Report Assesses Rental Crisis, Effectiveness of LIHTC Program

“The simple fact is we are in the midst of the worst rental affordability crisis that this country has known," HUD Secretary Donovan said at a recent housing conference.

This statement coincided with the release of a report entitled "America's Rental Housing: Evolving Markets and Needs." Issued by the Harvard Joint Center for Housing Studies, the report discusses how the recent economic turmoil underscored the many advantages of renting and raised the barriers to homeownership, sparking a surge in demand that has buoyed rental markets across the country.

“But significant erosion in renter incomes over the past decade has pushed the number of households paying excessive shares of income for housing to record levels. Assistance efforts have failed to keep pace with this escalating need, undermining the nation’s longstanding goal of ensuring decent and affordable housing for all,” says the report.

In other words, the increased demand for affordable housing alongside a severe shortage of affordable rental apartments nationwide has placed incredible pressures on the poor. According to the report, demand for affordable units far outpaces supply, with 11.8 million extremely low-income renters competing for only 6.9 million affordable rental units in 2011. In addition, 20.6 million renters are cost-burdened, including 11.3 million who spend more than half of their incomes on rent.

The report also highlighted that the Low Income Housing Tax Credit (LIHTC) program has been the primary source of funding for both development of new low-income housing and preservation of existing subsidized properties since 1986. Over the quarter-century from 1987 through 2011, the LIHTC program supported construction of roughly 1.2 million new units and rehabilitation of another 749,000 homes.

The report also notes that compared with earlier generations of supply-side programs, LIHTC projects have a very low failure rate, with only 1 to 2 percent of properties undergoing foreclosure. In addition, it noted that tax credit site owners often have to apply other forms of subsidy to make units affordable since many qualifying renters have significantly lower incomes. And this layering of subsidies has enabled the LIHTC program to serve extremely low-income tenants. It cited a 2012 New York University study that found that 43 percent of LIHTC occupants had incomes at or below 30 percent of area median income and that nearly 70 percent of these extremely low-income residents received additional forms of rental assistance.

Here are a few additional details from the report:

• Reversing the long uptrend in homeownership, American households have increasingly turned to the rental market for their housing. From 31 percent in 2004, the renter share of all U.S. households climbed to 35 percent in 2012, bringing the total number to 43 million by early 2013.
• Households of all but the oldest age groups have joined in the shift toward renting. The largest increase in share is among households in their 30s, up by at least 9 percentage points over an eight-year span. But shares of households across all five-year age groups between 25 and 54 also rose by at least 6 percentage points. In fact, the jump in rental rates for most age groups was well above the 4 percent overall rise, reflecting how the movement of the population into older age groups (when owning is more prevalent) stemmed some of the drop in homeownership.
• The future pace of growth will depend largely on how the share of households that rent evolves. This in turn depends primarily on economic factors such as changes in household incomes, the direction of prices and rents, and the availability and terms of mortgage finance. But given the ongoing recovery in the homeowner market and the fact that rentership rates for households aged 30–64 are at their highest in the last 30 years, further increases in renter share are likely to be small and growth in the number of renters is likely to slow.
• Depending on the pace of immigration, the number of renter households is likely to increase by between 4.0 million and 4.7 million in 2013–23. These projections would of course understate renter household growth if renting becomes more popular over the next decade and overstate growth if homeownership rates rebound.