September 2021 Edition - Homelessness and Affordable Housing - National Issues

I am not one to look for the government to take care of our every need or to get involved in our business.  If anything, I am the opposite.  To me, the old saying “I’m from the government and I’m here to help” has always meant BEWARE.  However, I do believe that our government has certain responsibilities to us that only they can provide, such as the defense of our country and the protection of our people.  We and our government have failed to protect our people when it comes to housing.  Each year an estimated 3.5 million people experience homelessness in the United States.  Although the U.S. has a long history of prosperity, mobility, and justice, too many people have been left behind – struggling to get by, with little hope for a better future.  

Fifty million people in the U.S. live in poverty, with little hope of mobility for themselves or their children.  Fifty million Americans live on incomes below the federal poverty level, including one in every four children.  Families with children account for 35% of the homeless population.  Millions of Americans today work in jobs that pay shockingly low wages, provide few to no benefits, impose irregular schedules and, have unsafe working conditions.  These Americans work hard at jobs that do not sustain them and their families financially or pay enough to provide even a modest standard of living (Oxfam America).  Mike O’Brien, former Seattle City Council member stated, “I’ve got economically zero unemployment in my city, and I’ve got thousands of homeless people that actually are working and just can’t afford housing.  There is nowhere for these folks to move to.”

Homelessness and an inadequate affordable housing supply are issues that we and our government, must address for the future of our country.  Unless adequately addressed, these issues can undermine our economy and our entire society.

The National Low Income Housing Coalition (NLIHC) has published an annual report since 1989 titled “Out of Reach – The High cost of Housing.”  Each year the report calls attention to the gulf between actual wages and what people need to earn to afford their rents.  Every year, the report documents that an affordable rental property, house or apartment, is out of reach for millions of low-wage workers and other low-income families.  

The long-term trends over the past 40 years have not been favorable for low-wage workers.  Wage growth has been slow for the lowest-wage workers.  Results from the Current Population Survey indicate that between 1979 and 2019, inflation-adjusted hourly wages grew just 6.5% for the lowest-wage workers and 8.8% for median-wage workers.  Only in ten of the last 40 years did most workers see sustained increases in real wages.  For many of these workers, employment is not sufficient to keep them out of poverty.  The Bureau of Labor Statistics (BLS) estimates that in 2018, seven million “working poor” spent more than half the year in the labor force below the official poverty level.  

For most low-wage workers, decent rental housing is unaffordable.  While wages have been stagnant or slow to rise, rents continue to climb.  One of the legacies of the coronavirus pandemic is a nationwide spike in apartment rents.  In June alone, asking rents were up 2% according to RealPage data, with average monthly rent reaching $1,513.  As of the end of June, average rents were up 6.3% during the previous 12 months compared with the same period a year earlier.  This is the largest year-over-year jump for rents since 2001, Realpage reports.  In addition, home purchase prices have increased by 153.3% since 2010 , outpacing wage gains of 14.2% by more than 10 times according to money.co.uk an international credit broker for consumer credit products.  

In 45 states and the District of Columbia median gross rents increased faster than median household income between 2001 and 2018 (Mazzara, 2019).  In no state, metropolitan area, or county in the U.S. can a worker earning the federal or prevailing state or local minimum wage afford a modest two-bedroom rental property at fair market rent by working a standard 40-hour work week.  In 26 states and Puerto Rico, the average renter’s wage is lower than even the one-bedroom Housing Wage ($20.40/hour).  A modest one-bedroom rental is unaffordable to more than 40% of wage earners.  A modest two-bedroom rental is unaffordable to 60% of wage earners.

Eleven of the twenty largest occupations in the U.S. pay a lower median hourly wage than what a full-time worker needs to earn to afford a modest apartment at the national average fair market rent.  The workers in these occupations account for more than 36% of the total U.S. workforce, excluding farmworkers.  Nearly 14 million people work in retail sales or food and beverage services, occupations whose median wages are far less that what full-time workers need to afford even a one-bedroom apartment.

