending on other necessities mentioned above), or both. According to HUD, nearly 1.5 million very low income older households had worst case housing needs in 2013 – an increase of 31 percent from 2003 to 2013.

Going forward, assuming income distributions remain similar to today, the expanding older population means millions more older renters will have very low incomes and potential housing affordability problems in the years ahead. Just to keep the share receiving federal rental assistance at its current level, the number of older renters receiving assistance would have to rise by 900,000 by 2030 – which would still leave 3-4 million income-eligible renters without assistance and on their own to find housing in the private market (Figure 2), vulnerable to worst case housing needs. On top of these concerns, even as the need for assisted housing is growing, contracts for hundreds of thousands of units of units with project-based rental assistance are set to expire over the next decade.

Sources: JCHS tabulations of US Department of Housing and Urban Development, Worst Case Needs Reports to Congress 2011, and JCHS 2013 Household Projections.

These estimates are based on current income distributions, yet current trends may reshape the income profile of older adults in the future.  Fewer of today’s workers earn pensions that have traditionally provided support for moderate-income retirees.  According to the Bureau of Labor Statistics, 35 percent of all private industry workers were covered by pensions in the early 1990s, a rate that stood at only 18 percent in 2011. Increasing numbers of American have 401(k) plans but these have not resulted in the same savings achieved through pension benefits. Meanwhile, real incomes have been falling for those in their pre-retirement years, while housing and non-housing debt have been increasing for those 50-64, likely reducing assets that can be drawn upon later in life.  In addition, the older population of the future will be more racially and ethnically diverse, reflecting shifts in the population as a whole; this may shift the income distribution for older adults downward, as African Americans and Hispanics have historically had lower incomes (as well as homeownership rates).

With rapid population growth and worrisome trends in income, debt, and savings, preserving and creating more affordable units and ensuring sufficient subsidy to meet the needs of older low-income renters requires action at all levels. At the local level, communities can encourage the production of market-rate but lower cost housing options, including accessory dwelling units, rental housing in town centers, and apartments located near safe and accessible transit (particularly important because low-income renters are less likely to own cars). Though changing local regulations to allow such development and overcoming NIMBY opposition to rental housing pose challenges, increasing affordable housing options is important not just to older adults who wish to age in their communities, but also to cost-burdened rental households of all ages and composition.

Securing the resources that will help preserve and build new assisted units and ensure the availability of rental subsidies for those at the bottom of the income scale is undoubtedly an immense challenge, particularly given that pressures on non-discretionary portions of the federal budget (including Medicare, Medicaid, and Social Security) are also growing as the population ages. Yet looking holistically at the role of affordable housing in older adults’ overall health may help make the case that safe, affordable housing creates savings to the federal budget through the healthcare system. HUD and HHS are now working together to study the benefits of coordinated health services and supportive, affordable housing in Support and Services at Home (SASH) program in Vermont; evidence from this and other studies may point to the fiscal wisdom of investing in affordable housing for older adults. 

Advancing Inclusive and Sustainable Urban Development

by Eric Belsky
Managing Director

Tackling urban poverty and attending to its spatial manifestations is vitally important. The speed with which many regions of the world are urbanizing, the haphazard spatial development of urban areas, and the deplorable living conditions of more than 800 million slum dwellers make the need to address urban poverty more urgent than ever. Climate change is only intensifying the necessity to act, as the urban poor tend to occupy land susceptible to physical risk, such as steep slopes, flood plains, or low-lying coastal areas made more vulnerable with extreme weather and climate variability. At the same time, however, government and business leaders are awakening to the potential to advance social and economic development by engaging the urban poor as consumers, producers, asset-builders, and entrepreneurs.

The Joint Center’s recent report, Advancing Inclusive and Sustainable Urban Development: Correcting Planning Failures and Connecting Communities to Capital, highlights the challenges of tackling urban poverty as well as promising strategies to do so. Obstacles to addressing slums and realizing the potential of slum residents include weak, non-participatory, and uncoordinated urban planning. National governments often establish regional authorities or public-private partnerships to plan major investments in urban infrastructure that fail to consider broader regional land use planning goals, community input, or the needs of poor communities. Local land use regulations and plans, to the extent that they exist at all, are not widely followed. Plans for slums seldom situate them in the context of broader plans for the urban region. And the non-governmental organizations that do much of the work to improve slums rarely coordinate their efforts. In addition, community-based organizations often are weak and not incorporated into the government’s urban planning process.  Finally, these governments, authorities, and partnerships generally fail to formulate specific strategies to improve or redevelop slums in ways that leave the poor better off.

Yet many examples of better planning practices exist around the world: efforts to develop national strategies for urban development and poverty alleviation, metropolitan regional planning and governance, anticipatory planning for urban growth and climate change, spatial planning and coordination of land uses and investments, participatory planning and community engagement, asset building for the poor, and institutional transparency and accountability through initiatives such as participatory municipal budgeting.

