December 9, 2015; Washington Post, “WonkBlog”
Back in 2009 when the Rent is Too Damn High Party ran Jimmy McMillan for mayor of New York City, everyone across the country smiled in agreement. Six years of constant rent inflation later, the slogan is not so funny. In fact, “the rent inflation is downright painful” sums up the new report from the Joint Center for Housing Studies (JCHS), which says, “Even with the strong rebound in multifamily construction, tight rental markets make it difficult for low- and moderate-income renters to find housing they can afford.”
Emily Badger’s summary of the JCHS study in the Washington Post expands on that point: “While pressure has been building on low- and moderate-income households struggling to find affordable housing, we have largely been adding new supply tailored for the wealthy.”
Here’s the points Badger cites from the JCHS study.
- There are nine million new renter households in the past decade. JCHS calls this “record-setting growth in demand.”
- Construction costs make it hard for developers to create new affordable units.
- The filtering-down system is broken so that new supply at the top doesn’t mean that older supply becomes more affordable. Badger argues that demolition of older housing in the wake of the Great Recession and the gentrification of some older affordable stock have combined to reduce the supply of units at the bottom of the rent scale.
As a result, rent continues to outstrip household incomes. JCHS says, “Between 2001 and 2014, real rents rose 7 percent while household incomes fell by 9 percent. In combination, these trends pushed the number of cost-burdened renters (paying more than 30 percent of income for housing) up from 14.8 million to a new high of 21.3 million.”
The JCHS prescription is pretty clear but short on details. “Addressing the challenge of affordability in a time of rising overall demand will require greater efforts from both the public and private sectors to expand the range of rental housing options.” So far, responses to the affordability crisis seem to be local policy development or local projects. Federal policies and programs are paralyzed by Congressional budget battles and no leadership of affordability from the (almost) lame-duck administration.
Policy prescriptions abound. A current favorite is changing zoning rules to permit greater density and thereby reduce construction costs. From another perspective, micro-home advocate Lloyd Alter make a plea for zoning that permits micro-housing units to be developed in cities. One is density for the elites, while the other is density for the masses.
A different policy approach would mandate or incentivize affordable construction to complement new “market rate” construction. That’s what tenants in West Hartford are calling for as a former convent is redeveloped for luxury rental housing. Predictably, there’s been pushback by developers against plans that would require them to create affordable units or donate to an affordable development fund. Finally, many on the policy side are promoting transit-oriented development. The idea of creating easy public transit access from housing located just beyond prime real estate areas could permit lower cost development.
Then again, maybe policy innovation is not necessary. The house purchase business is about to rebound and will rebalance the housing market. This is a position of many in the housing purchase industry. The JCHS report casts some doubt on this belief, finding that over half of today’s renters are over 40 years of age and maybe past the prime time to become house buyers:
The largest increase [in renters]…was a 4.3 million jump in the number of renters in their 50s and 60s. This growth reflects the aging of baby-boomer renters (born 1946–1964) as well as declines in homeownership rates among this generation. While households in their 20s make up the single largest share, households aged 40 and over now account for a majority of all renters.
(Last week, I argued that many potential house buyers are turned off to that form of housing tenure in favor of more mobile, urban core, transit dependent lifestyles.)
Meanwhile, local affordable housing programs seem to focus on special need groups rather than comprehensive policies. Employee-based housing or service-enriched housing, artist housing, housing for specific disabilities, LGBT seniors, and veterans housing are examples of local solutions to address the affordability crisis. The phenomenon of creating special-needs housing may be driven by nonprofit housing providers who are operating with a mission-focus and using funds that are earmarked for a special needs constituency. Unlike for-profit housing providers with a mission to make money for investors, these nonprofit providers could be creating white elephants. After all, social needs change more quickly than the built environment becomes obsolete. The economics of today’s “workforce” developments, for instance, may be really different in a few years when the worker profile changes or the jobs move away. One shining example of the success of general-purpose affordable housing is Utah’s “housing first” initiative, which has reportedly reduced homelessness by 91 percent over the past decade. One entrepreneur thinks he has the market-based answer for affordability built around the theory that “the poor you will always have with you.”
While all this planning, policymaking, and development is going on, there are two tools that would provide some immediate relief to rent burdened households. Raising the minimum wage would make housing immediately more affordable for millions of U.S. households by reducing the rent-to-income ratio. Would this lead to more rent inflation? Maybe, but one can imagine that the stability of a permanent wage increase could spur low-income households to move to purchasing rather than continuing to rent in markets where homeownership is cheaper than renting.
A better “instant” solution would be to triple the Federal investment in Housing Choice Vouchers (HCV). The delivery system (public housing authorities) is already in place and the HCV waiting lists across the country stretch into decades, so this investment is truly “shovel ready.” Because HCV rents are tied to the Fair Market Rents in a particular geographic area, there’s a buffer against massive rent inflation. And, unlike minimum wage increases, the funding levels for HCVs could be rolled back as rental markets stabilize. Given the legislative constipation in DC, don’t expect either solution to be adopted, although minimum wage increases could be adopted by state or local governments.
Coupled with the recent Pew Study that shows the hollowing out of the middle class, the JCHS study prompted Paul Krugman to observe that we are at the end of the beginning of the affordability crisis. “For now, let’s just say that in this age of gentrification, housing policy has become much more important than most people realize.” Jimmy McMillan didn’t get a Nobel prize for his insight, but his mantra seems eerily prescient.—Spencer Wells