Look Who’s Renting: The People Behind the Recent Surge in Demand for Rental Housing

Dan McCue
Senior Research
Associate 

One of the major trends highlighted in the Joint Center’s recently released report America’s Rental Housing 2015 is the unprecedented growth in the number of renter households over the past 10 years.  The numbers are dramatic no matter how you slice them, leading to an impressive list of facts: we’ve been adding nearly a million renter households a year for almost a decade; the number of renters has grown by fully 25 percent in the past 10 years; there are nearly 9 million more renter households in 2015 than there were in 2005; and in the past ten years we have seen the largest increase in renters of any 10-year period in history on records dating back to the 1960s. This sharp growth in demand has been the primary force behind the widespread tightness in rental markets that has driven vacancies down and rents up for millions of Americans as supply works to respond.  And supply is responding with more multifamily construction currently under way than in any time in the past 30 years.

So who are all the renters behind this recent growth?  The answer may be somewhat surprising, particularly in terms of the age breakdown.  One might imagine that since renters tend to be younger (with a median age of 40 years versus 55 for homeowners), the majority of recent growth would have been from millions of young millennials piling into rentals in high numbers.  It turns out, however that while the millennial generation (born 1985-2004) is indeed the largest in history in terms of population, they are only responsible for a relatively small portion of the growth in rental population over the last 10 years, approximately 11 percent.  In contrast, well over half of the growth in renters (55 percent) – fully 4 million households– was from people aged 50 and over.  Generation-X-ers (born 1965-1984) in the 30-49 year old age group were responsible for 34 percent of all renter household growth since 2005.

As shown by figure 2, much of the growth in the number of renters age 50 and over reflects a boost in population due to the baby boom generation, who are currently age 50-69 and now entirely in this 50+ age group.   However, only about half of the growth in renters over age 50 resulted from population growth.  The other half of growth was due to householders being more likely to rent than in past years.

Figure 2 also shows how the increased rate of renting among gen-Xers was the entire source of growth in the number of renters aged 30-49 year old.  That the number of renters in this age group grew at all over the past 10 years was impressive given that the total number of households in that age group (owners and renters combined) actually declined during this period.  Indeed, at a stage of life where first time homebuying typically occurs, rentership rates for this generation have not fallen off with age like those of previous generations.  Renters are sitting tight, moving less, and making fewer units available for Millenials to enter the rental market. 

In addition to the age breakdown, the incomes of new renter households may also be surprising.  Again, while renters as a group still tend to have lower incomes relative to owners (median income of $34,000 versus $65,000 for owners), the fastest rates of growth over the past ten years has been in high-income renters (Figure 3).  The number of renters in the top 10 percent highest income bracket grew by 61 percent, more than double the pace of overall growth in renters.

Growth in renter households has extended beyond single-person and unrelated roommate households to encompass all types of living arrangements, including those more commonly associated with homeownership (Figure 4).  Families with children made up a quarter of all growth in renters in 2005-2015, roughly evenly split between couples and single parents.

Additionally, with the resurgence in the number of white, non-Hispanic renter households (who made up one-third of renter household growth in 2005-2015), renter growth was split more evenly across races and ethnicities than in the 1990s and early 2000s when the number of white renters was on the decline.  But minority households continued to be a large part of renter growth, as have immigrant households, with foreign-born renters making up fully 26 percent of growth, even with the post-recession slowdown in immigration.

In sum, the wide-ranging surge in rental demand underscores the fact that rental housing remains an important and necessary housing option for people of all races, incomes, and living arrangements, and one that is becoming an increasingly popular housing choice at all stages of life.  The diversity of the population demanding rentals also necessitates a broad range of rental housing options—with an array of types, styles, sizes, amenities, rent levels, and locations—to meet the needs of renters today and in the future.

