Low-Income Housing Studies Show Growing Demand, Diminishing Supply

Recently issued studies by Fannie Mae, the National Low Income Housing Coalition (NLIHC), and the Harvard Joint Center for Housing Studies (JCHS) have all highlighted the importance of preserving and expanding the supply of affordable rental housing to meet increased renter demand as more households turn to renting due to foreclosures and depressed incomes.

According to the JCHS report, the need for rental housing is expected to grow dramatically, with the number of U.S. households that rent their homes increasing to 42.6 million by 2020.

“The housing bust and Great Recession have pushed up the share and number of renter households,” the study stated. “With millions of homeowners delinquent on their mortgages, further increases in the renter population are likely. Owners who have gone through foreclosure are especially likely to remain renters for a number of years to come.”

The studies show that there's a shortage of affordable housing for low-income renters and that it's increasingly difficult for a person earning the prevailing minimum wage or even the average renter wage to obtain decent housing. With such a shortage, we can expect added pressures on policy makers to support housing assistance programs and try to expand the affordable housing supply as the United States navigates its way through an economic recovery.

Housing Cost Burden, Housing Wages

A record number of renters are paying more than half their income for housing, according to the JCHS report entitled “America's Rental Housing: Meeting Challenges, Building on Opportunities.” The study found that one in four renters, or 10.1 million households, spend more than half their income on rent and utilities. JCHS attributed the record-high levels to the recession, which worsened budgets already strained by rising utility costs and declining incomes.

The NLIHC study confirmed the JCHS report. It found an increasing housing wage necessary for households to afford apartments. The housing wage represents the full-time hourly wage one would need to earn in order to pay what HUD estimates to be the fair market rent (FMR) for an apartment, spending no more than 30 percent of income on housing costs. The generally accepted standard of housing affordability is 30 percent of a household's monthly income.

The NLIHC study found that a household must earn the equivalent of $38,000 in annual income to afford the national average two-bedroom FMR of $960 per month. Assuming full-time, year-round employment, this translates into a national housing wage of $18.46 in 2011, up from $18.44 in 2010, even as renters' earnings have been falling. In other words, a renter would need to make $18.46 per hour to make average rent for a modest two-bedroom apartment affordable.

Diminishing Supply

As demand is increasing, the country's rental supply is disappearing, with low-cost apartments hit the hardest. Between 1999 and 2009, 6.3 percent of the country's rental stock was lost. This equated to 2.4 million lost units, the JCHS study found. The decade saw a permanent removal of 12 percent of low-cost rentals, twice the loss rate of units renting for between $400 and $799 and four times the loss rate of units renting for $800 or more.

A recent white paper issued by Fannie Mae, entitled “Fannie Mae and Workforce Rental Housing,” confirmed a shortage of affordable units, and reiterated Fannie Mae's commitment to providing a sustainable source of financing to preserve subsidized affordable rentals. The paper found that rental housing affordable to lower-income households is in short supply, especially in certain high-density metropolitan areas such as Washington, D.C. and New York City.

In addition, the paper pointed out that Fannie Mae provided approximately $37 billion in debt financing for the rental housing market over the past two years and that supporting the multifamily market will be an increasingly important part of Fannie Mae's business going forward. In fact, 90 percent of Fannie Mae's multifamily financing supports affordable housing, and the paper found that demographics favor the multifamily sector in the long term because there will be substantial growth in the prime renting age between 20 and 34 years old, as well as older renters.

States Ranked by Housing Wage for Two-Bedroom Fair Market Rental