For the first time since 2005, growth in new rental housing slowed down. Are there really enough apartments to meet demand?
For more than a decade, the number of renter households in the U.S. has expanded year after year, sometimes by more than 1 million renters a year. This year, the explosion of renters in the wake of the foreclosure crisis has maybe, finally, begun to fade: For the first time since 2004, the number of renter households declined.
Twelve years of growth has permanently transformed the housing landscape. High-income earners account for a much larger share of renters in the U.S. today than they did when the growth spurt began in 2005. Between 2006 and 2016, the share of households earning more than $100,000 who rented their housing grew from 12 percent to 18 percent—a spike of nearly 3 million people, or almost one-third of the 9.9 million increase in renters overall.
This is a shift with big implications for high-cost cities and the economy at large. As a report from Harvard University’s Joint Center for Housing Studies explains, it’s a testament to the reach and depth of the foreclosure crisis that so many former homeowners or would-be homeowners instead joined the ranks of renters. But even though the expansion of the renter class may be slowing, the changes in rental housing, and in the people who choose to rent, are here for good.
The new normal, according to the report, is one in which renters are older, wealthier, and more likely to have children. Between 2006 and 2016, the median age of renters in the U.S. jumped from 36 to 40. Families with children now represent a larger share of renter households (33 percent) than homeowner households (30 percent). Thanks to an influx of white households, renters also more closely resemble the U.S. as a whole demographically, much more so than homeowners do.
Much of the expansion in rental housing came in the conversion of single-family homes traditionally reserved for homebuyers with children. Between 2006 and 2016, the report reads, “the number of single-family homes available for rent increased by nearly 4 million, lifting the total to 18.2 million.” Adding to single-family home conversions was a multifamily construction boom in major metro downtown areas and commercial corridors.
Rising apartment and condo buildings, the source of great agitas in rapidly gentrifying cities and neighborhoods, shows where a large and growing share of renters have decided to hang their hats. In these areas, soaring costs for three “L” factors—labor, land, and lumber (or materials)—have conspired to produce rental buildings that overwhelmingly cater to high-income households. Between 2011 and 2016, the median monthly rent jumped by 27 percent, to $1,480, mostly because rental housing is so expensive to build where renters want to live.
This would be fine if incomes were keeping up with the costs of living, but they just aren’t. For a household to pay $1,480 a month but not spend more than 30 percent of their income on rent, a household needs to make at least $59,000. The median renter income is $37,300. That isn’t enough to live affordably.
Over the last two years, the pressure on some renters has eased a little bit. The number of cost-burdened households (those paying more than 30 percent of their income toward rent) fell from 21.3 million in 2014 to 20.8 million in 2016. The number of severely cost burdened households (those with rents accounting for more than half their income) dipped too, from 11.4 million to 11.0 million.
The problem is the sheer number of people caught up in the crisis as it unfolded over the last decade. The explosion in renters was matched by an astronomic rise in households who can’t afford their rent. It will take full-on rent triage to heal the damage of the foreclosure crisis. “At the average rate of improvement from 2014 to 2016, it would take another 24 years for the number of cost-burdened renters to return to the 2001 level,” the report reads, ominously.
The next steps taken by the federal government could either lock in the modest gains that renters have made just recently—or quickly reverse them.
Tax reform will be especially important to the future of housing. One of the main instruments for building affordable housing for the most vulnerable families, the Low-Income Housing Tax Credit, could see its value diminished if the corporate tax rate is slashed. One version of the tax-reform bill threatened to eliminate part of the housing tax credit program altogether. And while Congress has yet to pass a new budget under the Trump administration, every proposal so far has included draconian cuts to public assistance, including housing aid.
A tax reform bill that squeezes the middle class after a decade, coupled with immediate budget cuts to low-income households, could return the country to foreclosure-crisis levels of renter despair. This is to say nothing about unpredictable threats, like a recession, or predicted changes, like looming demographic shifts as the bulk of the Baby Boomer generation retires and youngest Millennials form their own households. Over the last decade, the country has ended up with a renter class that’s older, wealthier, whiter, and has more children. That transformation may end up becoming permanent.