Searching for a Solution to Rental Affordability Challenges
The Harvard University Joint Center for Housing Studies’ State of the Nation’s Housing report said overall rents rose at a 3.6 percent annual rate in early 2019, twice the pace of overall inflation. “Low and falling vacancy rates are keeping the pressure on rents,” the report said, noting the national vacancy rate has dropped from 7.2 percent in 2017 to 7.0 percent in early 2019. “Tightening occurred in all regions of the country.”
This tightness reflected a “substantial” drop in the supply of low-cost apartments, the Joint Center said. The number of units renting for less than $800 per month fell by four million between 2011 and 2017.
The Joint Center noted cost burdens have improved slightly, but said renters remain “pinched” and said renters represent 10.8 million of the 18.2 million severely burdened households that pay more than half their incomes for housing.
Berkadia, New York, said one economic truth rings true for more and more Americans: affordable rents have become increasingly out of reach. “It’s clear the number of renters finding themselves squeezed out of housing that fits their needs and income bracket is growing larger,” the firm’s Affordability Examined report said. “Even the nation’s highest earners were not immune to the creep of challenging rent cost burdens, with the percentage of wealthy and upper-middle-income households burdened by their monthly rent payments increasing.”
The Berkadia report noted development costs have risen significantly, which encourages developers to favor low-risk and high-reward plays such as luxurious developments in high-demand locations. Other economic and political factors also contribute to a lack of new affordable housing developmente, including a reduced corporate tax rate that weakened the incentive for banks and investors to purchase tax credits and growing construction costs. In addition, land costs skyrocketed 76 percent between 2000 and 2016, Berkadia noted.
Opportunity Zones are one possible means of spurring affordable housing development. Opportunity Zones reward capital investment in economically distressed areas with reduced tax obligations. But Berkadia Affordable Housing Director of Investment Sales Jeremiah said Opportunity Zones–while good for ground-up affordable housing development–are not currently attractive for acquisition rehab of existing affordable properties. “Most investors involved in affordable housing are not capital gains-driven,” he said. “They tend to be large banks looking for Community Reinvestment Act credits.”
Berkadia Senior Vice President Steve Ervin expressed similar caution about whether Opportunities Zones will solve the affordable development shortage on their own. “There is no silver bullet for this complicated issue,” he said. “In order to tackle this problem, we will need a multifaceted approach. Opportunity Zones are not yet a driver of affordable housing on their own, but now they are part of the bigger picture. When combined with state and local initiatives, the lower tax rates received for opportunity zone investments could spur investment in affordable housing.”
