Workforce renters at a disadvantage in finding affordable homes
In their search for affordably priced single-family and multifamily rental housing, workforce renters with moderate incomes may be giving up some ground to higher-earning renters. That’s according to new findings from Fannie Mae’s Multifamily Market Research team.
Looking at the numbers, the U.S. population of renters with the highest incomes has grown substantially over the past several years. It has outstripped the growth in moderate-income renters such as teachers, police officers, nurses, and others who traditionally have occupied less-expensive “workforce housing.”
On top of that, many markets are seeing a supply gap in the stock of rental housing priced for the upper segment of the rental housing market. As a result, higher-income households are carving into the supply of affordably priced homes.
“Needless to say, the mismatch of the actual cost of rental units to the income of their tenants can – and does – exacerbate worsening rental affordability in many places across the country,” notes Fannie Mae economist Tanya Zahalak, who authored the research.
“It’s important to remember that just because a rental unit is affordable to a lower-income household, that doesn’t mean it is actually rented to someone in that income category and vice versa. And, in fact, the latter is becoming more and more prevalent, especially as rent levels continue to rise.”
An Affordability Mismatch
The research defines high-income households as those earning more than 120 percent of the median income in the area where they live. From the beginning of 2009 through the end of 2015, those households grew by more than 3 million – reaching an estimated 9.7 million.
Moderate-income households earn from 81 percent to 120 percent of their area median income (AMI). Their earnings are too high to qualify for subsidized housing.
In 2009, workforce households accounted for a significantly larger share of the population than high-income households. But the tables have turned. Their numbers rose by only 1 million over the study period – to 7.8 million households. That’s almost 2 million below those with high incomes.
Zahalak notes that the supply of rental housing for the highest-income households has not kept pace with population growth. An estimated 369,000 new rental units catering to high-income renters are likely to come online in 2017, according to the Dodge Data & Analytics Construction Pipeline. But most of those units will be located in only 12 cities. And, unfortunately, that “has had a significant impact on rental housing affordability – particularly for workforce households.”
Displacing Workforce Renters
The Fannie Mae research finds that workforce households now inhabit less than a quarter of affordable units for a moderate-income household. High-income renters hold the leases on 38 percent of these properties.
“High-income renter households may choose to move into even less expensive rentals – to save for a down payment, for instance,” Zahalak notes. “As a result, a disturbing 18 percent of housing affordable to low-income households is actually inhabited by these high-income renter households.”
On the other hand, high-income renters only reside in 59 percent of the rental housing stock suited for their segment of the market.
“With displacement,” Zahalak says, “an estimated 14 percent of high-income rentals are occupied by workforce households.”
Even more concerning, low-income renters – who earn less than 80 percent of the median income for their location – inhabit the remaining 27 percent of rentals that are only affordable to high-income renters.
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Multifamily Economics and Market Research Group (MRG) included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.