by Felicia Kiefer
The home rental market is growing at a powerful rate. The 2011 State of the Nation's Housing report by the Joint Center for Housing Studies of Harvard University attributes the booming rental market to a combination of factors, including a troubled homeowner market, unemployment and demographic shifts. Compared to the nearly flat homeowner household growth rate, the renter household rate grew by approximately 1.5 million in the past two years alone, bringing the current number of renter households to 39 million. Shortage of Affordable Rental Housing Stock
Despite the demand for rental properties, only 124,000 new multifamily rental units were completed in 2010, the smallest increase in 17 years. In addition, many lowest-cost rentals are being permanently lost from the stock due to upward filtering to higher rent ranges, conversions to seasonal or nonresidential use, temporary or permanent removals because of abandonment and an aging rental housing stock. This makes it especially difficult for low-income families to find affordable rental housing. The number of poor renters needing affordable options increased from 16.3 million to 18.0 million between 2003 and 2009. Also during this period, the number of housing units that met conditions of being available to households that make less than 50 percent of area median income (AMI), in adequate condition and not already occupied by higher-income renters fell by 400,000 units.
The gap between the number of extremely low-income renters (earning less than 30 percent of AMI) and the number of affordable rental units available increased from 2 million people in 2003 to 4 million in 2009. As the rental market continues to tighten and the competition for low-cost housing intensifies, the gap between the demand for and supply of affordable rentals will only increase. Defining "Affordable" Housing
Due to this high demand and low supply, rental housing is not affordable for many people. For housing to be considered affordable, rent and utility costs together should be less than 30 percent of household income. However, in 2009, 10.1 million renters, roughly one quarter of the renter population, spent more than 50 percent of their household income on housing. This is an especially hard hit for families with children, who after spending half of their income on housing each month, on average had only $593 left to cover all other expenses.
Many of the low-cost rental units that remain available are in older, more at-risk buildings, jeopardizing the health and safety of the residents.
However, more recently, foreclosed single-family homes in the suburbs are opening their doors for rental to those with Section 8 housing vouchers. Instead of the homes sitting empty, property owners receive guaranteed money from a federal government-backed check, and renters have an opportunity to move out of the dangerous and poverty-stricken apartment complexes that are so often the only subsidized housing options, and into a neighborhood that may offer better schools, more jobs and lower crime rates.
Still, even if renters reside in suburbs farther from the city, where housing costs are lower per square foot, transportation costs must be taken into account when considering affordability for the renter. A Look to the Future
Looking ahead, the rental housing market is predicted to remain strong as the echo-boom generation continues to move into young adulthood, especially since more members of this generation are opting to delay, or even forgo altogether, the process of starting a family and buying a house.
Future immigration trends will also contribute to the growing rental housing market, since foreign-born households of all ages are more likely to rent than those who were born in the United States. After slowing during the 2000s for the first time in more than 30 years, immigration will likely rebound once the economy picks up steam.
In addition, the baby boomer generation is projected to drive up the number of households over age 65 by approximately 8.7 million by 2020. Even when this cohort was in the usual peak age of home ownership between 2005 and 2009 as 45- to 54-year-olds, the market experienced a 42 percent increase in owner-to-renter moves. As this age group continues to age and reaches retirement, the demand for rental options that are smaller and subsidized will only increase.
Overall, the Joint Center for Housing Studies predicts the number of new renter households to increase by 360,000 to 470,000 annually between 2010 and 2020. The rental housing market needs to prepare for this increase by making more affordable rental units available in desirable locations. Details:
To learn more about NLC's Center for Research and Innovation's work on housing issues, contact James Brooks at email@example.com