Sofoklis Goulas

Economist

Sofoklis Goulas

Economist

Blog Post

Ten economic facts about rental housing

Rental housing in the United States has become less affordable in recent years due to several factors, including a shift in demand for housing in the wake of COVID-19 (Mondragon and Wieland 2022). The result is low vacancy rates (i.e., the share of units available for rent without a tenant), high rent inflation, and housing expenditures that strain the budgets of lower-income households. Some of these challenges were most acute when the pandemic was at its peak, but the associated housing instability has lingered, illuminating long-term underlying issues in the rental housing market.

The very low unemployment rate and recent strength in wages makes clear that housing instability in the U.S. is, in large part, a structural problem, one that will not be fully solved by a strong economy. Fiscal support for federal housing benefits is inadequate, eligible households wait years for benefits, and the number of single individuals experiencing homelessness has risen. Any effective solution will require policy actions by lawmakers.

In the U.S., approximately one-third of households rent, but the share varies considerably by age of the head of household, ranging from 21 percent of households headed by someone 65 and older to 58 percent of households headed by someone ages 25 to 34 (figure A). As shown in fact 1, renting also varies considerably across the head of household’s education, income, and race or ethnicity.

The pandemic spurred consequential changes to the rental market. For example, the shift to remote work—among other factors—increased demand for homeownership (Mondragon and Wieland 2022). Simultaneously, multifamily housing starts (i.e., initiation of construction) fell sharply at the onset of the pandemic (fact 3). What followed was significantly fewer vacant units (fact 3) and a spike in rent inflation (fact 5).

More recently, housing starts, including starts of multifamily rental properties, have recovered to their pre-pandemic pace, and the national vacancy rate is rising (fact 3). Consistent with those trends, rent inflation is moderating (fact 5). At the same time, however, higher vacancy rates could be an indicator of lower economic vitality in certain metropolitan statistical areas (MSAs; fact 4). Lower economic vitality may translate to greater degrees of rent-burdened households (i.e., households that spend more than 30 percent of their income on rent). Whether a household is rent-burdened is a good proxy for whether that household is subject to housing instability, or for a higher probability of experiencing negative outcomes such as eviction and homelessness (U.S. Government Accountability Office [GAO] 2023).

The federal government funds programs to help lower-income households who face housing instability, but the funds are woefully inadequate (fact 8). Some households eligible for housing benefits spend years on waiting lists before receiving benefits, and many more households do not even make it on to waiting lists (fact 10). Relatedly, homelessness has risen notably for single adults, who can often find themselves at the back of any line of those eligible for scant housing benefits (fact 9; U.S. Department of Housing and Urban Development [HUD] n.d.a).

As many others have said, one part of the solution to the longstanding lack of affordable housing is to build more housing (Gould Ellen and Goodman 2023). But that will only address the problem over time and, in some localities, does not get to the heart of the challenge. Moreover, a stronger national labor market is helpful but might not be enough. Even now, housing instability persists in the face of a low unemployment rate and rising real wages (East, Edelberg, and Steinmetz-Silber 2023; Sarver 2023). Solutions will need to be broad-based and must recognize that millions of households with lower incomes struggle with financial insecurity in the U.S. and spend a large fraction of their income on rent with little ability to absorb negative economic shocks (GAO 2020).


Co Authors : Lauren Bauer, Eloise Burtis, Wendy Edelberg, Noadia Steinmetz-Silber, Sarah Yu Wang
Outlet : Brookings Institution
Link : https://www.hamiltonproject.org/wp-content/uploads/2024/03/20240321_THP_HousingFacts.pdf
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