What Is Causing America’s Rental Housing Crisis?

Over the past decade, communities across America have seen significant increases in both concentrated poverty (the number of poor people living in high-poverty neighborhoods) and housing insecurity (the number of households paying more than half of their income on housing). At first glance, these might seem like two distinct problems, but in reality the two share a common root cause: lower-income people simply cannot afford a decent place to live in a decent neighborhood.

Consider this: as recently as 2000, the typical renter paid about 24 percent of her monthly income on rent. Today, the typical renter pays more than 30 percent.  As a result, 27 percent of households who rent their homes are housing insecure today, compared to just 20 percent in 2000 and 12 percent in 1960. 

Chart 7:

Over the past several decades, renters have spent an increasing portion of their incomes on housing

Source: Enterprise and the Joint Center for Housing Studies, Projecting Trends in Severly Cost Burdened Renters, September 2015

There are several factors contributing to this growing rental affordability crisis:

  • As more households delay or forego homeownership, demand for rental housing has grown significantly. In the wake of the recent foreclosure crisis, a growing number of Americans are turning to the rental market – some by choice, some because they have no other option due to excessively tight credit standards for mortgages.  The U.S. homeownership rate currently stands at 63.7 percent – near a 30-year low – and researchers at the Urban Institute expect the rate to keep falling as the number of new renters outpaces the number of new homeowners.  According to Harvard’s Joint Center for Housing Studies, an average of 770,000 new renter households were created each year since 2004, making it the strongest 10-year period for renter growth since the late 1980s. 
  • Rental supply is not keeping up with the rising demand, especially on the lower end of the market. Developers of rental housing have ramped up construction in recent years to meet the growing demand, but the current level of production – about 360,000 multifamily units per year – is still falling well short of the need. In addition, the vast majority of multifamily construction is for the higher end of the rental market: the median asking rent for new apartments in 2014 was $1,370, or about half of the median renter’s monthly income.  As a result of scarce supply – especially for lower-rent apartments – rental vacancy rates are at the lowest point in two decades, causing rents to rise in just about every market, often at much faster rates than overall inflation.
  • As the cost of living rises, wages are stagnating for low- and moderate-income workers. While the American labor market continues to improve, the wages earned by most American workers have not kept pace with the rising cost of living. After adjusting for inflation, the typical renter’s income has fallen by more than 10 percent since 2001, while the median rent has increased by 5 percent.  As a result, families are spending an increasing share of their take-home pay on rent, forcing them to make deep cuts elsewhere in their household budget and making it virtually impossible for many low-income families to save for a rainy day or a down payment on a home. 
  • While need has skyrocketed, public resources for affordable housing have remained flat or even decreased. Recent budget cuts at the federal, state and local levels have hit housing and community development programs particularly hard. According to the Center on Budget and Policy Priorities, recent federal budget cuts due to sequestration resulted in 100,000 fewer low-income families with rental assistance vouchers, even as the number of families eligible for vouchers has increased significantly.  In addition, the HOME Investment Partnership program, a crucial source of gap financing for affordable housing developments, has been cut by more than 50 percent since 2010, while the Community Development Block Grant (CDBG) program has been cut by 25 percent over the same period. 

As a result, a growing number of lower-income renters are competing for an increasingly scarce supply of affordable rental homes. According to the Joint Center for Housing Studies, there are currently 18.5 million very low-income renter households in the U.S. – meaning they earn less than 50 percent of the area median income (AMI) – but only 18 million rental units that are affordable at that income level, creating a total gap of half a million units.   To make matters worse, about one-third of those “affordable” units are unavailable because they’re occupied by higher-income tenants, while another 7 percent are considered inadequate. 

The shortage in supply is even more severe for America’s most vulnerable households. According to the Urban Institute, for every 100 renter households with extremely low-incomes – meaning they earn less than 30 percent of AMI – there are only 28 units that are both adequate and affordable to them. That supply gap has grown substantially in recent years: as recently as 2000 there were 37 affordable and available rental units for every 100 extremely low-income renter households. 

Chart 8:

America’s lowest-income renters face a significant supply gap

Source: Joint Center for Housing Studies, State of the Nation's Housing 2015, and the Urban Institute, The Housing Affordability Gap for Extremely Low income Renters in 2013

Given these ongoing trends – and barring significant changes to public policy – we expect America’s rental housing crisis to get significantly worse in the coming years. According to projections from Enterprise and the Joint Center for Housing Studies, even if rent growth matches income growth, we estimate that the number of housing insecure renters will increase by about 1.3 million households over the next decade – an increase of over 10 percent – driven mostly by an increase in older households. Due in large part to the aging of the Baby Boom generation, we estimate that more than half of the increase in housing insecurity among renters will be people who are over the age of 65, while roughly a quarter will be over the age of 75. By comparison, today only about 15 percent of housing insecure renters are over the age of 65. 