CDFI Cluster Demonstration Project

Alexander Von Hoffman
Senior Research Fellow

In December 2013 the JPMorgan Chase Global Philanthropy Foundation issued a call for proposals for groups of Community Development Financial Institutions (CDFIs) to coordinate financial programs to alleviate problems facing low- and moderate-income communities, small businesses, and individuals. In January 2014 the foundation announced awards, totaling $33 million over a three-year period, to seven CDFI collaboratives. At the request of JPMorgan Chase Global Philanthropy, Alexander von Hoffman profiled the characteristics, objectives, methods, and achievements of each of the CDFI collaboratives in the first phases of their work. 

Purpose and Problems of CDFIs

In working- and lower-class neighborhoods in the United States, stability, let alone opportunity, is hard to come by. It can be difficult to get a loan on fair terms to buy a house or expand a business, particularly where African Americans, Hispanic Americans, and immigrants live. In such areas, there is often no transportation to school, jobs, and shops. In some places a store with the necessity of life – food – is nowhere to be found.

Yet conventional banks are often reluctant to make loans for such specialized and sometimes risky purposes. Fortunately, in recent years, federally funded nonprofit lending organizations – known officially as community development financial institutions or CDFIs – have moved in to fill the gap in credit for these needs.

CDFIs are engaged in a demanding business. Their customers may be inexperienced in formal banking or have challenging circumstances – such as a recent home foreclosure, the launch of a new and untested business venture, or even the lack of legal citizenship status.

To provide credit in such situations requires that CDFI officers learn about their clients’ situation and craft appropriate solutions. They might have to customize a loan product or provide personal technical assistance. In more extreme cases, CDFI officers may have to seek out and educate people about the benefits of proper credit.

Given the nature of CDFIs’ business, many of them find it difficult to provide credit on a scale large enough to make a visible impact on low-income communities. Low balance-sheets, lack of operating capital, and insufficient revenue streams can prevent CDFIs from increasing lending activities or expanding their service areas geographically.

Successful CDFIs have found that one of the best ways to overcome these obstacles is to collaborate with other CDFIs.

The First Round of PRO Neighborhoods Awards

To jumpstart collaborations among CDFIs, in January 2014 JP Morgan Chase Global Philanthropy Foundation awarded seven CDFI collaborative clusters, including twenty-seven CDFIs doing widely different work in diverse locales. In the first phase of the foundation’s PRO Neighborhoods program (Partnerships for Raising Opportunity in Neighborhoods) these grants totaled $33 million over a three-year period.

Although the grant period has more than a year to run, our initial evaluation shows the awards have had a striking effect both on the ground and on the CDFIs themselves.

The award capital and its leveraged investment have helped CDFIs strengthen their balance sheets immensely. The seven collaborative clusters have so far raised more than $226 million, or almost seven times the original amount, to carry out their community development programs.

CDFI members of the clusters have ramped up scale of production and expanded their reach across new geographies and types of customers. They have also devised new methods of communication and lending practices suited to the oft-neglected needs of low-income clients.

The CDFI clusters have undertaken a remarkably wide variety of endeavors, including lending to small businesses that are minority-owned or in low-income neighborhoods, helping mobile-home owners purchase and manage their communities, increasing the provision of fresh healthy food, aiding and financing the minority and immigrant owners of low-rent apartment buildings in Chicago, and generating equitable transit-oriented development in the poor and working-class Latino neighborhoods of Phoenix.

The process of collaborating itself helped boost the participating CDFIs. By meeting, discussing, and coordinating with one another, leaders and staff members learned about obstacles in the field, ways to mesh business cultures, and best practices to achieve their desired results.

Having made a great impact on low-income communities and numerous CDFIs that serve such communities, the first round of the PRO Neighborhoods awards has demonstrated that funding CDFI collaborations can be an effective way to support a wide array of underserved populations. Furthermore, the awards is project has helped to lay the foundations for the growth of these CDFIs that will allow them to expand their programs into the future.

