With homeownership rates falling since the “Great Recession” of 2008-09, more than one-third of American households are now renters. Many tenants struggle with rising rents and tightening supplies as their affordable housing options decline. Government initiatives to address the rent burdened such as the low income housing tax credit (Section 42 LIHTC) program have not kept pace with these demographic and economic changes, and action will be needed to address the housing crunch.
1. Record numbers of Americans are renting
The number of renter households increased from 34 million in 2005 to almost 43 million in 2015, an all-time high. The percentage of renter households increased from 31% to 37%, as the homeownership rate posted a corresponding decrease over the same period.
2. Increased demand for rentals has sharply reduced the supply of available rental housing
Prior to the Great Recession, rental vacancy rates typically varied between 9-11%. But vacancy rates have fallen steadily since then, declining to 30-year lows.
3. Higher demand + Reduced excess supply = Rent increases that have outpaced income growth
Between 2008 and 2015, median rents increased by 16.8% while median household income increased only 12.4% over the same period. Even as home sales prices tumbled during the market crash of 2008-9, rents remained stable during that period.
4. Lower-income households struggle to pay rent
During 2015, 21.4 million US households were “rent burdened”, spending more than 30% of their incomes on housing. The National Low Income Housing Coalition reports that there is not a single county in the United States in which a full-time worker who earns minimum wage can afford the cost of a modest two-bedroom apartment, and rents for even typical one-bedroom rentals exceed the budgets of low-wage workers and SSI-dependent retirees.
5. New apartments are being built, but lower-income households can’t afford most of them
One in five renters earns less than $15,000 per year. Yet 90% of new multifamily rentals are coming to market with rents in excess of $850 per month, with 60% of new units asking $1250 per month or more.
6. Lower cost rental housing is more likely to be older and of lower quality
About one out of eight rentals that cost less than $400 per month suffer from structural or maintenance issues. Six out of ten of these inadequate rentals were built prior to 1940 and more than half are located in urban areas. Public housing projects are particularly problematic, with more than half suffering from extended heating failures and about out of eight experiencing water leaks.
To learn more about the Low Income Housing Tax Credit (LIHTC) and the basics of affordable housing, click here for an introduction..
7. The affordable housing tax credit program cannot keep up with demand
The federal Section 42 Low Income Housing Tax Credit (LIHTC) program is the primary source of affordable housing production in the United States. But housing unit production has been trending downward since its peak in 2004, with production levels in 2014 down by more than two-thirds. With construction costs on the rise and funding sources such as HOME program funds on the decline, more credits will be needed if production is to return to previous levels.
Westmont and our partners at TheoPRO can serve your needs throughout the United States. Please do not hesitate to contact us for more information about our consulting and advisory services for real estate acquisition, asset management and tax credits, including the Low Income Housing Tax Credit (LIHTC) and Historic Tax Credit (HTC), as well as other real estate matters. Click here to learn more about our team.
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