March 8, 2006

Study Warns of Affordable US Apartment Shortage

By Lynn Adler

NEW YORK -- The United States is rapidly losing apartments to demolition, and rent on available units is rising, pinching consumers struggling with home affordability, according to a new study released on Wednesday.

The report from Harvard University's Joint Center for Housing Studies found evidence of growing disparities between low- and higher-income renters in getting apartments.

"We are taking one step forward and two steps back as gentrification in some neighborhoods and continued deterioration in others leads to the removal of vitally needed lower-cost rental housing," Nicolas Retsinas, director of the Joint Center, said in a statement.

About 200,000 rental units are lost each year despite programs like the Low-Income Housing Tax Credit that contribute new affordable units.

"Difficulty accessing the resources needed to maintain this much needed housing too often sets off a cycle of disinvestment and demolition" of existing rental units, Retsinas said.

Median rent rose to $974 in 2004, up 33 percent from $734 10 years earlier, the study found. Monthly renter income, however, rising to $2,348, was up a mere 3 percent from $2,272 during the same period.

People with higher incomes may choose to rent for a flexible lifestyle, to avoid costs of homeownership or a volatile purchase market, or for life transitions such as divorce or job change.

Those at the bottom of the income group have little choice but to rent, the study concludes. Seventy percent of the seven million lowest-income renters pay more than half of their income for housing, leaving little for other expenses.

Minority and immigrant renter households will grow and trigger demand for more than 1.8 million rental units between 2005 and 2015, the study said. If it were not for foreign-born households, the number of renters would have fallen by more than 2 million, or 5 percent, from 1993 to 2003, instead of rising by 118,000.

Five years of record home sales and double-digit house price gains are also crimping affordability at higher income levels than in the past.

In high-cost areas such as Boston and San Francisco, the study said schoolteachers and nurses are among workers paying more than 30 percent of their income to rent a "modest" two-bedroom apartment.

Much of the nearly 3 million new rental units built between 1994 and 2003 was in fast-growing suburbs of major metropolitan areas in the South and West. Most were in the upper end of the market.

In the last decade, the divide between the haves and have-nots has accelerated, the study found. The top fifth of renter households saw a 17 percent average income gain while the bottom fifth saw little growth from 1993 to 1999 and declines afterward.


"Rising land prices and density restrictions in many jurisdictions have significantly raised the long-run costs of supplying housing that the vast majority of renters can afford," the report said.

"Although the high end of the rental market is still adjusting from a period of overbuilding, it seems inevitable that developers will continue to focus on this housing market segment -- bringing little relief to the many renters with limited ability to pay," according to the report.

The report said federal funding restrictions prevent the expansion of subsidized housing. Efforts to stem losses of the rapidly deteriorating stock of privately owned low-cost rental apartments have gained little attention, the study said.

About two-thirds of all lower-income families live in privately owned rental properties, usually older, smaller multifamily buildings and single-family homes. When the units fail to generate profits, the owners often lack skills or resources to maintain the building.

"Without new policies to address these barriers to preservation, both subsidized and unsubsidized units will continue to disappear from the inventory of affordable housing," the report said.

The study also advocates looser restrictions on developing affordable, higher-density rental housing in affluent suburban communities that have greater access to top-quality schools, services and other resources.