HUD Aims to Correct Rental Housing Misconceptions

Affordable rental housing is the focus of the second edition of Evidence Matters, the Department of Housing and Urban Development's (HUD's) new quarterly publication devoted to housing and community development issues.

This edition focuses on several proposals that came out of the Next Generation Housing Policy Conference held last October. The Conference, sponsored by the White House, HUD and the Departments of Treasury and Agriculture, brought together prominent housing experts and practitioners to discuss, among other topics, the role affordable rental housing plays in improving life outcomes, particularly for children, families and the homeless. The discussions that took place at the conference fell into four distinct topic areas:

The mortgage interest deduction;
Multibank Consortia and their role in affordable rental housing
Informing the Next Generation of Rental Housing Policy

The fourth topic was defined by a conference participant, University of Southern California economist Richard Green who suggested that the concept of rental housing needs re-branding. Rent, he said, carries a negative connotation and should be replaced with an alternative name such as "leased housing." The editors of Evidence Matters point out that this is just one of many misconceptions about rental housing that need to be addressed. For example, the image of towering multi-family structures providing rental housing in general and affordable rentals in particular is belied by the reality that these large multi-family developments provide only about a tenth of the rental housing stock.

So, in order to discuss rental housing it is necessary to define the terms with a profile of the rental market and rental market research. For example, the article suggests that rental housing should be defined by tenure choice rather than structure type. Although most multifamily properties are utilized as rentals, small single family properties (one to four units) make up nearly half of all rental housing and these plus developments of five to 49 units account for nearly 70 percent. "Therefore," the report points out, "policies tailored to massive multifamily development will affect only a portion of the rental stock."

In the same way that rental housing is conflated with multi-family housing, affordable housing is assumed to be subsidized. This applies to the most affordable rental units, but not to families earning 50 percent of the area median income (AMI). These units are not subsidized. The American Housing Survey suggests that of the 17 million units affordable to households at 50 percent of AMI, only about 30 percent are subsidized. In urban areas this unassisted housing tends to be older, smaller properties in low-income neighborhoods which are typically owned by "mom and pop" landlords. This type of housing has been ignored by federal housing policy for years so local financial institutions have stepped into provide affordable financing. These small operations are critical sources of housing but their age, high maintenance demands, and low profit margins mean they have high loss rates. "Preserving these structures is an important element of a broader strategy to ensure quality, affordable rental homes for low income Americans, but it is not a substitute for basic rental assistance."

More than 70 percent of HUD's budget is devoted to some form of rental housing assistance and, even though no consensus exists on how best to measure it, rental housing affordability is the biggest measurable housing problem that HUD programs must address. The approach that most policy makers have adopted to assess affordability is rent-to-income ratios and the current standard is whether gross rents account for less than 30 percent of a tenant's monthly income. Worse case need is defined as very low-income renters (earning less than 50 percent of AMI) who do not receive assistance and pay more than 50 percent of their income for housing or live in severely inadequate housing or both. As a result of the recent recession nearly 7.1 million households are considered to have worst case needs - the highest level on record in both absolute and percentage terms.

Another measure is the difference between the numbers of low-income renters and the units affordable to them. In 2009 there were 10 million extremely low-income renters (earning less than 30 percent of AMI) and just 6.2 million units that they could rent and pay no more than 30 percent of their income for housing.

Another definition that is necessary is one that takes local nuances into account. Constraints on new construction, employment growth, immigration, housing prices can all create frictions which differ across markets so Federal housing policy should promote market-sensitive investments that recognize how housing stresses play out in different localities.

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HUD Aims to Correct Rental Housing Misconceptions

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