MBA RIHA Study: Affordability Growing Challenge for Low-, Moderate-Income Renters in Majority of Top 50 Metro Areas

Home prices and rent appreciation have exceeded income growth since the turn of the 21st century. This has created economic obstacles for many American households, especially for low- and moderate-income renters living in cities with recent employment growth but significant housing supply constraints.

This is according to a new research report, The Location of Affordable and Subsidized Rental Housing Across and Within the Largest Cities in the United States, released today by the Mortgage Bankers Association’s Research Institute for Housing America.

The findings reported nearly all of the 50 largest metropolitan statistical areas since 2001 have become less affordable for renters and prospective first-time homebuyers, with annual median rent growth rising at 2% above inflation, compared to an 0.8% real increase in annual median income. This disparity has led to a typical household in 2020 – compared to 2001 – needing to devote an additional 7.6% of its income to rent a median-priced housing unit.

“There is a significant lack of affordable housing supply in the United States, and the problem is worsening. In 2001, a low- and moderate-income household could spend less than 30% of its income to rent the median rental unit in 38 of the largest 50 metro areas. By 2020, this was the case in only 17 metro areas,” said Michael Eriksen, author of the report and West Shell Associate Professor of Real Estate at the University of Cincinnati and Academic Director of the Real Estate program. “The highest and fastest-growing rents have been in cities with strong employment and population growth that have a scarcity of developable land, primarily because of geography and land-use restrictions.”

The RIHA study study provides evidence on changes in rent levels and the availability of subsidized rental housing for LMI households over the last two decades in the nation’s 50 largest MSAs, and analyzes how the 2018 mandatory adoption of Small Area Fair Market Rents in 24 metropolitan areas affected the surrounding neighborhood poverty rates of Housing Choice Voucher recipients.

“The innovation of Small Area Fair Market Rents to increase payment standards in low-poverty neighborhoods has become an important desegregation tool that creates more economic opportunities for low-income households,” Eriksen said. “As this payment standard expands to other areas, care should be taken to ensure it does not come at the cost of punishing recipients who choose to live in their existing neighborhoods.”

“RIHA’s study underscores the importance of focusing on local-level solutions to address housing supply shortages and rental housing subsidy policies for low-income households,” said Edward Seiler, RIHA Executive Director and MBA Associate Vice President of Housing Economics.

Key Findings of The Location of Affordable and Subsidized Rental Housing Across and Within the Largest Cities in the United States:

• The evolution of housing rents and underlying affordability in the 50 largest MSAs:
o The population-weighted median rent of a two-bedroom unit across the 50 largest MSAs is projected to be $1,629 per month in 2021. This is a 4.3% increase from 2020 and the seventh consecutive year rents are projected to increase faster than inflation.

o The highest rents were in cities that also had the highest median household incomes. Annual median rents were, on average, $324 higher for every $1,000 increase in household median incomes across the 50 cities in 2020.

o Household median incomes appreciated, on average, 0.8% per year net of inflation in these cities between 2001 and 2020. On average, rents appreciated 175% faster than median incomes with the largest differential in growth rates estimated to occur in Seattle, at 376%.

o The average LMI household earning 60% of its metropolitan area’s median income in 2020 needed an additional $3,228 per year to rent a median housing unit and spend less than 30% of its household income.

• The location of subsidized housing across and within the 50 largest MSAs:
o The federal government spent an estimated $52 billion subsidizing the rent of LMI households in 2019.

o The Low-Income Housing Tax Credit (LIHTC) and Housing Choice Vouchers are the largest rental subsidy programs, although there is still a significant number of public housing units in some large cities.

o An estimated 11.2 million renter households had an income less than 60% of the metro’s area median income (AMI) in 2019. This is 43% of all renter households in those cities.

o The number of renter households earning less than 60% AMI grew by 1.4 million between 2005 and 2019, representing a growth rate of 14.8%. o There was less than one rental subsidy available for every three otherwise income-eligible renter households in 2020.

o Nearly 40% of subsidized renters under the LIHTC and HCV programs lived in a neighborhood with a poverty rate greater than 20% in 2019, which is almost double the percentage of all renter households.

o 67% of occupied public housing units remain in high-poverty neighborhoods.

• Analysis of how the mandatory adoption of Small Area Fair Market Rents in 24 metropolitan areas in 2018 affected the surrounding neighborhood poverty rates of Housing Choice Voucher recipients:

o Starting in 2011, HUD allowed maximum rents to vary at the ZIP code level with the adoption of SAFMRs. First adopted in Dallas, it allowed voucher households to move to higher-opportunity and more racially diverse communities.

o HUD allowed all public housing authorities that administer the HCV program locally to adopt SAFMRs in 2017. Their adoption was in 24 MSAs starting in 2018. o Results indicate that there was an immediate reduction in the percent of HCV recipients in high-poverty (≥ 20%) Census tracts in metro areas with mandatory SAFMRs. An estimated 2.7% fewer recipients lived in such areas within one year of SAFMRs becoming mandatory relative to MSAs where SAFMRs were optional.

o There was a 3% increase in the relative likelihood of at least one voucher being used in a low-poverty (< 10%) Census tract in metropolitan areas with mandatory SAFMRs. On average, there was a 15.6% increase in the number of voucher recipients in low-poverty tracts.

“The ongoing COVID-19 pandemic has exacerbated the affordable housing challenges that were already impacting far too many low- and moderate-income households,” said Steve O’Connor, MBA Senior Vice President for Affordable Housing Initiatives. “MBA’s Affordable Rental Housing Advisory Council is building partnerships with industry stakeholders, affordable housing groups and civil rights organizations across the country to come up with sustainable solutions that boost the supply of rental homes for underserved people and communities.”

RIHA is a 501(c)(3) trust fund. RIHA’s chief purpose is to encourage and assist – through grants to distinguished scholars and subject matter experts, educational institutions, research facilities and government organizations – establishment of a broader-based knowledge of mortgage banking and real estate finance. You can find additional studies on RIHA’s website: