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Where Are Lower-Income Renters Supposed to Live?

Most new rentals in the U.S. aren’t affordable for almost half of renters. (Credit: Harvard Joint Center for Housing Studies)

While more Americans across all income levels and in all cities are choosing to rent instead of buying a home, apartments are increasingly only being built for high-income renters, a new report finds.

Last year was another record-setting year in the number of renters paying more than 30 percent of their income on housing costs — the limit economists recommend — according to the report on U.S. rental housing from the Harvard Joint Center for Housing Studies. Almost half of renters are cost burdened, and 26 percent are severely so. And paying rent too high for your salary can impact every area of life: In 2014, lower-income households who paid more than half their incomes on rent spent 38 percent less on food, 55 percent less on healthcare and 45 percent less on retirement savings than those living in affordable housing. That means this isn’t just a housing issue.

Here’s a breakdown of what’s happening and why, with a couple of the graphs that help explain the crisis.

Only about 10 percent of recently added rental apartments would be affordable to nearly half of renter households in America who make less than $35,000 a year. Washington Post reporter Emily Badger points out that the trend is particularly visible in cities like Washington D.C. “Cranes and construction crews have been busy for several years now since the recession,” she wrote, “erecting the kind of gleaming new apartment buildings that have high-end fixtures and concierges.” What they’re not erecting? Apartments affordable to most Americans.

Despite plentiful new construction, vacancy rates have dropped in all major U.S. cities. Well-off Americans who are opting to rent rather than buy are easily filling the new luxury apartments placed on the market. While high-income Americans moving to new apartments frees up some space, that availability is in part “canceled out” by places being taken off the market entirely for no longer being livable; other apartments are moved out of the affordable price range after being upgraded.

While the number of low-income renter households searching for housing increased by 40 percent between 2003-2013, the number of low-cost rentals only increased by about 10 percent during that same time. Renters who can’t find an affordable vacancy often have nowhere to turn, as housing subsidies aren’t keeping up with the need. (See a recent Next City op-ed for “Cities Where a Big Chunk of Affordable Housing Could Soon Disappear.”)

So why aren’t builders creating affordable apartments? Badger points out, “We’ve made it very, very difficult in many cities to construct market-rate housing that would be affordable to the middle class or modest renters. It’s economically challenging for developers to create new apartments the median renter could afford — at about $875 a month — while covering the costs of constructing them.”

Developers building affordable units face costs related to height limits, parking requirements, zoning restrictions, lengthy design reviews and legal battles with neighborhoods opposed to new construction, among other challenges. There are also policymakers who worry that affordable housing mandates will discourage growth.

The demand for rentals won’t decrease anytime soon. Even if the amount of Americans choosing homeownership stays steady, demographics will continue to drive up the number of renter households in coming years. More federal housing subsidies for lower-income renters could help, however, as could providing financial incentives for builders to create affordable units.

Or we could give one of these five extreme ideas a try.