The gap between current rental housing construction and the needs of lower-wage renters is widening, and it’s because new units cater to the upper end of the income spectrum, according to Harvard University’s Joint Center for Housing Studies.

  • A report by the the Harvard Joint Center for Housing Studies found that more than a third of Americans live in rentals with many spending more than a third of their income on housing.
  • Over the last decade, the cost of new unit construction has been on the rise, the price of which gets passed on in the form of rent.
  • To allay the problem, experts suggest that local governments offer publicly owned land at reduced or no cost to developers, particularly in high-cost metro areas.

The gap between current rental housing construction and the needs of lower-wage renters is widening, and it’s because new units cater to the upper end of the income spectrum, according to Harvard University’s Joint Center for Housing Studies (JCHS).

In a Jan. 12 post on JCHS’s Housing Perspectives blog exploring the rise in rental prices, Research Assistant Irene Lew noted that in 2013, about 40 percent of new units charged at least $1,000 per month.

By comparison, in the 1960s and 1970s, when multifamily construction hit a peak thanks to federal subsidies, only about a quarter of rental units charged that much. In 2014, the median asking rent for new market-rate apartments was about $1,400 per month, an increase of 25 percent since 2012.

Lew’s post comes on the heels of a report that the JCHS issued last month, America’s Rental Housing, which concluded that about 37 percent of all U.S. households live in rentals with a large portion paying more than 30 percent of their annual income on housing.

According to Lew, between 2003 and 2013 the construction of new units renting for $800 or more per month increased by 14 percent, or triple the gain in the number of units renting for $400 or less.

During the same period, the number of low-income renters who could afford units going for $400 or less increased by 40 percent.

“Rental housing built during the last decade is increasingly out of reach for many renters,” Lew wrote. “This is true across the metropolitan region.”

A decade of rising prices

In 2013, nearly 50 percent new urban rental construction charged at least $1,000 a month, compared to about 30 percent of rentals built before 2003.

Non-metro areas, which typically include a higher share of the lowest-cost housing (units renting for under $400), have followed suit. New rentals built in these locations are much less likely than older ones to collect rents that low.

Lew also noted that new construction has favored larger buildings. About 84 percent of apartment complexes built in 2014 had 20 or more units, while the development of smaller buildings with four or fewer units slowed significantly.

Land-use regulations, higher construction costs boost rents

Why aren’t real estate developers building rental housing that more people can afford?

“At the local level, developers may be faced with land-use regulations that restrict the area available to build multifamily housing as well as the number of units in these developments,” Lew added. “These limitations can result in higher per-unit construction costs that are also passed down to tenants in the form of higher rents.”

What can be done to build housing that more low- and moderate-income households can afford?

Lew suggested that local governments offer publicly owned land at reduced or no cost to developers, particularly in high-cost metro areas like Washington, D.C., but pointed out that the amount of affordable housing developed through these programs is small relative to the volume produced through federal subsidy programs like the Low Income Housing Tax Credit (LIHTC) program and HOME.

She also noted that although Congress recently approved an appropriation of $950 million for HOME funding this year, an increase of $50 million above last year’s enacted level, the funds set aside for this year are still a whopping 56 percent behind the level appropriated in 2006.

“Indeed, the strained fiscal climate may continue limit the availability of subsidies that make it economically feasible for both for-profit and nonprofit developers to build affordable rental housing,” Lew concluded.

Email Amy Swinderman.

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