Need for Affordable Rental Housing Skyrockets in the U.S.

Written By Ricardo Álvarez-Díaz

ABOUT THE AUTHOR | Ricardo Álvarez-Díaz is the founder and principal of the architectural firm Álvarez-Díaz & Villalón, with offices in Miami and San Juan, Puerto Rico.

Decent, affordable rental housing is crucial for the well-being of individuals, families and communities throughout the U.S. and the world.

Rental housing has always provided flexible and diverse housing options for people at all stages of life. The housing market crash and Great Recession that began in 2007, from which we are still recovering, highlighted the many advantages of renting and the obstacles to home ownership, triggering a surge in demand for rentals in the U.S.

Higher demand has led to lower supply, which along with household incomes that are not catching up with rent hikes has resulted in an affordable housing crisis and a growing number of cost-burdened households spending more than 30 percent—often upwards 50 percent—of their income on rent.

This national trend represents a challenge and an opportunity for architects and affordable housing developers to design and build with tenants in mind.

Renters on the Rise

There are more Americans renting nowadays than at any other time in U.S. history. Over the last decade, homeownership rates have fallen from 69.2 percent in 2004 to 63.4 percent in 2015 (the lowest level since 1967), while the share of renter households has risen an average of 770,000 a year, according to a report by the Joint Center for Housing Studies of Harvard University and Enterprise Community Partners.

Of those renting, many used to own their homes but lost them to foreclosure during the housing crisis. Their damaged credit scores now make it impossible for them to meet today's stricter credit standards to qualify for mortgages. Meanwhile, federal, state and local government programs designed to boost homeownership have fallen short of expectations, helping only a small percentage of people and forcing many to give up on homeownership.

Shifting demographics are putting additional pressure in the rental housing market. Renters are much more likely to be poor compared with homeowners, and this gap has widened since the onset of the recession. Most new households are expected to consist of minorities with low incomes and few or no assets. At the same time, young adults who normally would be buying their first home are struggling to find jobs and pay hefty student loans while delaying plans to marry, have kids and buy homes.

High Demand + Low Vacancy Rates = Rent Hikes & Lack of Affordable Rentals

The flood of renters has reduced the national vacancy rate to its lowest in 20 years, and though developers are adding units to the rental housing inventory, most are high-end apartments that are not affordable for those desperately needing housing. In 2013, 11.2 million extremely low-income households competed for 7.3 million affordable-to-them units, representing a 3.9 million unit shortfall.

Increasing demand and declining vacancy rates are driving rents higher and higher, but wages are regressing. Average rents increased by 22.3 percent between 2006 to 2014, while average incomes declined by 5.8 percent, according to the American Community Survey for 50 large U.S. metro areas. In the last year, rental costs in 540 analyzed U.S. counties have gone up 4.2 percent compared to a 2.2 percent increase in wages.

While rents rise and incomes stall or drop, most jobs being created are in metro areas were affordable housing is extremely scarce and rents are very high, driving the share of cost-burdened renters (those paying more than 30 percent of their income on rent) and severely cost-burdened renters (spending 50 percent or more of their income on rent) to record highs.

The poorest among us are in dire straits. The share of income spent on rent by U.S. households with the lowest income has increased from an alarming 55.7 percent in 2006 to a shocking 62.5 percent in 2014. No other income group spends more than 30 percent of its income on rent.

Cost Burdens Get Heavier

Demand for affordable rental housing is not going to slow down any time soon. Industry estimates show that over the next decade the majority of new households will be renters in the low- and mid-income brackets.

The Joint Center for Housing Studies of Harvard University and Enterprise Community Partners project that demographic trends alone will raise the number of severely cost-burdened renter households from an estimated 11.8 million in 2015 to 13.1 million in 2025. At worst, the number of renters spending more than half their income could reach 14.8 million by 2025, an increase of 25 percent from 2015.

Unfortunately, many housing policies encourage homeownership, and subsidies often fall on relatively wealthier homeowners rather than on low-income, cost-burdened renters.

Benefits of Renting

Affordable rental housing is a fundamental need for low- and mid-income households in high-cost markets and those who have lost their homes to foreclosure. Other groups choose renting over owning for a variety of reasons: empty-nesters seeking to downsize and simplify their lives, people who move frequently, young adults starting out, older or disabled people unable to maintain a home.

Despite the widely acclaimed advantages of homeownership, renting has its own set of benefits:

• Money needed to move in (first/last month's rent, security deposit) is lower than down payment, closing costs, insurance, property taxes, maintenance and repair expenses involved in homeownership.

• Flexibility that allows households to adapt to income and job changes, divorce, relocation, etc.

• Shelter from falling home values resulting from the housing crisis and economic recession.

• More manageable household budget as tenants do not have to pay for unexpected home repairs.

• Less stressful because the landlord is responsible for maintenance and repairs.

• Rentals often come with appliances, and some include some utilities and pest control in the rent.

• Renting allows tenants to live in more convenient locations near their jobs, public transportation and entertainment.

Renting provides a flexible and convenient housing option for individuals and families. Unfortunately, increased demand, lack of affordable rentals, shrinking incomes and rising rents make it virtually impossible for many people to afford decent, adequate rental housing.

The coordinated efforts of government agencies, real estate developers, community leaders and architects, among other key players, is imperative to come up with viable solutions and thus increase the inventory of affordable rental housing to serve the projected growing number of renters. We must act now.