Democracy and the Challenge of Affordability: Preserving the Affordable Housing Stock in New York City

Adam Tanaka
JCHS Meyer Fellow

This post is cross posted from a series that our colleagues at the Ash Center for Democratic Governance and Innovation are doing on affordable housing as a challenge to the health of American democracy, and in particular local democracy in the United States. The series, edited by Harvard Kennedy School Assistant Professor Quinton Mayne, is part of the Ash Center’s Challenges to Democracy series, a two-year public dialogue inviting leaders in thought and practice to name our greatest challenges and explore promising solutions.

As part of this series, Adam Tanaka explored the ways in which housing shortages in expensive global cities are leading to a redefinition of affordability, both for low- and middle-income residents. Population and productivity growth, coupled with increasing income inequality, is contributing to a pressure-cooker housing market in which supply is falling far short of demand. As a result, public authorities are finding new ways to partner with private developers to try and meet demand for below-market housing. Tanaka sat down with private developers who are playing an important and telling role in the delivery and management of affordable housing.

For this interview in the series, Tanaka traveled to New York City to interview Rick Gropper of L+M Development Partners, a private affordable housing development company with thirty years of experience in New York. Their conversation reveals some of the political challenges still facing developers operating in this field, as well as new opportunities for innovation across the public-private divide.

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New York City has a long tradition of innovation in affordable housing. From building the country’s first public housing project, to establishing its longest-running program of rent control, to experimenting with tax credits that influenced the adoption of the federal Low Income Housing Tax Credit, the city has a strong legacy of public intervention in the housing market.
New York cannot rest on its laurels, however, as a number of trends continue to threaten the city’s affordability. Most obviously, the city’s population is growing, adding considerable stress to the housing stock. Following dramatic population decline and widespread abandonment in the 1970s, the city has rebounded, reaching an all-time high of 8.5 million residents in 2014. The city’s housing market, however, has failed to keep pace, with a shortage of new development driving up housing costs to the point that the median sales price of a home in Manhattan is just shy of $1 million. A surge in foreign investment has added further stress to the system, as a growing number of condominiums sit empty, purchased as assets rather than homes. As the real estate market surges, the “funding gap” between market and affordable rents grows, requiring ever larger subsidies to develop new affordable homes.

In theory, the city’s existing affordable housing stock is supposed to be unaffected by these market trends. Programs like public housing, rent control, and Section 8 vouchers were purpose-built to protect low-income families from a housing market out of their reach, providing long-term affordability through a variety of methods. In reality, however, a number of programmatic impediments have begun to erode the city’s affordable housing stock. This includes the expiration of affordability requirements for many housing developments built in the 1970s and 1980s as well as the removal of units from rent regulation through a technicality known as “luxury decontrol.” It is estimated that over the course of Mayor Bill de Blasio’s first term in office, 45,000 housing units will exit affordability, allowing landlords to charge market-rate rents for the first time if no new subsidies are put in place.

Even public housing—owned and operated by the public sector and thus theoretically the most secure form of affordable housing—is threatened by an increasing lack of federal money for both daily operations and long-overdue capital improvements. As the country’s largest housing authority, the New York City Housing Authority (NYCHA) has been particularly hard-hit by this federal shortfall. In 2014, the agency suffered from a $77 million budget deficit and had estimated capital needs totaling $18 billion, mostly in structural improvements to buildings, many of which are over fifty years old. As such, NYCHA officials are actively exploring new ways to generate revenues for the agency and close the funding gap. One strategy is to lease under-utilized land adjacent to public housing to private developers for new construction. Another is to restructure the funding for public housing to tap new federal sources such as the Rental Assistance Demonstration program.

A third method, which this interview explores in detail, involves the Housing Authority partnering with for-profit developers to access both private capital and federal funds only available to private applicants. In February 2015, NYCHA formed a public-private partnership with two private development companies, L+M Development Partners and BFC Partners, to revitalize a particularly distressed subset of its portfolio: six project-based Section 8 developments housing over 2,000 residents across the Bronx, Manhattan, and Brooklyn. The project-based Section 8 program, initiated in the early 1970s by the Nixon administration, was an operating subsidy mostly intended for use by private developers. However, a number of Section 8 developments fell into the housing authority’s portfolio during the city’s fiscal crisis in the mid-1970s, when NYCHA was better capitalized than the city itself.

