Renters Feel the Squeeze in Today’s Market
With foreclosures taking a toll on homeownership, Richard Green – director and chair of the USC Lusk Center for Real Estate, and professor at the School of Policy, Planning, and Development and the USC Marshall School of Business – emphasized that the rental housing market has serious problems as well.
Green delivered research findings during the White House conference on rental housing held on Oct. 13.
Approximately 150 industry experts – including Melody Barnes, President Barack Obama’s domestic policy adviser; Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development (HUD); SPPD professor Raphael Bostic, assistant secretary for policy development and research at HUD; under secretaries from the departments of U.S. Treasury and U.S. Agriculture; and staff members from the White House and Congress – attended the conference in the Eisenhower Executive Office Building in Washington, D.C.
“I was just asked to present facts. They’re all pretty alarming,” said Green, who compiled his data with the help of SPPD master of planning student Sarah Mawhorter and Ph.D. student Raymond Calnan.
Green exhibited the Real Rental Index, which illustrates the increase in rent in the United States.
While rent decreased in the 1970s, it has increased roughly 25 percent since 1980. Green attributes this trend to regulatory barriers to building, which mean that the supply of rental units does not keep pace with the demand.
At the same time, incomes for the bottom 60 percent of earners have risen only between 0.5 and 0.7 percent per year since 1967.
“Again going back to 1980 when rents started going up, [incomes have risen] a little bit, but not very much,” Green said. “So they’re spending more of their income on rent.”
Green explored this phenomenon from a different angle by looking at the ratio of the 25th percentile of household income to the 25th percentile of gross rent. According to this metric, none of the 50 largest metropolitan areas nationwide is affordable — which is defined as rent consuming less than 30 percent of income.
To further illustrate how renters are feeling the squeeze in today’s market, Green explained that the average renter earns approximately 62 percent of what the average American earns, as opposed to 90 percent in 1975. Part of this is a reflection of the 5 percent increase in homeownership between 1993 and 2003.
“There was some cream skimming, basically,” Green said. “As the richest renters became homeowners, we saw even a further decline in renter income compared to everybody’s income.”
The number of unassisted, very low-income renters with severe housing problems – “who either are paying more than half their income for housing or have something really physically wrong like no gas or no plumbing,” according to Green – has risen from five million people in 1992 to seven million people in 2009.
At the same time, only 41 percent of very low-income people – who earn less than 30 percent of their area’s median income – receive rental assistance from the government. “There isn’t enough money to give everybody assistance,” Green said.
The government does play an important role in subsidizing large, multifamily projects of five or more units. In a typical year, approximately one-quarter to one-third of new construction in this category consists of low-income units in accordance with Section 42, which provides tax incentives for developers to build affordable housing.
In terms of overall financing, “without Fannie Mae and Freddie Mac, there would essentially not be a lending market for multifamily housing at the moment,” Green said.
“They are positive net lending, but what it means is that everybody else is negative, because on net, we’re at about zero right now,” he added.
While Green was tasked with presenting facts at the conference, it’s up to the policymakers who attended to come up with solutions. “Bottom line,” Green noted, “we need to think about how to do something about this.”