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Affordable Rental Trends and Strategies

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Affordable Rental Trends and Strategies

A row of apartment buildings.Although programs such as the Virginia Eviction Reduction Pilot can help some households, many low-income families face considerable rent burdens because of the "fundamental math problem" of high rents and low wages. Photo credit:

In September 2023, the Federal Reserve Board of Governors hosted two panels to discuss rental affordability as part of its ongoing “Keys to Opportunity in the Housing Market” seminar series. The panels, “Challenges for Rental Affordability in the Pandemic Era and Beyond,” and “Regulatory and Programmatic Strategies to Increase the Supply of Lower-Cost Rental Units,” addressed rental housing dynamics, including eviction trends, in relation to the COVID-19 pandemic and approaches to expanding the supply of affordable rental housing.

Pandemic-Era Rental Housing Trends

Igor Popov, chief economist at Apartment List, and Jacob Haas, senior research specialist at the Eviction Lab at Princeton University, summarized rental housing market trends through the pandemic. At the onset of the pandemic-induced shutdowns, rental demand in cities cooled, and market rents fell throughout the remainder of 2020. In 2021, however, rents rebounded, increasing 17.8 percent during the year and continuing to rise until leveling off in the second half of 2022 at prices 22 percent higher than they were at the beginning of the pandemic. Popov attributed the rise to increased household formation as young people moved away from their parents, and others sought more space after having sheltered in place. At the same time, labor and supply shortages curtailed new construction. Popov pointed out that most of this growth in rents occurred in suburbs, particularly those that had been most affordable before the pandemic, leading to a convergence of rents at the high end of the market. During this period, eviction filings fell dramatically as emergency moratoriums and rental assistance combined to help stabilize renters at the pandemic's outset. As these aids have expired, eviction filings have increased, and are now at or above historical averages. Haas said that property owners continue to file disproportionately against Black and Latino women and families with children.

At the local level, these dynamics involved landlords, especially smaller-scale property owners, relying heavily on rental assistance to weather the pandemic, said Anamita Gall, civic designer at The Lab @ DC. Although eviction moratoriums and rental assistance stabilized housing for many renters, they also revealed underlying problems. Senta Leslie, associate director of eviction prevention at the Virginia Department of Housing and Community Development (VDHCD), pointed out that "practitioners and renters with low incomes have relied on evictions to gain access to affordable housing. As one low-income renter is evicted, it creates an opening for another low-wage renter to have access to a unit in an environment where there's just nowhere near the number of units required to house folks earning really anything less than about $50,000 a year." For those who had housing when the pandemic started, the pandemic policy supports helped them maintain stable housing, but for those who did not, the options were — and remained — scant. Affordability pressures have increased as rents rebounded without a parallel rise in wages. Leslie said that during the pandemic, VDHCD formed several new partnerships and programs, including the Virginia Eviction Reduction Pilot, which provides flexible, targeted financial assistance to prevent evictions. Although such programs can help some families, many low-income families face considerable rent burdens because of the "fundamental math problem," as Leslie put it, of high rents and low wages. Ultimately, said Haas, solving these issues in both the short and long terms will depend on "giving eviction, giving housing insecurity, [and] giving affordable housing the resources and attention and the will that [they] require."

Meeting the Urgent Need for More Affordable Units

The second panel focused on some tools for changing the math and increasing the supply of affordable rental units, including inclusionary zoning programs, state affordable housing appeals systems, community land trusts, and HUD's Rental Assistance Demonstration program. Nicholas Marantz, associate professor of urban planning and public policy at the University of California Irvine, explained how state affordable housing appeals systems create a pathway for developers of mixed-income and affordable housing to appeal to the state to override local land use regulations that impede or outright prohibit more economical multifamily development. Currently, a version of this kind of appeals system exists in Massachusetts, Connecticut, Rhode Island, and New Jersey and, to a limited extent, in California. Marantz added that in addition to the designated affordable housing in these developments, the market-rate units included often are more affordable than those elsewhere in the jurisdiction.

Vince Wang, assistant professor of real estate at the University of Washington, reported that inclusionary zoning (IZ) programs — which typically require or incentivize (for example, through density bonuses) developers to include some number or percentage of affordable units in an otherwise market-rate development — have proliferated around the country in recent years. Wang said that IZ can be an effective tool in creating affordable housing, particularly in high-opportunity neighborhoods. IZ programs vary in form, and Wang's research found that mandatory programs were one-and-a-half times more likely to result in at least one below-market-rate unit than voluntary programs. In addition, older mandatory programs that covered an entire jurisdiction and had complex income requirements were more effective in producing units, and longer affordability terms did not affect the production of affordable units. Marantz pointed out that to the extent that appeals systems and inclusionary zoning work, they do so because they offer a comparative advantage relative to an exclusionary baseline.

A lesson of the past 40 years of primarily market-oriented solutions, said Annette Kim, associate professor of public policy at the University of Southern California, is that such approaches have limitations and greater public intervention might be needed. Kim shared a case study of a community land trust in Los Angeles called Rolland Curtis Gardens. The mixed-use development offers 140 affordable units in central Los Angeles. The land trust redeveloped a parcel with dilapidated housing and expiring subsidies in a neighborhood with rising land prices. As low-income housing tax credits and project-based rental assistance contracts expire, community land trusts can step in to preserve affordable housing. Relaxed parking requirements, targeted tax changes, and a strong partnership between community-based organization Trust South LA and affordable housing developer Abode Communities helped make Rolland Curtis Gardens feasible. A key advantage of the community land trust approach is that the housing has no expiration for affordability, said Kim.

The most intensive form of public intervention in the housing market has been public housing, a source of deeply affordable housing largely serving a population with extremely low incomes. Ophelia Basgal, affiliate researcher at the Terner Center for Housing Innovation, spoke about how the Rental Assistance Demonstration (RAD) program has expanded public housing since its inception in 2012. Basgal noted that more than 300,000 units of uninhabitable public housing have been lost in the past 20 years. Through RAD, public housing agencies (PHAs) convert public housing funding to project-based rental assistance and leverage that long-term contract to finance redevelopment. Nearly 175,000 units have been developed through this program to date. Since 1998, legislation sponsored by Senator Lauch Faircloth and passed by Congress has placed a limit, known as the “Faircloth limit,” on the number of public housing units that PHAs could own. Because of demolitions through the HOPE VI or other programs, many PHAs have fewer units than their Faircloth limit allows. In 2022, HUD issued guidance to PHAs for using RAD to develop units up to their “Faircloth limit.” In total, nearly 250,000 units exist that PHAs could develop through Faircloth to RAD. Basgal expects that as more PHAs complete Faircloth to RAD conversions, knowledge and experience will build, leading to further conversions.     

Getting the "Math to Math"

All these tools — state affordable housing appeals systems, IZ, land trusts, RAD, Faircloth to RAD, and more — will be needed to relieve the acute affordability pressures on the lowest-earning renters. Rents have rebounded after the pandemic and are showing no signs of falling, and evictions are rising from their pandemic record lows (although they are not yet back to prepandemic levels). As Haas put it, "We're kind of returning to a normal where a lot of families were really harmed in that normal," and, said Popov, to stop that harm, "we need to build a lot more housing, and we need to get more cash in low-income renters' pockets for the math to math."

Published Date: 31 October 2023

The contents of this article are the views of the author(s) and do not necessarily reflect the views or policies of the U.S. Department of Housing and Urban Development or the U.S. Government.