Queensbridge Houses, largest public housing development in US (source).

Now that this situation has reversed, NYCHA is exploring new ways to generate revenues not only for its Section 8 projects, but also for its general portfolio. Transferring 50% ownership of these developments to private hands opens the door to tax-exempt bond financing and tax credits, sources generally unavailable to housing authorities. The private partners, meanwhile, benefit from Mark-Up-To-Market contracts from the Department of Housing and Urban Development (HUD), which compensate landlords for the difference between 30% of tenant incomes and market rents.

Of course, even this partial privatization of public housing has generated substantial controversy amongst tenants, local politicians, and housing advocates. To learn more about the politics behind this proposed deal, the Ash Center spoke to Rick Gropper at L+M Development Partners. One of the city’s foremost private affordable housing development companies, L+M’s evolution over the past thirty years epitomizes the growing professionalization of the sector as a whole. The conversation with Gropper reveals some of the political challenges still facing developers operating in this field, as well as new opportunities for innovation across the public-private divide.

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Adam Tanaka: Could you describe L+M’s position within the affordable housing landscape in New York City?

Rick Gropper: L+M has been around for about thirty years. The first projects that we did were under the Vacant Building Program, where the city acquired buildings that were in tax foreclosure. These buildings were vacant, and many of them were shells. The city then transferred them to private developers for a dollar. Prospective owners would bid down the rents. One would say: “I can do this job and I’ll charge the residents $500 a month.” Another would say: “I can do $450 a month.” Whoever came up with the financial structure that charged the least rent would get the building.

Then the Tax Act of 1986 introduced a new financial mechanism, the Low Income Housing Tax Credit (LIHTC). The founders of L+M figured out how to syndicate tax credits and place tax-exempt bonds, and they used that financing to charge residents even less for rent. That was the genesis of L+M, working with city and state agencies to gut-renovate buildings across the city.

As the affordable housing industry matured, the company moved to new construction, working with the city to subsidize projects on city-owned land. The city had a lot of land because they had demolished buildings for a variety of reasons. The Department of Housing Preservation and Development, the city’s housing agency, would offer different development sites for a dollar, and would then work with the developer to figure out how to finance them, whether it’s tax-exempt bonds or tax credits or subsidy, or some combination of all three. From the mid-1990s until today, L+M has been predominantly a developer of new affordable housing. We’ve slowly gotten into some other things, such as new construction of market-rate buildings, but most of our work is affordable housing.

There’s been a lot of media attention recently on the expiration of various affordable housing programs. Has L+M been involved in the refinancing of housing developments to enhance their affordability?

Five or six years ago, a lot of the housing stock that was developed in the late 1980s and early 1990s hit what’s known as the “Year 15,” which is the end of the tax credit compliance period. When you’re working with Low Income Housing Tax Credits, they’re delivered to the owner over a 10-year period, and there’s a 15-year compliance period. Once that compliance period ends, you can actually re-syndicate the tax credit properties. When you re-syndicate, you extend the affordability for another 15 years. We have worked to extend affordability in a number of areas facing market pressures, such as Harlem, the East Village, Bushwick and Clinton Hill. When you re-syndicate a building, you might put $40,000 into a unit for renovation, replacing roofs, common areas, boilers, systems and technology changes over time. Being able to re-syndicate and renovate is really important.

What factors do you think drove the city to start relying on the private sector for affordable housing?

