State of the Nation’s Housing: Rents, Cost Burdens Remain High

Rents continue to rise far faster than wages.

The Joint Center for Housing Studies of Harvard University recently released the latest version of its annual report, The State of the Nation’s Housing 2024. The report finds that housing costs continue to rise for both the for-sale and the for-rent housing markets.

In the rental market, although rent growth slowed to just 0.2 percent year over year in early 2024, rents remain up 26 percent nationwide since early 2020 after rapid pandemic-era growth. Rents are rising in three out of every five markets, including in much of the Midwest and Northeast. And declines were contained mostly to markets in the West and South, though rents there were still up from pre-pandemic levels by an average of 21 and 28 percent, respectively.

Cost Burdens

The report also found that cost burdens for renters are hitting record highs. Housing costs comprise a larger proportion of renters’ incomes than ever before as rents continue to rise far faster than wages. While rents have been rising faster than incomes for decades, the pandemic-era rent surge produced an unprecedented affordability crisis. Half of all renter households (22.4 million) were cost burdened at last measure in 2022, up 2 million since 2019 and the highest number on record. Likewise, the number of severely cost-burdened renter households, those spending more than half of household income on housing and utilities, also hit a new high of 12.1 million in 2022, up 1.5 million from pre-pandemic levels.

Among renters, cost-burden rates have increased across the income spectrum. Still, renters with the lowest incomes have the highest cost-burden rates. Fully 83 percent of renter households earning less than $30,000 annually were cost burdened in 2022, including 65 percent (9.4 million households) with severe burdens. Renters with the lowest incomes have a median of just $310 per month in residual income to cover all non-housing needs.

Low-Rent Unit Shortage

The report also highlights the growing shortage of low-rent units. According to the report, between 2012 and 2022, the nation lost 2.1 million units with rents under $600 when adjusted for inflation, the maximum amount affordable to a household earning $24,000 annually when applying the 30 percent of income standard. This left only 7.2 million units at this rent level as of 2022. The market also lost an astounding 4.0 million units with rents between $600 and $999, for a total loss of 6.1 million units with rents below $1,000.

Higher Cost Rental Units

Conversely, the report finds that the supply of higher-cost rental units increased between 2012 and 2022. The number of units with rents between $1,000 and $1,900 grew by 4.7 million, and those with rents above $2,000 increased by 4.1 million. The authors explain that the growth in rental housing supply is due in large part to the construction of 3.1 large multifamily properties with 20 or more units over the decade, which had median asking rents of $1,300 in 2022. Meanwhile, small multifamily properties with two to four units, which had median rents of $980 in 2022, increased by only 14,000 over the same time period.

Climate Change

The report also highlights the growing threat of climate change to the nation’s housing stock. The number of billion-dollar disasters related to climate change has grown from an annual average of three in the 1980s to 28 in 2023 alone. And at last count, 60.5 million housing units were located in areas with at least moderate risk, according to the Federal Emergency Management Agency (FEMA) National Risk Index.

The report says the best way to reduce the threat of climate change to the nation’s housing stock is to reduce the carbon footprint of the residential sector, responsible for a 18 percent of U.S. greenhouse gas emissions. While improved construction materials and techniques have helped new homes to become more energy efficient, great potential lies in retrofitting older homes. However, the upfront cost of retrofits can be significant and a barrier to implementation.

To help reduce costs, the Inflation Reduction Act of 2022 allocated more than $9 billion for rebates and expanded property owner tax credits, and another $27 billion to leverage financing for community and residential energy-efficiency improvements, among the largest such federal investments. Along with additional resources for the Weatherization Assistance Program through the Infrastructure Investment and Jobs Act of 2021 and various state resources, the report notes there is a concerted effort to mitigate housing’s impact on climate change and reduce household energy burdens.

Forecast

Looking forward, the authors say, on the rental side, there may be some affordability gains in the near term. Wage growth is high and the nearly 1 million new multifamily units currently under construction will soon come online, suppressing rent growth. But the dampened rent growth won’t last long. New construction starts are dropping rapidly, and financial conditions are increasingly limiting multifamily development projects.

Also, households across the income spectrum will continue to struggle to secure affordable housing. Yet the shortage will remain most acute for those with low incomes, especially if the nation continues to lose low-rent units even as the population of financially vulnerable households grows. The authors are calling for policymakers at all levels of government to strengthen the housing safety net by increasing rental housing subsidies and preserving the existing public housing stock.