Many people don’t have enough income to afford even the cheapest new housing

Marketwatch: Why building more homes can’t solve the housing affordability problem for the millions who need it most, by Alex Schwartz and Kirk McClure Last Updated: Nov. 17, 2021

Even before 2020, the U.S. faced an acute housing affordability crisis. The COVID-19 pandemic made it a whole lot worse after millions of people who lost their jobs fell behind on rent. While eviction bans forestalled mass homelessness—and emergency rental assistance has helped some—most moratoriums have now been lifted, putting a lot of people at risk of losing their homes.

One solution pushed by the White Housestate and local lawmakers and many others is to increase the supply of affordable housing, such as by reforming zoning and other land-use regulations.

As experts on housing policy, we agree that increasing the supply of homes is necessary in areas with rapidly rising housing costs. But this won’t, by itself, make a significant dent in the country’s affordability problems—especially for those with the most severe needs.

In part that’s because in much of the country, there is actually no shortage of rental housing. The problem is that millions of people lack the income to afford what’s on the market.

Where the crisis hits hardest

Renters with the most severe affordability problems have extremely low incomes.

Nationally, about 45% of all renter households spend more than 30% of their pretax income on rent—the widely recognized threshold of affordability. About half of these renters, 9.7 million in total, spend more than 50% of their income on housing, greatly impairing their ability to meet other basic needs and putting them at risk of becoming homeless.

Nearly two-thirds of renters paying at least half of their income on housing earn less than $20,000, which is below the poverty line for a family of three. Renters with somewhat higher incomes also struggle with housing affordability, but the problem is most pervasive and most severe among very-low income households.

More than 6 million families earning less than $20,000 a year pay more than half of their monthly income on rent. Building new housing won’t help them.

For a household earning $20,000, $500 per month is the highest affordable rent, assuming the affordability standard of spending no more than 30% of income on housing. In contrast, the median rent in the U.S. in 2019 was $1,097, a level that’s affordable to households earning no less than $43,880.

And homes that rent for $500 or less are exceedingly scarce. Fewer than 10% of all occupied and vacant housing units rent for that price, and 31% are occupied by households earning more than $20,000, pushing low-income renters into housing they cannot afford.

A pervasive problem

The problem of housing affordability doesn’t affect only a few high-cost cities. It’s pervasive throughout the nation, in the priciest housing markets with the lowest vacancy rates like New York and San Francisco, and the least expensive markets with high vacancy rates, such as Cleveland and Memphis.

For example, in Cleveland, with a median rent of $725, 27% of all renters spend more than half of their income on rent. In San Francisco, with a median rent of $1,959, 18% of renters spend at least half their income on rent. And it’s even worse for the poorest residents. In both cities, more than half of all extremely low-income renters spend at least 50% of their income on rent.

In fact, there is not a single state, metropolitan area or county in which a full-time minimum wage worker can afford the “fair market rent” for a two-bedroom home, as designated by the U.S. Department of Housing and Urban Development.

Even the smallest, most basic housing units are often unaffordable to people with very low incomes. For example, the minimum rent necessary to sustain a new a 225-square-foot efficiency apartment with a shared bathroom in New York City built on donated land is $1,170, affordable to households earning a minimum of $46,800. That’s way out of reach for low-income households.

At the heart of the nation’s affordability crisis is the fact that the cost to build and operate housing simply exceeds what low-income renters can afford. Nationally, the average monthly operating cost for a rental unit in 2018 was $439, excluding mortgage and other debt-related expenses.

In other words, even if landlords set rents at the bare minimum needed to cover costs—with no profit—housing would remain unaffordable to most very-low-income households—unless they also receive rental subsidies.

The subsidy solution

Covering the difference between what these renters can afford and the actual cost of the housing, then, is the only solution for the nearly 9 million low-income households that pay at least half their income on rent.

The U.S. already has a program designed to help these people afford homes. With Housing Choice Vouchers, also known as Section 8, recipients pay 30% of their income on rent, and the program covers the balance. While some landlords have refused to accept tenants using vouchers, overall the program has made a meaningful difference in the lives of those receiving them.

The $26 billion program currently serves about 2.5 million households, or only 1 in 4 of all eligible households. The current version of Democrats’ social spending bill would gradually expand the program by about 300,000 over five years at a total cost of $24 billion.

While this would be the single largest increase in the program’s nearly 50-year history, it would still leave millions of low-income renters unable to afford a home. And that’s not a problem more supply can solve.

Alex Schwartz is a professor of public and urban policy at the New School, a university in New York City. He is the author of “Housing Policy in the United States” (Routledge, 2021), now in its fourth edition. 

Kirk McClure is a professor of urban planning in the School of Public Affairs and Administration at the University of Kansas. He was Scholar in Residence at HUD’s Department of Policy Development and Research. Dr. McClure is associate editor of Housing Policy Debate and serves on the boards of editors for Housing Studies and the Journal of Planning Education and Research.

This commentary was originally published by The Conversation—Why building more homes won’t solve the affordable housing problem for the millions of people who need it most

They aren’t poor exactly, but tens of millions of hardworking Americans struggle to pay the bills

IMPACT OF INSTITUTIONAL BUYERS ON HOME SALES AND SINGLE-FAMILY RENTALS In the aftermath of the housing crisis, institutional investors comprised an increasing share of all homebuyers.

