In 2008, in the wake of the Great Recession, President George W. Bush signed legislation into law creating the National Housing Trust Fund to provide block grants to states to increase and preserve the supply of housing that people can afford, especially rental housing. The fund first received modest allocations in 2016. While this is laudable, the amount is not sufficient to make even a dent in the unaffordability problem, whose magnitude is, based on our new analysis, even larger than previously thought.
Approximately one-third of U.S. households rent, rather than own, their home. As of 2010, about half of renters spent more than 30 percent of their income on housing — a threshold above which rents are often deemed "unaffordable." That statistic is widely known. What isn't as well known is that the problem is so widespread that families can't just vote with their feet and move to affordability.
Between 2000 and 2014, our analysis — which we performed for the John D. and Catherine T. MacArthur Foundation when evaluating their 20-year affordable rental housing preservation initiative — shows that rental affordability has gotten substantially worse in virtually every major metro area. That is not just the case for the lowest-income households. It's no longer a New York City and San Francisco problem; rents are unaffordable in Cleveland, Miami and Portland, too.
Take a family who lives in the New Orleans metro area that earned $10,672 as of 2011. Such a family had earnings in the bottom fifth of the renter income distribution in that region. This hypothetical family would have to spend 67 percent of its income to rent a home that is itself in the bottom fifth of New Orleans's rent distribution. In fact, families like this in the bottom fifth of the income distribution would have to spend more than 30 percent of their income to rent a perfectly matched home that has rent at the bottom fifth of the rent distribution in 280 out of 283 metro areas. The only metro areas where such a family would find affordable rental housing are Decatur, Ala.; Houma, La.; and Johnstown, Pa., which are all small metros.
And the problem is not just for that family at the bottom fifth. To continue with the New Orleans example, we found that families earning at the 40th percentile (e.g., $21,344) and 60th percentile (e.g., $35,574) also would have to spend far more than 30 percent of their incomes to rent homes at the corresponding point in the rental distribution. And this is not unique to New Orleans — in about one-third of metropolitan areas in the United States, renters at the 60th percentile must spend more than 30 percent of income to obtain housing at the 60th percentile of the rental distribution.
The increase in rent burden marks a major departure from the decades following World War II, when rents in the United States rose with inflation, but more slowly than income. Indeed, one of the triumphs of the U.S. economy between 1945 and 1980 was that housing became at once better and more affordable.
So what happened? We point to four trends.
First, new construction of rental housing slowed since 2007, and a shortfall in supply often means increases in price.
Second, households have gotten progressively smaller, as people are delaying marriage, having fewer children and staying in houses long after the departure of children. Smaller household size means the nation needs more housing units per person to house everyone.
Third, the income of the typical renter household has declined in more than 90 percent of MSAs since 2000. So even had rents remained steady, rental affordability would have worsened, simply because the typical renter had less money with which to pay rent.
Finally, more than 7 million homeowners went into foreclosure during the Great Recession. If only half of those who went into foreclosure went on to become renters, the demand for rental housing would have increased by 10 percent in a short period, which pushes up rental prices.
Each of these factors on its own would place stress on the rental market. Having them occur simultaneously has created a rental affordability crisis.
While many cities and states have adopted much-needed programs to boost affordable housing, the breadth of rental unaffordability indicates that this is a national problem in need of a national solution. Part of that solution could involve a boost in funding for the National Housing Trust Fund, an option for Congress to consider.
Another part of the solution might involve the inclusion of stronger provisions within the Housing Trust Fund for the preservation of existing affordable rental housing — whether subsidized or not — as a complementary strategy to new construction. Preservation is a cost-effective way to extend the affordability of either subsidized or unsubsidized rental homes that are at risk, for one reason or another, of no longer being affordable for low-income households. Rather than starting from scratch, preservation works with what already exists.
The housing market is far too complex and vast for any single policy or program to be a silver bullet. But an increased federal investment in the Housing Trust Fund could be an important first step toward meeting the needs of America's low-income renters.