Drawing on these positive examples, several strategies emerge to improve urban planning and investment in order to spur inclusive and sustainable urban development. Most important, spatial planning must be fully integrated with investments in infrastructure, and the development of regional plans must involve participation by all stakeholders. A variety of practices can support inclusive, integrated planning such as funding for multi-stakeholder planning at the regional level and investment in community-based organizations and their intermediary supports. Government capacity can be built through national urban development commissions—spurred by intergovernmental, international bodies—charged with developing plans for inclusive and sustainable urban development. Technical assistance and capacity building can help national, regional, state, or local governments form and manage public-private partnerships, optimizing the use of scarce public resources while also introducing stronger and more rational spatial and participatory planning techniques into the process. A host of other tools described in the report can support more coordinated planning and investment as well as innovation in employment and small business, housing, and infrastructure programs in slums.

Taken together, these actions would greatly improve planning for inclusive and sustainable urban development and create an international movement to focus on these issues. With a growing list of examples of best practices to address urban poverty in effective ways (many summarized in the report), the Millennium Development Goals established by the United Nations still before us, and a chorus of globally-branded businesses (including McKinsey and JP Morgan Chase) calling for better urban planning and poverty amelioration strategies, there is a chance that these issues will gain the international attention they deserve and lead to concrete actions.

Read the new Joint Center report: Advancing Inclusive and Sustainable Urban Development: Correcting Planning Failures and Connecting Communities to Capital

Housing Recovery Unlikely to Ease Renter Cost Burdens

by Chris Herbert
Research Director

The headlines continue to trumpet good news about the housing market, including falling vacancy rates and increased construction in rental housing markets across the country. But the flip side of this good news for the rental market is that the share of renters who face severe cost burdens, paying more than half their income for housing, has surged in recent years. As documented in our most recent State of the Nation’s Housing report, the number of renter households facing severe cost burdens reached a new record of 11.2 million in 2011, an increase of 2.5 million households since just before the recession in 2007 (see Figure 1). To make matters worse, this rise comes on the heels of what had already been a decade of worsening rental affordability; the number of renters facing severe housing cost burdens increased by 1.4 million between 2001 and 2007.  In all, the decade from 2001 to 2011 saw an increase of more than 50 percent in the incidence of severe rental cost burdens.

Notes: Severely cost-burdened households spend more than 50 percent of pre-tax income on housing costs. Source: JCHS tabulations of US Census Bureau, American Community Surveys.

To a substantial degree, the sharp rise in renter cost burdens reflects the significant growth in the number of low-income renters who are most likely to struggle to afford housing.  Between 2007 and 2011 the Great Recession pushed the number of renters earning less than $15,000 up by 1.8 million, while those earning between $15,000 and $30,000 rose by 1.1 million. ($15,000 roughly corresponds to what is earned by those working year round at the federal minimum wage.) But over the same time frame, rising rents made it even more likely that households within these income bands would face severe burdens.  Over this four year period, the share severely burdened households among those earning less than $15,000 rose from 67 to 71 percent, while among those earning between $15,000 and $30,000 the share rose from 29 to 33 percent.

But while the number of low-income renters has risen sharply, the supply of housing they can afford has at best remained stagnant (see Figure 2).  In 2011 there were 12.1 million extremely low-income renters who earned 30 percent or less of median incomes in the areas where they lived.  (This is a common income cutoff for eligibility for housing vouchers and is roughly equivalent to our $15,000 threshold but is adjusted for differences in area incomes and family size.)  Meanwhile, there were only 6.8 million rental units affordable at this income cutoff, representing a gap of 5.3 million housing units.  The shortage of affordable housing is made worse by the fact that many of these affordable units are occupied by higher income households. When the number of units affordable for extremely low-income households and available to them is considered, the supply gap in 2011 was even larger – 7.9 million units.  The magnitude of this supply gap testifies to the fact that it is nearly impossible to produce new housing at such low rents, and almost as difficult to maintain existing housing. In fact, 650,000 housing units renting for less than $400 a month in 2001 were permanently lost from the housing stock by 2011.

Note: Extremely low-income households earn less than 30% of area median income.

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

With the market unable to supply housing affordable for the nation’s lowest-income households, addressing the problem of rising rent burdens may largely come down to efforts to increase household incomes. But there will always be some households facing temporary financial struggles and others facing long-term challenges who will need more assistance to afford decent housing. Currently, only one in four of those eligible for federal assistance are able to obtain subsidized housing. Those who do are among the nation’s most vulnerable families and individuals – 35 percent are disabled, 31 percent are age 62 or older, and 38 percent are single parents with children. With the population of households struggling to afford housing at record levels and continuing to expand, there is a compelling need to assess whether existing resources for assisted housing are both sufficient to meet the need and being used effectively through current programs. 