Bar chart showing Institutional Ownership Increased Quickly in 2012−14
Investors Bought a Record 18% of Homes That Sold in the Third Quarter

March 24, 2023:

With billions of dollars of cash on hand, and millions of working-class families unable to find affordable housing, corporations are increasing their share of the housing stock and expanding their portfolios. A 2021 report co-authored by the Institute for Policy Studies, Bargaining for the Common Good, and Americans for Financial Reform Education Fund demonstrated how corporate and institutional investors were well positioned to take advantage of a red-hot real estate market. In the final quarter of 2022, investors purchased more than $31 billion worth of residential property in 40 of the largest metropolitan markets in the country – not a small sum.

Digital technologies helped facilitate this process. New business models like iBuying – which allow companies to instantly assess the value of and make offers on properties that are then resold – provide corporate landlords with privileged access to residential homes. Real estate tech companies are transferring close to a quarter of their inventory directly to institutional investors off market. Even when these tech firms go belly up, thousands of homes are snapped up by Wall Street, granting the latter greater undue market power.

All of this translates to a more expensive real estate for working families, as unlisted corporate purchases lower the housing supply available to thousands of households. As a result, four out of five homes are now classified as unaffordable to median income earners, up from just half a decade ago.

“Housing affordability is at the lowest level in history,” declared Taylor Marr, deputy chief economist at Redfin, in a recent interview.

The ever-expanding presence of corporate landlords also increases precarity for renters. Large portfolios incentivize the development and use of software to automate property management and eviction filings to the detriment of tenants. The aggressive pursuit of evictions and unwillingness to negotiate alternative resolutions to ensure families remain housed highlights the need for more robust tenant protections.

Potential Revenue from a Tax on Investor Purchases of Residential Properties

A tax on institutional investors could dissuade corporate purchases, giving working-class households an equitable opportunity to buy a home while also generating revenue for affordable housing. To illustrate the potential revenue a 10 percent tax on investors could generate, the Institute for Policy Studies analyzed the sale records of Boston, Massachusetts in the final quarter of 2022. Any record where the buyer’s name included the words “LLC”, “Trust”, “Corporation”, “Partnership”, “Inc”, or “Homes” is categorized as an investor. The methodology excludes all transfers where the transaction was less than $1,000.

How Investors Accelerate the Affordable Housing Crisis -

March 2023

…Corporate landlords typically raise rents, impose new charges and skimp on building upkeep, said Americans for Financial Reform, which estimated last year that at least 1.6 million families rented homes owned by private equity firms.

In December, U.S. housing secretary Marcia Fudge called the rise in institutional investments in housing a “major barrier” to home ownership that is “reshaping local housing markets” and exacerbating the country’s shortage of affordable housing.

Corporate ownership has been particularly concentrated in certain areas including North Carolina, Texas, Florida, Arizona and Georgia, said Madeline Bankson, housing research coordinator with the watchdog group Private Equity Stakeholder Project.

In Cincinnati, concerns over the issue drove officials to a first-ever strategy: purchasing 194 single-family homes to stave off corporate buyers, with more likely to come.

Officials found one company had bought over 2,000 properties in the city, while up to half of single-family homes were owned by companies in some parts of the surrounding Hamilton County.

“These investors are really changing the landscape of our local housing markets,” said Philip Denning, executive vice president at economic development agency The Port, calling it an “insidious problem.”

Rent control has also received increased political focus, with around 60 bills on the issue currently under debate in state legislatures, according to tracking by the National Multifamily Housing Council, an industry group.

‘Pushed out’

In Alexandria, Virginia, residents at the Southern Towers apartment complex were initially pleased to hear it had been sold to a national company in 2020.

But that reaction subsequently soured over rental hikes, changes in utility billing that have further driven up costs, maintenance concerns and more, said Sosseh Prom, state policy manager with African Communities Together, an advocacy group.

The situation prompted tenants to step up organizing – including to start taking their concerns to the landlord’s investors directly.

Community activist Jake Lineberger said his corporate landlord has raised the rent from $1,000 a month to $1,750 over four years, while the home’s physical state has “withered”.

“They’ll feint like they’ll fix it, but then they never do,” said Lineberger, 24.

Through work with Action NC, an advocacy group working to support lower-income households, Lineberger said he learned his experience was not unique.

“We found dozens and dozens of homes that are owned by corporate landlords. Approaching these people, we found they have a lot of similar problems,” he said.

Officials in Mecklenburg County, which includes Charlotte, have now undertaken a study on the issue and last year prompted a national umbrella group, the National Association of Counties, to urge Congress to take a similar step.

However, Lineberger says any action will probably come too late for his family, who are now seeking to buy a home to escape their rental issues but cannot afford a place in the city.

“We’ve been pushed out of Charlotte because of the housing market,” he said.

“And we’re definitely not the only ones.”

This story was corrected on March 20, 2023 at 10:12 GMT to make clear that Front Yard Residential is managed by Pretium Partners, rather than being a subsidiary of it .

(Reporting by Carey L. Biron; Editing by Sonia Elks))