Harvard report: Wealthy renters increase demand, rents; vacancy shrinks

America’s Rental Housing 2020, a report from the Harvard Joint Center for Housing Studies (JCHS), found a perfect storm of strong demand from high-income renters, new construction focused on the high end of the market, and a decline of rental units at the lower end of the market. Rents are increasing, vacancy rates are shrinking, and more renters are “cost-burdened,” spending more than 30 percent of their monthly income on rent.

“Ultimately, we’re in an affordable rental crisis,” said Whitney Airgood-Obrycki, a research associate with the Harvard JCHS at a January 31 livestream of the release of the report in Minneapolis. “Both the number and share of cost-burdened renters remain near record highs.” Airgood-Obrycki said that 47.5 percent of all renters are in the burdened category. In 2001, 14.8 million renter households were burdened; by 2018 the number had risen to 21.3 million, she reported. The report also found that 10.9 million renters (one in four) were “severely burdened,” spending more than half their incomes on rent in 2018.

“Renter cost-burden rates for most income groups have been on the rise, in metro areas of all sizes across the country,” Airgood-Obrycki said. The full report and interactive map provide more details.

The report found a dwindling supply of low-cost rentals, especially those lower than $600 a month, but also those lower than $1,000 a month. A vacancy rate of 6.8 percent in mid-2019 was at its lowest level since the mid-1980s, and rental prices are at record highs. Nominal apartment rents rose 150 percent between 2010 and the third quarter of 2019.

High-income households have driven most of the growth in renters since 2010. “That is keeping markets tight, and it’s changing the demographic profile of renters,” Airgood-Obrycki said.

“The most common rental income group is now making $75,000 or more per year,” said Chris Herbert, managing director of the Harvard JCHS. From 2010 to 2018, households with incomes of $75,000 or higher drove more than 75 percent of renter household growth, adding more than three million households to the rental market, the report found. Airgood-Obrycki contrasted those recent numbers to the 2000s, when lower-income households (incomes of less than $30,000) drove 93 percent of renter household growth.

“This is an enormous shift, making a big impact on the rental market,” Airgood-Obrycki said. High-income households have become a much larger segment of the rental market, she said. She explained that higher-income renters now make up nearly a quarter of all renter households in the U.S. Their share has increased six percentage points since 2004.

It’s therefore not surprising that most of the new construction of multifamily units intended for rentals is geared toward the high end of the markets, generally in a central location and with more amenities. “These new apartments have increasingly high asking rents, and that’s contributing to overall rent growth,” Airgood-Obrycki said.

“If we control for inflation, we’ve had 29 consecutive quarters of real rent growth, which is only one quarter short of the longest streak we have recorded in records that go back to the 1940s,” Airgood-Obrycki said. “Over the seven-year period of this real rent growth, rents have increased 28 percent, which is more than four times faster than the increase in cost for all other goods.”

At a panel discussion after the presentation, Deidre Schmidt, President and CEO of CommonBond Properties, said that the increase in high-income renters affects the housing market because high-income renters have more choice. “Anytime you see a high-income renter choosing to pay less in rent, that renter is displacing a lower-income renter,” she said. “We need to focus on matching the housing resources with the households that have incomes commensurate with them. That matching doesn’t happen naturally in the market. Investments need to get made consciously so we know that those resources are going to the people who need them most.”

The report lists several affordability challenges, including one that may be of particular interest to those who experienced the devastating flooding of 2013 and its aftermath in Lyons. “The Joint Center estimates that 10.5 million renter households live in ZIP codes with at least $1 million in home and business losses in 2008-2018 due to natural disasters. Moreover, 8.1 million renter households report that they do not have the financial resources to evacuate their homes if a disaster strikes,” the executive summary states. “While FEMA provided temporary housing assistance to 940,000 renters in 2013-2018, the growing risk of climate-related events demands a much greater response from government at all levels, including proactive planning that considers the vulnerabilities of low-income renter households.”

The report also found that “the federal response has not kept up with need. HUD budget outlays for rental assistance programs grew from $37.4 billion in 2013 to $40.3 billion in 2018 in real terms, an average annual increase of just 1.5 percent. The shortfall in federal spending leaves about three out of four of the 17.6 million eligible households without rental assistance.”

At the panel discussion, Jennifer Leimaile Ho, Minnesota Housing Commissioner, didn’t mince her words. “It’s ridiculous that only one in four people who are income-eligible for housing assistance get it,” she said. “If we did that with health care, or if we did that with public education, or if we did that with food assistance, it would just be considered horrific public policy. And we allow it with housing.”

Next week, Part Two of America’s Rental Housing 2020 Report – some possible solutions.