Humphrey School News

Affordable Housing Crisis Worsened After Recession, Humphrey School Researchers Find

October 21, 2016
Stevens Community Apartments in Minneapolis

In the aftermath of the Great Recession, the affordable housing crisis in the United States has become worse, according to a recent study conducted by researchers at the Humphrey School of Public Affairs. 

The study found that since the recession of 2008-09, the percentage of renter households in the United States facing difficulties paying their rent rose to historically high levels, and more people with higher incomes are also experiencing “rent burden.”

The Humphrey School researchers—Gregg Colburn, a PhD candidate in public policy, and Ryan Allen, associate professor in urban and regional planning—determined that 55 percent of renters faced rent burden during the recession in 2009 – meaning they paid more than 30 percent of their income on rent and utilities. What’s more, about half those households needed 50 percent of their income to pay for rent and utilities—a situation called “severe rent burden.”

Those percentages declined a bit in the ensuing years, but as of 2014, the rate of rent burden is still close to 50 percent, the researchers said.

“The affordability of rental housing takes on increasing importance because the share of U.S. households that rent has reached the highest level since the 1960s,” according to the study.

Colburn and Allen looked at data from the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP), comparing the financial situations of rental households from 2005–06—before the Great Recession―to 2009–11, when the economy began to recover.

Not surprisingly, the vast majority of people who have difficulty paying their rent have low incomes, according to the study. For example, between 80 and 90 percent of households with annual incomes of $18,000 or less are rent-burdened.

But one finding was surprising: more people with higher incomes—$36,000 per year and above―are experiencing rent burden, said Allen. He attributes that trend to the recession as well.

“The demand for rental housing units started going up around that time, as more people lost their homes through foreclosure and began renting,” said Allen.

The higher demand for rental housing is also being fueled by millennials who are not as interested in owning a home as previous generations.

The laws of supply and demand are ruling the rental housing market right now. Demand is high but the supply is tight, especially for households with lower incomes. Rents are going up but wages are stagnant, so more people are having difficulty paying their rent.

Other findings

  • Women, people of color, immigrants, and households with children are more likely to face difficulties paying for rent. But those demographic factors are not the main cause. “Income level is the major driver of rent burden, and those other disparities flow from that,” said Colburn. He also points out that the racialized nature of income inequality in the U.S. means that race is ultimately still an important factor in explaining rent burden.
  • Household size and composition were important predictors of rent burden. Each additional person in a household increases the probability of the household experiencing rent burden. Rent costs may go up because of the need for larger apartments, and the presence of a child may constrain the earning potential of the adults in that household.
  • Rent burden is generally a larger problem in metropolitan areas compared to non-metro areas.
  • Even though the recession is over, it’s been more difficult for households to improve their financial situation enough to exit rent burden.  

Is this trend here to stay?

It’s unclear whether this trend toward more rental housing is just “a blip” caused by the recession, or whether it will become the new normal, Colburn said.

“If we return to the housing trends of 2004, the magnitude of this problem should decrease,” said Colburn. “But if this trend toward more rentals persists, it will be a problem because our housing stock and housing policies are geared toward home ownership.”

One policy Colburn points out is the tax break that homeowners receive for their mortgage payments, noting there’s no similar break for people who pay rent in most states.

Colburn and Allen suggest some strategies to address the affordable housing issue, such as government assistance for those who are severely burdened by high rent. But they acknowledge that’s unlikely to happen in the current political climate.

That leaves the private sector and local governments to respond, perhaps by moving toward higher-density residential developments that increase the rental housing stock and include more subsidized units.

The researchers hope their report calls more attention to the lack of affordable housing, and stimulates discussion on how to address the problem. It doesn’t hurt that the White House is looking at this topic as well. The Obama Administration released a series of recommendations last month to spur the construction of more affordable, multifamily housing in communities that have historically fought the construction of such housing.

Among the many ideas the White House endorses: allowing more multi-family housing near transit, and eliminating requirements for parking minimums to go along with housing developments. 

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(Photo: Michael Hicks, Creative Commons/Flickr)

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