Rental Unit Losses Surpass LIHTC Additions, Deepen Affordability Crisis, Harvard Study Reports

By Caitlin Jones & A. J. Johnson
January 23, 2009 5 min read

Tax Credit Advisor April, 2006: Harvard University’s Joint Center for Housing Studies has released an unusually detailed analysis of the nation’s shrinking inventory of affordable rental housing.

“America’s Rental Housing: Homes for a Diverse Nation,” published last month, reported that between 1993 and 2003 about 200,000 rental units were removed each year from the housing supply. During the 10-year period, a total of 2.25 million rental units were lost – about 6 percent of the total rental inventory of 36.12 million units – either through abandonment, demolition, or conversion into condominiums.

These losses were only partially offset by additions of subsidized units through the Low Income Housing Tax Credit program, which brought on an average of about 90,000 new units a year. Although 3.02 million new rental units were built between 1993 and 2003, very few of the unsubsidized units within this total had rents affordable to low-income households, the study reported.

“While preservation efforts have focused primarily on subsidized units, stemming the loss of low-cost unsubsidized rentals is equally urgent,” the study said.

Analyzing Patterns of Rental Loss

The nation’s older rental housing stock suffered particularly steep losses, according to the report. Pre-1960 units removed totaled 1.49 million, or 66.2 percent of those lost, and 12.1 percent of the total 12.27 million inventory of rental units. The Joint Center said that as of the end of 2003 another 3.87 million of these older units were “at risk,” which it defined as either vacant for more than six months or severely inadequate.

The report said that one of the main reasons for the loss of older rental stock was owners’ lack of financial resources and management skill. Because of this, properties were often neglected, leading to tenant loss followed by demolition after sale or abandonment.

The Harvard study also reported that the number of units lost varied considerably by geographic region. The South suffered the loss of almost twice as many units as any other region, with 900,000 units removed from the housing supply. The Northeast and Midwest each lost 490,000 units, and the West lost 370,000 units. The report did not supply separate statistics detailing the precise cause of the loss of rental units.

Rental Affordability Decreases

Rental units have become significantly less affordable, the study said. It reported that between 1993 and 2003, units renting for $400 or less in inflation-adjusted terms fell by more than 1.2 million units; while those renting for between $600 and $800 a month rose by about 500,000 units, and those for renting $800 a month or more rose by 1.7 million units.

Between 1994 and 2004, the monthly median rent for newly-constructed unsubsidized units rose 19.1 percent, from $734 to $974. The median rents charged for all units increased 16.4 percent, from $611 in 1994 to $711 in 2004. During this time, renters’ median monthly income was at a virtual standstill, rising by only 3 percent, from $2,272 to $2,348.

Cost Burden Increases

The study also provided statistics demonstrating that the cost burden of rental housing has increased considerably. In 2004, for example, the following were all new records:

14.8 million renter households paid more than 30 percent of their incomes on rent.
7.5 million renter households paid more than 50 percent of their incomes on rent.
Of the 4.2 million households headed by renters aged 65 and older, 2.4 million paid more than 30 percent of their incomes on rent and 1.4 million paid more than 50 percent for rent.
For the lowest-income quintile of renters — the 20 percent who earned less than $10,600 a year – 70 percent paid more than half their incomes on rent, and 12 percent paid between 30 to 50 percent.
For the lower-middle quintile – the next 20 percent of renters, who earned between $10,600 and $20,6000 – 31 percent paid more than half of their incomes on rent, and 40 percent paid between 30 and 50 percent.

“Unable to afford the higher rents for newer suburban units, many of the lowest-income renters remain stuck in older lower-quality apartments close to the urban core with limited access to well-paying jobs and other advancement opportunities,” the study said.

A Problem Likely to Worsen

Local government zoning and land use restrictions have severely limited the addition of new affordable apartments, the report said. Policymakers’ recent emphasis on homeownership at the expense of rental housing has also contributed to the problem.

Unless housing policy changes, the loss of affordable rentals could well accelerate as older apartment properties continue to deteriorate. In addition, the expected growth in the number of renter households over the next decade – particularly among middle-income immigrants, retirees, and households headed by persons 25 and under – will significantly increase demand. The Joint Center projects that the total number of renter households will increase by 1.8 million, or 5 percent, from 35.8 million in 2005 to 37.6 million 2015.

With rental supply diminished and demand increased, there could a “very substantial further decline” in the availability of affordable apartments, according to the study.

“While many Americans do indeed share the dream of buying a home, millions of families have a much more urgent need for good quality rental housing than they can afford,” the report concluded. “A more balanced policy approach should therefore focus on the larger goal of expanding access to decent and affordable housing for owners and renters alike.”