JCHS Report Shows Record Levels of Renters Are Cost Burdened

The share of low-rent units dropped from 22% of the stock to just 16% in the past decade.

Harvard University’s Joint Center for Housing Studies (JCHS) recently released its biennial report on the state of rental housing in the United States (available here). The report analyzes trends and issues related to the changing nature of demand; the cost, character, and location of the stock; and the government policies that affect the supply of rental housing, both market-rate and subsidized units.

The latest report finds rental markets are cooling as new supply has come online. However, the need for rental assistance is greater than ever. JCHS predicts that over the coming year, the softening of the rental market is likely to continue as the pipeline of units under construction boosts supply beyond already high levels and continues to slow rent growth. This will be good news for higher and middle-income renter households. However, JCHS finds that rental subsidies haven’t kept pace with the growing need in one of the costliest housing markets in history, leaving lower-income renters grappling with the worst affordability conditions on record. Here are JCHS’s key findings.

Record-Level Unaffordability

The report finds that more renter households are cost burdened than ever before and a record number of people are experiencing homelessness. At last measure, in 2022, a record-high 22.4 million renter households spent more than 30 percent of their income on rent and utilities. This is an increase of 2 million households over three years and entirely offsets the modest improvements in cost-burden rates recorded between 2014 and 2019. And among cost-burdened households, 12.1 million spent more than 50 percent of their income on rent and utilities, representing an all-time high for severe burdens.

Declining Number of Low-Rent Units

The report finds that the rental supply has increased but millions of low-rent units have been lost. Between 2010 and 2022, the total rental supply increased by 4.3 million units, to 48.1 million units. Robust multifamily production increased the number of rentals in buildings with at least 20 apartments by 3.3 million, to 12.3 million units. However, the supply of low-rent units has fallen dramatically in the past decade. After adjusting rents for inflation, the market lost 2.2 million units with contract rents below $600 between 2012 and 2022, including a loss of 230,000 units from 2021 to 2022 alone. Nationwide, the share of low-rent units dropped from 22 percent of the stock to just 16 percent in the past decade.

Also, the report estimates that affordability periods for more than 325,000 low-income housing tax credit (LIHTC) units are set to expire between 2024 and 2029. LIHTC units have a minimum 30-year affordability requirement with longer timelines in some states, after which they can flip to market-rate rents. And another 7,000 LIHTC units are lost each year when owners use the tax code’s qualified contract option to opt out after an initial 15-year period.

The report also notes that environmental hazards and disasters pose a serious threat to the rental stock. There are 18.2 million occupied rentals located in areas exposed to substantial weather- and climate-related threats. Many of the units under threat are low-rent or subsidized, including 3.2 million units with rents below $600; 1.2 million units supported by LIHTC; 960,000 project-based HUD units; and 200,000 USDA-subsidized rentals.

High Interest Rates Dampen Market Activity

With interest rates rising into 2023, the cost of debt to acquire and build multifamily properties has risen. In this environment, deals are less profitable, which has depressed both multifamily lending and apartment transactions. More concerning, according to the JCHS, is the swift slowdown in multifamily construction. Though starts are the highest seen is around two decades, they hit a seasonally adjusted annual rate of 571,000 units in May, but that number has since dropped. By October, starts were down 30 percent year over year.

While there are a record-high number of units currently under construction that will provide new supply in the near term, continued market cooling and high interest rates could lead to further declines in multifamily starts, creating supply challenges down the road.