Buy v. Rent/Good Time to Buy?

Harvard finds dwindling housing supply abolishes affordable rentals

Posted on Thursday, May 5, 2011

Recent trends in rental housing are creating a dismal environment for many Americans and if public policy doesn't intervene, things will get worse, according to a study from one Ivy League university.
The Harvard University Joint Center for Housing Studies released a report Tuesday, analyzing conditions in the housing market from 1999 to 2010. The study found the price to rent a home is trending inversely to renters' annual income, just one of many factors hindering growth in the rental space.
"Following the 2001 downturn real renter incomes failed to rebound and now remain below their 1980 level," the report said. "At the same time, real contract rents have climbed by more than 15% since 1980." Rents rose steadily from the mid-1990s on, the report added.
One in four renters — representing about 10.1 million households — spends more than half his annual income on rent and utilities. Another 26.2% of renters spend between 30% and 50% of yearly income on the same amenities. This data aptly depict what the report later notes about the socioeconomic breakdown of renters.
"While severe housing cost burdens are still anchored among those in the bottom fifth of the household income distribution, over the last decade the number of renters even in the next two higher quintiles facing such burdens increased by 1 million households," according to the report.
About 56% of lower- to middle-income families currently use one-third to one-half of their income for rent and utilities, compared to 38% of these families at the beginning of the decade. Some 23% of middle-income families now spend that much annually for these expenses, up from 10% a decade ago.
A lack of affordable housing also is driving unfavorable rental conditions, the Harvard study said. Affordable rental housing stock is diminishing, the report said, but the main reason is not increasing occupancy rates. Of the 6.2 million vacant or for-rent units with monthly cost less than $400, almost 12% were demolished between 1999 and 2009, according to the report.
More than 28% of the 1999 low-cost stock was lost by 2009, the report said.
"The road to removal typically begins once a unit becomes temporarily uninhabitable," according to the report. "But abandoned homes often languish in this state for years, bringing blight to the surrounding neighborhood. Indeed, nearly one-third of all housing units that were abandoned, condemned, or otherwise temporarily lost from the stock between 2001 and 2005 were still in those conditions in 2009."
As the economic downturn wore on, the number of low-income renters grew to 18 million in 2009 from 16.3 million in 2003, increasing competition for affordable rental housing. People who would normally be considered high-income renters were now searching for more affordable housing because of macroeconomic factors such as job loss, the report said. However, this coincided with decreases in housing supply, widening what authors of the report call the "supply gap" — more demand for less supply.
This trend will continue, warn Eric Belsky and Chris Herbert. Blesky is managing director of the Harvard Joint Center for Housing Studies and Herbert is director of research.
They said the 2000s were "terrible for (rental) affordability," and any improvement requires higher renter incomes and moderating housing costs.
"With persistently high unemployment, the prospects for renter income gains are dim and rising demand for rental housing may well put added pressure on rents," Blesky and Herbert said in their report. "Innovations in housing products may, however, be able to help bridge the gap between what low-income renters can afford to pay and the rents necessary to maintain affordable housing."
Herbert said investments to preserve existing assisted housing may be cost-effective, adding the public sector can’t tackle this problem on its own.
"Policy makers must look for ways to support efforts by the private sector to invest in both existing and new rental housing, while keeping prices affordable,” Herbert said.

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