The Falling Supply of Low-Cost Rentals in US Metros
For the sixth year in a row, the number of units renting for less than $800 in the US fell sharply, according to our new State of the Nation’s Housing report. With a loss of one million low-rent units in 2016-2017, the number renting for less than $800 (in real 2017 dollars) dropped by four million units from 2011 to 2017, a 17 percent decline.
Overall, the number of low-rent units decreased in about three-quarters of metropolitan areas with populations over 50,000 between 2011 and 2017 and fell by at least 20 percent in nearly a third of metros. The data don’t offer many clues about what happened to these units; they may have dropped from the housing stock entirely, increased in rent above the $800 threshold, or converted to owner-occupancy.
The decline in low-rent units is widespread, occurring in metros across the country (Figure 1). The largest declines were in Western and Southern metros. Most notably, the number of low-rent units dropped by more than 60 percent in Denver, Portland (OR), Austin, Boulder, Naples (FL), and by more than 50 percent in five other metropolitan areas. In the 10 metros that lost at least half their low-rent units, those rentals went from making up 39 percent of the total rental stock on average to only 15 percent. Additionally, between 2011 and 2017, rents in metros where the supply of low-rent units dropped by more than 20 percent increased by $160 on average. In comparison, rents rose by only $65 in metros with less severe declines, and $45 in the 23 percent of metros with a growing supply of low-rent units.
Rising rents in metros with a significant decline in low-cost units also deepened the affordability crisis for lower-income renters living in those places. Units renting for under $800 a month are affordable to households earning up to $32,000 a year by the standard 30 percent measure of affordability. In metros where the stock of low-rent units declined by more than 20 percent, the share of renters making less than $32,000 a year who were severely cost-burdened (spending more than 50 percent of their incomes on rent) increased from 55 percent on average in 2011 to 57 percent in 2017.
Because local labor and housing markets differ widely, an $800-per-month rental might be very affordable in some places but not in others. Finding an apartment renting for less than $800 a month is more difficult in San Diego, for example, than in Indianapolis. One approach for taking these differences into account is to use a relative measure for defining low-rent units. Dowell Myers and JungHo Park’s constant quartile approach does just that. The method calls for taking the most inexpensive fourth of units in a metro (in 2011 in this case), inflating the maximum rent for this group to 2017 dollars, and using that cutoff as the threshold for low-rent units in 2017.
By this measure, the number of low-rent units fell between 2011 and 2017 in nearly 90 percent of metros, more than the 77 percent estimated using the $800-per-month threshold (Figure 2). Additionally, under the constant quartile approach, the low-rent stock fell by at least 20 percent in two-thirds of all metros, as compared to about one-third under the $800 threshold. And under the constant quartile approach, the low-cost stock dropped by at least 50 percent in 42 metros, as compared to only 10 under the $800 threshold. While the constant quartile method does show a more dramatic picture, it is important to note that nearly three-quarters of all metros lost low-rent units under both the bottom constant quartile and the $800 rent cutoff method.
While the two approaches produce different results, they both make it clear that the supply of low-rent units has fallen dramatically since 2011. This low-rent stock is also at risk of further loss. Notably, units renting for less than $800 a month are increasingly concentrated in buildings at least 50 years old, and the largest loss of low-cost rental units in the last ten years were in buildings built before 1940. Additionally, new units are not adequately replacing the declining low-rent stock. According to the Census Bureau’s latest Survey of Market Absorption, only 4 percent of newly built units had asking rents below $850, and the median asking rent for new apartments was nearly double that at $1,670.
As the rents for new units continue to climb and the existing low-rent stock decreases, the distribution of rents is likely to keep shifting higher. With this shift, the ongoing loss of low-cost rentals will continue to be a concern for years to come.