But while options for reforming the housing finance system have been subject to a vigorous debate, to date the issue of how to address the significant problem of rental housing affordability has received relatively little attention.  The Bipartisan Policy Center’s (BPC) Housing Commission report this past year was a notable exception as it both framed the importance of this issue and advanced specific policy options that should be considered. 

The next snapshot of renter cost burdens will come this fall when the 2012 American Community Survey is released.  But as we showed in this year’s State of the Nation’s Housing report, rents are continuing to increase in markets across the country, against a backdrop of continued stagnation in household incomes. As a result, it is likely that this more up-to-date data will once again find that rental housing affordability has only gotten worse. Hopefully, the BPC report will start a dialogue on what should be done to address this urgent problem.

The Return of Substandard Housing

by Kermit Baker
Director, Remodeling
Futures Program

The magnitude of the housing bust that began in the middle of the past decade is well documented, with a 75 percent plunge in housing starts, 45 percent decline in existing home sales, and 30–35 percent slide in house prices. Less well known is how the housing bust and the ensuing cutbacks in residential investment have eroded the condition of existing homes.

Reasons for concern over the potential for underinvestment in the housing stock are numerous, from the aging of the rental stock to the rising share of homeowners with underwater mortgages to the surge in foreclosures and short sales. In fact, there has been a significant decline in spending on homes during the housing bust. Average annual improvement spending by owners declined 28 percent between 2007 and 2011 after adjusting for inflation, totally erasing the run-up in spending during the boom years. Rental units never saw a run-up last decade, so per unit spending was down 23 percent between 2001 and 2011.

Figure 1

Sources: JCHS tabulations  of 2001-07 C-50; 2001-11 AHS; and Estimating National Levels of Home Improvement and Repair Spending by Rental Property Owners by Abbe Will, JCHS Research Note N10-2, October 2010.

There has been surprisingly little concern in policy circles that this significant reduction in housing investment might be producing deterioration in our housing stock. Thanks largely to the success of government housing programs and the increasing affluence of our population, the condition of the housing stock has largely dropped from policy makers’ radar screens in recent decades.

The first Census of housing in 1940 labeled 45.4 percent of owner-occupied units as substandard, which was defined as housing which lacked complete plumbing facilities or was dilapidated. This share dropped sharply over the next several decades, falling all the way to 6.1 percent in 1970 according to Clemmer and Simonson’s analysis in a 1983 article in the AREUEA Journal. Because measures of housing quality were dropped after the 1970 Census due to unreliability of data and the subjective measurement of structural quality, more recent statistics on the number of substandard units are not available from the Census.

However, beginning in the early 1970s, information from the American Housing Survey (AHS) points to the structural condition of the housing stock continuing to show slow but continuous improvement.  As of the 2007 AHS, just 2.27 million owner-occupied homes, or 3.0 percent of the total, were characterized as moderately (with fairly minor structural problems) or severely inadequate (with more major structural problems), down from 3.24 million or 5.1 percent of the total in 1995.

Figure 2

Notes: A housing unit is defined as inadequate through a combination of gross unit attributes such as lacking complete kitchen or bathroom facilities or running water, as well as signs of disrepair such as leaks, holes, cracks, peeling paint, and broken systems. For a complete definition, see the US Department of Housing and Urban Development’s Codebookfor the American Housing Survey, Public Use File: 1997 and Later.  Source: JCHS tabulations of the 1995-2011 AHS.

Since the housing market bust, however, this trend has reversed. By 2011, more than 2.4 million owner-occupied homes were classified as inadequate, an increase of 160,000 from the 2007 AHS. While this increase seems fairly minor in the big picture, the importance of it is not. Given available data, this appears to be the first significant increase in the share of homes with structural problems since the government was able to track them beginning with the 1940 census.

Now that the housing market is recovering and residential investment is increasing, this dip in the quality of the housing stock may well reverse as these homes are improved. However, recent Joint Center analysis concludes that once a downward cycle in housing quality is underway, for many homes it doesn’t get reversed. This analysis focused on owner-occupied homes that were characterized as inadequate in 1997, looking at their experience over the following decade but before the dramatic rise in distressed properties.

According to the 1997 AHS, 4.4 percent of owner-occupied homes were considered inadequate. By 2007, these units accounted for almost 8 percent of homes in this 1997 cohort that were no longer owner-occupied (vacant, or converted to rental or nonresidential uses), suggesting that they were less in demand. Even more telling is that these inadequate units accounted for almost 17 percent of all 1997 owner-occupied homes that were demolished within the decade.

The longer-term fate of the current slightly larger number of inadequate homes is unknown. Many of these homes likely will be renovated to provide affordable housing opportunities. However, many may not recover without extra help. Given the extraordinary circumstances that many homes have gone through in recent years, particularly foreclosed homes that often were vacant and undermaintained for extended periods of time as they worked their way through the foreclosure process, they may be more at risk than their inadequate predecessors. It’s probably time to put the structural condition of the housing stock back on the housing policy agenda.