Affordable Housing Outlook 2016—The Challenges ahead
The last several years have seen a surge in rental demand, with 43 million families and individuals now living in rental housing across the country since mid-2015. This is up nearly 9 million from 2005, the largest gain in any decade recorded. The downturn in both the economy and the more recent renewal of the housing market fueled this statistic, extolling the benefits of renting.
Also, the aging of Millennials, those born from 1985-2004, has added to the number of renters, as Baby Boomers (ages 51-70) continue to downsize and rent rather than own.
But rental stock has not kept pace, the rental market has tightening, showing vacancy rates now at their lowest point, and rent prices rising at 3.5 % annually, the fastest pace in almost 30 years. This is creating a situation where the “cost-burdened” renter pays more than 30% of their income for housing, and in many cases the severely-burdened are paying as much as 50% of their earnings, rising from 7.5 million households in 2001 to over 11 million by 2014. This has set another record.
Seeing the need for more apartment development, and seizing the opportunity to build, many developers are erecting multifamily, yet renters find that due to higher construction costs, these units are not within reach. It’s nice to think that a more robust economy is allowing for more construction, but the tremendous need for affordable housing is not being filled. And, many renters who already live in apartments are seeing rents continually increasing, and having nowhere else to go, become cost-burdened. Interestingly enough, even households earning $30,000 to $44,999 now represent a cost-burdened group that has increased 37-48%, although their number was 10% in 2014.The situation for the severely cost-burdened has reached a critical point with the combination of higher rents and substandard housing.
The Low Income Housing Tax Credit (LIHTC) program, of course, still remains the primary means of expanding and preserving the affordable supply; that is why this program is so important. But the number of additional units produced through LIHTC is lagging behind the need.
So what is the answer? For one thing, policy makers need to consider the extent and form of housing assistance, but perhaps most importantly, they need to promote development of a wider range of option and in communities that offer quality schools and more job opportunities. Developers have had to be extremely creative in layering subsidies in order to do projects and keep rents affordable, but the complexity and requirements of these layered subsidies add costs. Yet, all level of government must capitalize on the capabilities of the private and non-profit sectors, listening to their experience “from the trenches”, so to speak.
It is just this creativity and vision that will enable the affordable housing industry to make the leap to the next level for the industry.