It’s important to keep in mind that these are not just housing issues, but broad social problems. The impacts of living in unaffordable, poor-quality or disconnected housing stretch far beyond the housing market, including:

  • Difficult trade-offs. Low-income households who spend more than half their income on housing have, on average, less than $20 left each day to cover all other expenses.  As a result, families who are housing insecure spend on average 38 percent less on food and 55 percent less on health care compared to otherwise similar households living in affordable housing, with significant consequences on nutrition and long-term wellness.  Housing insecure families also put 42 percent less toward retirement savings compared to similar renters who live in affordable housing. 
  • Poor health outcomes.  Children in housing insecure families are 35 percent less likely to be classified as well, 28 percent more likely to be seriously underweight and 19 percent more likely to be food insecure compared to similar families in subsidized housing.  In addition, a recent study of public housing residents found that children living in poor-quality homes were 39 percent more likely to visit the emergency room compared to children living in recently renovated homes. 
  • Higher rates of asthma and other preventable diseases. Up to 40 percent of asthma episodes among children are caused by housing-based triggers.   According to one study, when you move an asthmatic child out of poor-quality housing and into a green, healthy home, their asthma-related trips to the doctor drop by 66 percent.   Those doctor visits don’t just cost money, they often take the child out of school and the parent out of work as well.   Other studies have found that energy-efficient retrofits to a low-income person’s home can result in improvements in general health  , hypertension, sinusitis, hay fever and other diseases,   in addition to significant savings on the monthly utility bill. 
  • Poor performance at school. When a child grows up in an unaffordable home, she is often forced to move frequently, which can lead to disruptions in school attendance and, ultimately, poorer school performance.  Studies show that a single change in elementary schools results in a decrease in math and reading skills equivalent to a four-month learning disadvantage.  In addition, studies have found that children growing up in overcrowded housing have lower math and reading scores, complete fewer years of education, are more likely to fall behind in school and are less likely to graduate from high school than their peers. 
  • Longer commutes and fewer job opportunities. Families with limited housing options often have to move to a neighborhood that’s either unsafe or disconnected from jobs, good schools and other opportunities.  According to one study, for every dollar that’s saved by moving further away from work, the typical low-income worker pays 77 cents in additional commuting costs.  Meanwhile, for the typical metropolitan commuter, only about a quarter of jobs in low- and middle-skill industries are accessible via a reasonable transit commute. 

Further research is necessary to estimate the all-in cost of America’s rental housing crisis. But we are confident that it is costing us hundreds of billions – perhaps even trillions – of dollars each year, especially when you consider all the money spent on treatments for preventable diseases, the countless teacher-hours spent helping students catch up in class, the hours of productivity lost each day because of excessive commutes and the billions in tax revenues lost due to limited access to jobs. 

Put another way, we’re left with a choice as a country: we can either invest in affordable housing in strong, inclusive communities now, or we can pay for it in other ways down the line. We can no longer afford to ignore these growing problems. The following chapters lay out our recommendations for bringing this crisis to an end once and for all.

Segregated Communities and Public Policy

In many ways, residential segregation was the official housing policy of the federal government until the middle of the 20th century. Beginning in the 1930s, the federal government built separate public housing for white and black households – often segregated by neighborhoods – to replace inner-city slums. These segregationist policies were expanded during World War II, when civilian workers moved in droves to inner-cities to take advantage of factory jobs, and again during the post-war boom when much of the country’s massive, high-density public housing projects were erected. 

It wasn’t just public housing, though. The Economic Policy Institute’s Richard Rothstein has written extensively about the federal government’s massive investment in so-called “white suburbanization,” including both the creation of the interstate highway system and government-backed loans to develop large white-only subdivisions outside of cities. At the same time, the Federal Housing Administration explicitly refused to insure mortgages to black borrowers or loans in predominantly black neighborhoods, making it much harder for households of color to build intergenerational wealth through homeownership. Certain state and local laws exacerbated the problem, ranging from racially explicit zoning rules to housing covenants that restricted the sale of homes in certain neighborhoods to black families. By the signing of the Fair Housing Act in 1968, much of the damage had already been done, with impoverished and mostly minority inner-cities encircled by affluent, mostly white suburbs. 

In many ways, the modern community development movement began as a direct response to these decades of disinvestment from lower-income minority communities. Public policy played a key role in growing the sector. The creation of Community Development Corporations in the late 1960s, the Community Reinvestment Act and the Community Development Block Grant program in the 1970s, the Low-Income Housing Tax Credit program in the 1980s, the Community Development Financial Institution Fund and HOME Investment Partnership program in the 1990s and the New Markets Tax Credit in the early 2000s, all aimed to increase public and private investments in poor, inner-city and mostly minority neighborhoods.