For a long time, the city used to build and finance new housing. That ended in the 1970s. Now it’s very expensive for city agencies to build buildings. That’s just not necessarily what they’re good at. When the private sector was brought in, the city realized that they could get more housing built, do it more efficiently and cost-effectively, and create units much more rapidly than they could on their own. That said, it’s always a push and pull with the city. As a private-sector developer, we’re making money on developer fees and cash flow, and the optics of that can be a challenge, politically, for the city. People are wondering, “Why are these private developers making money off of the city?” In reality, we’re building buildings more effectively and efficiently than the city would be able to do on their own. If it develops a project, the city has to do it subject to all the public work rules that apply, which drives up costs and timelines. In the private sector, we have an outstanding record of delivering buildings on time, on budget, and safely.

With an increasing erosion of federal funding for public housing, do you see housing authorities operating in a more entrepreneurial manner?

Housing authorities are already operating in a more entrepreneurial manner, and that started at least five years ago, with the Rental Assistance Demonstration Program (RAD). That program, initiated by the Department of Housing and Urban Development (HUD), enabled housing authorities to bring in private partners if they wanted to, or even finance buildings on their own. With public housing contracts, it’s very difficult, if not impossible, statutorily, to put debt on buildings. That’s a real challenge for NYCHA, which has 170,000 units in various stages of disrepair and about $18 billion of deferred maintenance. The only way that they’re going to generate enough capital to renovate the buildings to a more sustainable standard is to partner with the private sector and to use programs like RAD so that they can finance their own buildings, generate capital, and reinvest either directly back into the building they financed, or into their portfolio.

What stakeholders influenced the outcome of your joint partnership with NYCHA? Did any political dynamic inform the outcome of the deal?

Whenever NYCHA partners with the private sector, there are a host of stakeholders who become very skeptical. The mayor was on board and the various housing agencies understood the urgency of the problem. But there was a whole other cohort of stakeholders–residents, elected officials–who needed to be convinced. So NYCHA spent a long time getting those people on board, assuring the residents that there would be no rent increases or evictions. It was an educational and outreach process.

Image of Saratoga Square, one of the developments undergoing partial privatization

The six sites are located in a wide array of neighborhoods. Presumably this makes each project quite unique, not only financially, but also politically. Can you speak to this variation?

Each property is subject to three levels of public involvement. First, the residents and the tenant association (TA) president. Then the local councilperson. From there, you have the bigger picture: the chair of the Public Housing Committee of City Council, the Committee itself, and the Speaker. So in each case, there were different concerns. The residents’ concerns were related to the specific building. The elected official’s concerns related to the specific climate of the City Council district. And then, on a broader scale, the City Council committee raised issues on transparency, long-term affordability and so forth.

In the East Village, at a property named Campos, it was a challenge to get the local elected official on board, while residents and resident leaders were in support of the deal. There’s a lot of development going on in the neighborhood, and local residents are being displaced. The council-person was skeptical that we might come in and build condos there, even though we can’t do that without NYCHA’s permission. But because of what was happening in that council district, the council-person was very protective. Anything that she could have a say in, she was clamping down on.

Compare that to the property in the Bronx, where we had a TA president who was very skeptical, and a local elected official who was less vocal against the transaction. She knew L+M, knew what we had done in the past, and understood the necessity of the transaction from a security and sustainability perspective. In the Bronx, there was less concern that we were going to convert the buildings to market-rate condos.

Can you explain how NYCHA will benefit from the partnership?

NYCHA will receive a series of payments. They received a partial payment of the purchase price when we closed on the financing of the property. Then when we stabilize the properties and convert to the permanent phase of financing, they’ll receive the rest of the purchase price. They’ll also benefit from a portion of the developer fee and ongoing cash flow. So, NYCHA’s received a big payment up front that they’ve already reinvested into other properties and used to close their budget gap for the first time in many years.

The transaction itself enabled the buildings to be renovated with about $80 million worth of hard cost, and NYCHA to take $250 million in purchase price and put it back into their budget for whatever they see fit. We did that by leveraging the mark-up-to-market HUD contracts, and using debt and tax credit equity to combine into the financial structure for the deal.

