Low- and Moderate-Income Renters See Affordability Challenges in Largest Cities

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Rent increases have outstripped income growth since the beginning of the 21st century. For many American households, particularly low and moderate-income households, this fact creates financial challenges. The hardships are particularly heavy in cities that have experienced recent employment growth and which also have significant housing shortages, according to a new report by the Mortgage Bankers Association’s (MBA) Research Institute for Housing America (RIHA).

The Location of Affordable and Subsidized Rental Housing Across and Within the Largest Cities in the United States report found that nearly all of the 50 largest metro areas in the U.S. have become less affordable to renters since 2001. During that period, annual median rent growth nationally rose at 2.0% above inflation while annual median income rose just 0.8%. The analysis found that a typical household in 2020 had to spend an additional 7.6% of its income to rent a median-priced home.

Michael Eriksen, author of the report and a real estate professor at the University of Cincinnati, said that in 2001, low and moderate-income households could spend less than 30% of their income to rent a median home in 38 out of the largest 50 metro areas. That number shrank to just 17 metro areas by 2020.

The MBA RIHA study analyzed the availability of affordable and subsidized rental housing over the past two decades in the 50 largest metro areas. In addition, researchers analyzed the impact of the adoption of the Small Area Fair Market Rents program in 24 metro areas on poverty rates of Housing Choice Voucher recipients.

Key findings Around Rental Affordability Issues

The researchers found that:

  • The median rent for a two-bedroom unit across all 50 metro areas is projected to be $1,629 in 2021, a 4.3% increase from 2020 and the seventh consecutive year rents are projected to rise faster than inflation.
  • The highest rents were in cities with the highest median household income. Annual median rents were, on average, $324 higher for every $1,000 increase in household median incomes in the 50 largest metro areas in 2020.
  • Household median incomes appreciated, on average, 0.8% annually net of inflation between 2001 and 2020 and rents rose 175% faster than median income during those two decades. The largest gap between rent and income growth was in Seattle at 376%.

The COVID-19 pandemic has created even more hardship for low and moderate-income households and deepened their challenge to find affordable housing. The report found that there was less than one rental subsidy available for every three otherwise income-eligible renter households in 2020.

Positive Results from Small Area Fair Market Rents Program

In 2011, the U.S. Department of Housing and Urban Development (HUD) allowed maximum rents for Housing Choice Voucher recipients to vary at the Zip code level with the Small Area Fair Market Rents (SAFMRs) program. The SAFMRs program allows households with vouchers to move to neighborhoods that are more racially diverse and have more economic and educational opportunities. In 2017, all public housing authorities that administer housing choice voucher (HCV) programs could adopt the SAFMRs program. Since 2018, 24 metro areas adopted the program.

The MBA RIHA study found that among those 24 cities, the number of voucher recipients declined immediately in high-poverty areas. An estimated 2.7% fewer voucher recipients lived in high-poverty areas within one year in cities with mandatory SAFMRs compared to cities where the program was optional. In cities where the program became mandatory, there was a 15.6% increase in the number of voucher recipients living in low-poverty areas. There was also a 3% increase in the likelihood that at least one housing voucher would be used in a low-poverty area.

The researchers found that the SAFMRs program became an important desegregation tool that creates more economic opportunities for low-income households.

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