Editor’s Note: Robert Hickey is a senior research associate at the Center for Housing Policy, the research division of the National Housing Conference, a nonprofit that provides ideas and solutions for America’s housing challenges. The opinions expressed in this commentary are solely those of the author.
Story highlights
In numerous cities, rents are becoming unaffordable for middle-class families
Robert Hickey: Part of the problem is demand for rental homes has skyrocketed
He says most new housing development is high-end, catering to high-earners
Hickey: One solution is to set a portion of new developments to be affordable
A decent, safe and affordable home is something all Americans need to thrive. While the lowest-income households continue to lack access to affordable rental homes, increasingly, middle-income households are also shut out.
A new analysis by Zillow finds that the typical renter can no longer afford the median rent in 90 cities across the United States. Many Americans are severely cost-burdened: 4 million working renter households pay more than half of pre-tax income on rent.
Rents are consuming large shares of income. In Boston, for example, the median rent hit $2,458 in March, up 24% from three years ago. A household would need to earn at least $96,000 annually to afford this, based on the standard definition of affordability, in which one should pay no more than 30% of income for housing. Consider that in Boston an elementary school teacher makes approximately $58,000 per year and a registered nurse $73,000, and you get the picture that the middle class is getting squeezed. Similar median rents are now the reality in Los Angeles ($2,383) and Washington ($2,453).
The housing recovery is a few years old, and home prices have started to rebound. But why isn’t the rental market fixing itself?
Demand for rental homes has skyrocketed
We are seeing a major demographic convergence on the rental market. Demand is fueled by an exploding population of 20- to 30-year-old millennials looking to rent their first homes, baby-boomer retirees choosing to downsize to apartments, former homeowners exiting foreclosure, and would-be homeowners who can’t access mortgages in the tightened credit market. Everyone is eyeing the same locations: cities, transit-friendly suburbs, and town centers that are walkable and close to jobs.
We’re not building enough housing in desirable places
The pace of new residential construction has been insufficient to make up for the years when it was at a virtual standstill. We’re simply not building enough rental housing – affordable or otherwise – in the places people want to live.
For example, in San Francisco, one of the fastest growing job markets in the country, there has been an average of about 1,500 units built annually, a level far below what is needed by the growing workforce. Last year alone, the city added 47,000 jobs.
Most new housing is high-end
In many cities, demand is so great that there are easily enough high-income renters to support prices well out of reach for the middle class, not to mention lower-wage employees and seniors. And we can expect the imbalance between supply and demand to keep rents high for well beyond the short term.
Moderately priced housing, even if it is profitable, is not as profitable as luxury housing, so the market alone will not build it.
How to fix the problem?
Local governments have preciously few housing resources these days. What they have is rightly targeted at those with the greatest housing needs: our lowest income households. But here are two ideas that would help make more housing affordable for the middle class.
Solution 1: Link growth with affordability
We need to loosen zoning restrictions to allow more rental housing to be built where it’s needed most. There is room and adequate infrastructure to support sensible growth in many of our cities, transit-served suburbs and small town centers, where we should be relaxing height limits, reducing parking requirements, and permitting more modest-sized apartments and micro-units.
But given the huge demand and limited immediate availability of land, we cannot just build more housing and solve the problem, at least not in the short term. Consider Washington’s recent experience. Median rents increased by 18% between 2010 and 2013 even as the city added more than 11,000 housing units. We need to keep growing, but we also need to make sure that more of what we build is affordable.
When developers are allowed to build to heights or density greater than that ordinarily permitted by law, they should be required to share a portion of that new value by including some affordable housing for low- and middle-income renters.
This is how places like Fairfax County and Arlington County, Virginia are building out their transit station areas and streetcar corridors. Developers and residents are both on board, because it’s a win-win deal. Developers profit from the enormous new potential unlocked by the zoning changes, while communities benefit from the addition of mid- and lower-priced homes that meet local needs and are close to transit. Hundreds of cities and counties nationwide have adopted similar “inclusionary housing” policies.
Solution 2: Help more qualified home buyers
We need to open a release valve on the rental market by letting more qualified, middle-income households buy a home. The National Housing Conference has assembled a broad coalition to advocate replacing the temporary patchwork we have now with a reliable system to help people buy a home. Housing finance reform based on sound principles would help homeowners and ease pressure on the rental market.
These housing solutions are doable, capable of winning bipartisan support and urgently needed.
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