From an ongoing perspective, NYCHA will receive half the developer fee and then three quarters of the cash flow. There’s also a seller’s note that they will be paid on. So there are a number of different buckets of proceeds that NYCHA will receive, and they’ll be able to use it however they wish.

What kinds of “reasonable cause” can NYCHA cite to cancel the contract with L+M and BFC? And what is the nature of the 30-year opt-out clause governing the buildings?

NYCHA has a number of different rights in the joint venture. They are the ultimate decision-makers in basically everything. We can’t sell the property; we can’t convert to condos; we can’t really do anything without NYCHA signing off on it. And we have no interest in doing that with these properties. Through the deal we are receiving HUD contracts, which are very valuable and pay market rents. NYCHA has a purchase option in 15 years and can take back the properties if they want to. And then, at the end of the 30-year affordability period, NYCHA is the ultimate decision-maker. They decide what happens at that point. Most likely, we will do a similar transaction and extend the affordability further.

Do you see this deal as providing a clue to the future of affordable housing in New York?

We see this transaction as a model for the potential of public housing. We can generate proceeds that NYCHA can use to reinvest in their portfolio. We renovate their properties and manage them. And we do all of that in a more efficient and effective manner than NYCHA can. It’s a public-private partnership and a real joint venture with NYCHA in which NYCHA has decision-making capability and can leverage the strength of the private sector in terms of what they’re good at doing: building and managing housing.

There’s a way to do that effectively and in a real partnership where the residents feel like their interests are protected, and from our perspective, we’re making money off the property, which gives us an economic incentive to do the right thing and reinvest money into the property and operate it well. As the property does better, we do better.

Adam Tanaka is a Ph.D. student in urban planning at the Harvard Graduate School of Design and a Meyer Fellow at Harvard’s Joint Center for Housing Studies. His research focuses on housing policy and development in the contemporary United States, drawing from the fields of political science, law, urban planning, and real estate to develop methods for understanding and improving urban housing provision.

Many thanks to Jessica Yager at the Furman Center for Real Estate and Urban Policy for helping to arrange the interview.

Read more in the Challenges to Democracy series, including Adam Tanaka's posts.

Read the opening post to this series, which we cross-posted in April 2015.

The Impact of Student Loan Debt on the Housing Decisions of Young Renters

by Irene Lew
Research Analyst

In the last several presidential debates, both Democratic and Republican candidates have referenced the mounting costs associated with a college education, which have contributed to the dramatic growth in student loan debt over the past decade. Two weeks ago, the nonprofit Institute for College Access and Success released their tenth annual report which showed that students' average debt at graduation rose 56 percent, from $18,550 in 2004 to $28,950 in 2014. Aggregate outstanding student loan balances more than tripled in real value over the same timeframe, rising from an average of $380 billion in 2004 to $1.1 trillion in 2014, according to data from the Federal Reserve Bank of New York’s Consumer Credit Panel. In fact, student loan debt was the only type of consumer debt to rise steadily during the Great Recession, even as households shed other types of non-housing-related debt such as credit card debt.

Many in the housing industry are concerned that unmanageable student debt is holding back Millenials from becoming first-time homebuyers. Households aged 25 to 34 typically account for just over half of all first-time buyers, but homeownership rates among this group have dropped by more than 9 percentage points since 2004. A 2014 survey conducted by the National Association of Realtors found that only a third of 2014 homebuyers were first-time purchasers—the lowest share since 1987—and that among the 23 percent of first-time homebuyers who reported difficulties with saving for a down payment, over half (57 percent) cited student loans as a factor. In a new research brief I analyze the extent to which young renter households in their 20s and 30s are burdened by their student loan payments and explore the potential implications of these payment burdens on future decisions to pursue homeownership. I also build on the findings described in an earlier blog post to further describe the growth and prevalence of student loan debt among various demographic groups, especially among minority households and those without a four-year college degree.