Low-wage workers are not the only renters that struggle to afford their housing.  Over 4.4 million renter households with incomes less than 50% of area median income have elderly heads of household not in the labor force.  Over 1.7 million more have a head of household with a disability and are out of the labor force.  Approximately 800,000 are single adult caregivers or in school.  Low-income families with a variety of circumstances struggle to afford their rent.

While the economic crisis is disproportionately impacting the lowest-wage workers and has exacerbated their housing instability, the shortage of affordable rental housing for low-income households is not new.  Prior to the pandemic there were only 37 affordable and available rental properties for every 100 renter households with extremely low incomes (NLIHC, 2021), and every state and nearly every county in the U.S. lacked an adequate supply.

Low-wage workers struggle to find affordable housing in both good times and bad.  During economic downturns, demand for lower-cost rental housing can increase, as distressed homeowners and renters in more expensive apartments seek cheaper options.  As a result, rents for lower-cost housing can increase even while high-end rents fall (Rampell, 2021).

During times of economic growth, the private market fails to provide a sufficient supply of affordable housing for the lowest-income renters.  Most new rentals in the private market are built for high-income renters, in order to turn a profit after paying high development costs.  The median asking rent for apartments constructed between July 2018 and June 2019 was $1,620 per month, far more than what a low-wage worker can afford (JCHS, 2020).  Only 32% of all renters in 2019 could afford this level of rent.  

Congress appropriated over $46 billion to emergency rental assistance in the end-of-2020 COVID relief package and the 2021 American Rescue Plan; however, this will not solve the long-term rental affordability challenge that low-wage workers and other low-income households have faced for decades.  A stronger safety net is required to provide assistance to every household in need to reduce housing instability among the lowest-income renters.  Addressing the roots of the housing affordability problem requires a sustained commitment to universal rental assistance for eligible households, investments in new affordable housing to the lowest-income people, and the preservation of affordable rental properties that already exist.

Our current situation is not sustainable.  The housing affordability crisis is accelerating.  Experts estimate the country needs to add 2 million housing units per year to accommodate a population grew by 7.4% over the past 10 years (U.S. census date).  But last year, the county produced just 1.3 million units and construction prices, labor shortages and restrictive zoning and building codes are making it unlikely the gap is going to shrink anytime soon.  The unavoidable reality is we need more rental housing in this country.  “There are powerful demographic, social and economic trends pushing the demand for rental housing higher and higher” (David Howard, National Rental Home Council).

Two decades of underbuilding have led to a 5.5-million unit shortfall across the country, according to a June 2021 study by the Rosen Consulting Group and the national Association of REALTORS.  The gap widens to 6.8 million housing units when taking into account the loss of properties through demolition, natural disaster or functional obsolescence.  To address the shortage, builders need to ramp up their annual production by 60%.  A tall order in today’s environment.

“Just-In-Case You Missed It” is a monthly letter prepared for multifamily owners and prospective owners.  It is a compilation of multiple articles from multiple sources or a reprint of an article from a specific source (source credit given).  Its purpose is to present both facts and opinions that may influence our multifamily business in the Southeastern U.S. If you have any questions and/or would like to discuss any of the comments above, my conclusions or your multifamily business, please contact me at your convenience.  I can be a valuable resource to you without adding expense to your budget.  I look forward to speaking with you and having an opportunity to meet with you.  I am always at your disposal to assist you with your multifamily business.  If you would like to review previous editions of my monthly “Just-In-Case You Missed It” letter they are posted on my website, www.rickbakermultifamily.com. 

Respectfully

Rick

G.F. Rick Baker, CCIM 

Multifamily Specialist/Investment Advisor 

www.RickBakerMultifamily.com 

2504 Tinderbox Ln.

Greensboro, NC 27455

Cell: 336.549.6083 

Email: rickbakermultifamily@gmail.com

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