My analysis draws on cross-sectional data from the Federal Reserve Board’s triennial Survey of Consumer Finances (SCF), which describes changes in debt, wealth, and assets at the household level. My brief utilizes the thresholds for student loan debt burdens outlined by the Consumer Financial Protection Bureau, which define burden according to percentage of monthly income made up by each monthly payment: for low, medium and high burdens, respectively, this percentage is less than 8, between 8 and 14, and more than 14. Reflecting both increases in student loan payment amounts and income declines among young renters, I find that the prevalence of young renters with medium or high student debt burdens accelerated following the Great Recession. Between 2007 and 2013, the share of young renters with high student loan burdens nearly quadrupled, from 5 percent to 19 percent (Figure 1).

Young renters at the lower end of the income distribution are more likely to bear the brunt of student debt payment burdens. When factoring in other non-housing debt payments on top of student loan payments, the mean payment-to-income ratios increase to 22 percent for young renters in the bottom quartile and to 8 percent for those in the top quartile (Figure 2). Yet although the lowest-income renters are faced with the highest payment burdens, even the lower payment burdens among renters in the top quartile are large enough to be factored into the ability to purchase a home.

While a causal relationship among student loan debt, housing consumption, and the tenure decisions of young renters cannot be drawn without additional analysis that disentangles other economic factors such as local employment and housing market conditions, student loan payment burdens are likely contributing to downward pressure on the homeownership rates of young households. Indeed, homeownership rates have been consistently lower among households with medium and high payment burdens relative to those with low burdens (Figure 3).

My analysis of student debt burdens excludes households that have not begun making payments on this debt due to deferral or forbearance, suggesting that the number of young renter households with student debt payment burdens is likely to increase in coming years as this group enters the repayment cycle. Indeed, as of 2013, nearly half of the $711 billion in student debt observed in the SCF data was held by households that have at least one student loan in deferral—and 45 percent of renter households aged 20-39 with student loan debt have not yet made any payments toward their outstanding student loan balances (Figure 4).

Another concern is rising student loan default rates, which reflect a growing share of borrowers struggling to pay down their debt. According to the U.S. Department of Education’s Federal Student Aid Data Center, 3.2 million borrowers are in default as of the third quarter of 2015, up by more than half (52 percent) from the same quarter two years ago. Federal student loan borrowers faced with unexpectedly low earnings can take advantage of several income-driven repayment plans that reduce monthly payments and can help minimize payment burdens, but most do not, instead opting for standard repayment plans, not based on current income, where monthly payments are amortized over a 10-year period. Unlike income-driven repayment plans, standard repayment plans do not account for reductions in a borrower’s income and do not establish timelines for forgiveness of any remaining loan balances.

Rising student debt levels and payment burdens among young renters are likely to impact this group’s long-term finances and their decisions to transition to homeownership. Delinquency and default can harm the ability of young renters to access low-cost credit and qualify for a home-purchase mortgage. Furthermore, student loan payments reduce young renters’ discretionary income and can delay the accumulation of savings toward a down payment on a home. Indeed, according to the SCF, college-educated renters in their 20s and 30s with student loan debt had just $3,500 in cash savings and negative net wealth of -$9,640 at the median, compared to $27,000 in net wealth and more than double the amount of cash savings ($7,500) among those without student debt. With lower incomes, wealth, and savings, young renters with student debt may face challenges qualifying for a mortgage to purchase their first home or setting aside a sufficient financial cushion for a down payment on a home.

Can Demolitions and Property Rehabilitations Alter Nearby Crime Patterns?

by Jon Spader

Senior Research
Associate

The potential for vacant and abandoned structures to attract crime has long concerned local policymakers. Newly vacant structures may attract crime, to the extent that they contain appliances, copper pipes, or other targets for burglary and theft. Additionally, abandoned structures offer suitable locations for criminal activity away from the public eye, such as public order offenses like vandalism or drug use. The presence of such crimes can reduce public safety for other neighborhood residents and require public dollars to police.

The foreclosure crisis sparked increased anxiety about these issues in many communities where concentrated foreclosures left properties vacant. Indeed, a large and growing body of research indicates that foreclosures caused increased crime during this period, largely as a result of the vacancies that occurred during the foreclosure process. In addition to the possibilities mentioned above, researchers hypothesized that foreclosures might increase crime through several additional channels: falling property values might reduce the local resources available for crime prevention; turnover of neighborhood residents might reduce the extent of monitoring in public spaces; and, reduced maintenance might alter offenders’ perceptions about whether the unit is occupied.

These potential vectors for increased crime raise important questions about what options are available to policymakers who seek to prevent vacant properties from becoming sources of blight to their surrounding communities. A recent Joint Center for Housing Studies working paper examines one possible strategy, measuring the extent to which demolitions and property rehabilitations effectively reduced the incidence of crime on or near foreclosed and vacant properties. Specifically, this paper measures the impacts of demolitions and property rehabilitations funded by the Neighborhood Stabilization Program between 2009 and 2013 in Cleveland, Chicago, and Denver. For more information about the Neighborhood Stabilization Program, additional analyses are available here, here, and here.

These three maps below show the location of demolitions and property rehabilitations in Cleveland, Chicago, and Denver. The number, type, and location of NSP activities are displayed, overlaying this information with shading that illustrates the underlying rates of crime in the neighborhoods surrounding the property demolitions and rehabilitations. The working paper measures the average impact of demolitions and property rehabilitations on the incidence of crime that occurs on the property or within 250 feet in any direction. This distance increment reflects the impact of these investments on the property itself or in the areas immediately adjacent to the property (relative to the trend observed in other areas of the neighborhood).

In addition, the map for Denver shows a small number of financing activities which provided down payment assistance to low-income homebuyers to purchase homes that had recently experienced foreclosure. Unfortunately, the number of such properties is too small to allow similar analysis of whether the reoccupancy of these properties affected the incidence of crime or near the financing properties.

 

The results suggest that the demolitions conducted by the NSP grantee in Cleveland reduced the incidence of burglary and theft within 250 feet of the demolished properties. The measured impacts of demolitions were present during the period of the demolition and persisted for one year following the demolition, before dissipating. In total, these estimates imply a reduction of just over 1 reported property crime for every 2 demolitions completed.

The findings do not show similar impacts for the observed set of property rehabilitations in Cleveland, Chicago, and Denver, nor for the observed set of demolitions in Chicago. Because the sample sizes are much smaller for these activities, we are unable to determine whether these activities had no impact on crime, or whether this outcome is due to limitations of the study’s data and methods. For example, the set of property rehabilitations conducted in each city, as well as the set of demolitions in Chicago, each included a heterogeneous set of property  and neighborhood types, which may limit the estimates of the ‘average effect’ of these investments.

Nonetheless, the findings carry useful implications about the potential for demolitions to alter nearby crime patterns. The direct implication is that a strategy of concentrated demolitions may be effective in altering neighborhood crime patterns under certain conditions. The map of Cleveland above illustrates the extent to which Cleveland clustered its demolition activity, targeting its demolitions primarily to neighborhoods with high levels of vacancy and abandonment. The reductions in crime surrounding these demolitions add to the potential benefits that policymakers should consider in weighing the use of demolition to remove vacant and abandoned properties. The caveat is that the size of the impacts is relatively modest. Policymakers will need to weigh the overall benefits of demolishing vacant and abandoned structures against the costs—which averaged $13,970 per demolition for the NSP program.

Some caution is also needed in applying the findings to other neighborhoods and cities. As the above discussion suggests, the estimates reflect Cleveland’s use of concentrated demolitions in neighborhoods with high levels of vacancy and abandonment and moderate levels of crime. Their demolition strategy might therefore be readily applied to nearby Midwestern cities facing similar challenges, but could be less exportable to neighborhoods with different levels of crime, different built environments, or that are located in different regions of the United States.