America’s rental crisis

By Felix Salmon
December 10, 2013

Earlier today, a union organizer from Oakland named Max Bell Alper successfully (if briefly) trolled the internet with a stunt showing him shouting at a protestor. The protest was against Google’s buses: they use municipal infrastructure, but don’t giving anything back in return. Alper’s monologue, delivered in character as an obnoxious Google employee, went like this:

I can pay my rent. Can you pay your rent? … Well then, you know what? Why don’t you go to a city where you can afford it? This is a city for the right people. Who can afford it. If you can’t afford it, it’s time for you to leave. I’m sorry, I’m sorry. It’s time for you to leave. If you can’t pay your rent, I’m sorry. Get a better job.

OK, it’s not exactly Tony Award-winning stuff. But the attitude being skewered here — the idea that people who can’t pay their rent deserve no sympathy and should just move out of sight and out of mind — is actually deeply American.

The problem is simple arithmetic, as laid out in a sobering new report from Harvard University:

In 2011, 11.8 million renters with extremely low incomes (less than 30 percent of area median income, or about $19,000 nationally) competed for just 6.9 million rentals affordable at that income cutoff—a shortfall of 4.9 million units. The supply gap worsened substantially in 2001–11 as the number of extremely low-income renters climbed by 3.0 million while the number of affordable rentals was unchanged. Making matters worse, 2.6 million of these affordable rentals were occupied by higher-income households.

When you have 11.8 million households chasing 4.3 million affordable rental units, no amount of moving out of town is going to solve the problem, which is only getting worse, thanks to the way in which inequality is getting worse in America. Here’s the chart, which shows the inexorable rise of rents, even as the median income of renters has declined dramatically since 2000:

The result is the next chart: half of all renters now spend 30% of their income on rent, and a quarter spend more than 50%. This is an unprecedented squeeze on the people who can least afford the shelter they need.

The squeeze hits all non-rent expenses, naturally, including food: households in the lowest expenditure quartile spend $350 per month on food if they’re in affordable housing, but just $200 per month if they’re part of the group with severe rent-cost burdens. That works out to about $6.50 per day — and we’re talking millions of households, here. Overall, there are 21.1 million cost-burdened renters in America, including 83% of people with incomes under $15,000 per year.

In general, renting is a good thing: it improves labor mobility, and avoids forcing cash-strapped households to put an enormous proportion of their net worth into a single unreliable asset. But even as the number of renters has increased in recent years, the proportion of renters receiving any kind of government assistance has steadily declined. The result is that America as a whole is turning into a version of San Francisco — a place where the privileged rent expensive apartments, and not-so-secretly wish that everybody else would just go away. Annie Lowrey’s story today says it all:

“We’ve seen a huge loss of affordable housing stock,” said Jenny Reed, the policy director at the D.C. Fiscal Policy Institute. “We have lost 50 percent of our low-cost units over the past 10 years, and at the same time, the number of high-cost apartments, the ones going for more than $1,500 a month, more than tripled.”…

“Builders always are aiming at that higher end,” said Jed Kolko, the chief economist at Trulia. “And eventually, as those new units age, they trickle down to lower-income borrowers.”

But not now. With demand surging, inventories are shrinking, vacancy rates are falling and rents are rising at the low end.

The government, of course, is part of the problem, rather than part of the solution: sequestration, in particular, has hit housing programs (which weren’t exactly ubiquitous to begin with) very hard indeed. But if the government won’t step in here, the market is going to be no help for the foreseeable future. The economic recovery of the past five years has left millions of Americans behind — Americans who, increasingly, simply can’t afford to make rent any more. Those Americans are never going to be a source of great profits for private-sector developers. But getting them safely housed isn’t just a moral issue. Failure to find them affordable housing will, in the long term, cost us even more.

16 comments

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I’m all for more redistribution, but it seems like increasing housing assistance would just lead to more bidding up of rents. If there are more renters than housing units, it seems like the only long term solution is to let developers build more housing units, especially in locations where people want to live most.

Felix, I’d love to hear more of your thoughts on the political economy of density restrictions.

Posted by Stevensaysyes | Report as abusive

First commenter nails it… rental subsidies just drive up the price. Rent controls just drive down property values.

Capitalism and meritocracy are totally unfair ways to decide who gets to eat the best food, wear the nice close, drive the fast cars, and live in the coolest cities… sadly capitalism and meritocracy are by FAR THE BEST WE’VE GOT.

Posted by y2kurtus1 | Report as abusive

“The protest was against Google’s buses: they use municipal infrastructure, but don’t giving anything back in return.”

Perhaps this was intended as a throwaway line, but it’s so far off-base that I have to comment on it. Setting aside the taxes paid by Google directly and indirectly at the state and federal levels – including diesel excise tax for the fuel used by the buses – the whole point of these buses is to serve people who reside in San Francisco. Ergo, those who ride these buses pay property taxes (directly if they own, or indirectly if they rent) as well as sales taxes. These residents also indirectly pay San Francisco’s local business and payroll taxes when they patronize businesses near their residences. If the presence of these buses is leading to higher-income residents and higher rents then, from a strict accounting standpoint, the presence of these buses is likely leading to higher tax revenue for the city of San Francisco. To say that these buses use municipal infrastructure but don’t give anything back makes no sense.

Posted by realist50 | Report as abusive

“It’s all about IQ” attributed to Bill Gates?

Posted by Woltmann | Report as abusive

It appears that the “Google Employee” who said that dickish thing might not have been a real Google employee, but was instead a shill.

Posted by Matthew_Saroff | Report as abusive

I think Matt Yglesias kinda has this beat covered.
http://www.amazon.com/The-Rent-Too-Damn- High-ebook/dp/B0078XGJXO

Posted by Auros | Report as abusive

If rents are higher than people can afford, then either there is insufficient supply or prices are held artificially high.

Truth is we have tried, in many ways, to duck the consequences of the crisis. Using quantitative easing, extend and pretend and all sorts of other measures.

These things have benefited the rich and insulated the higher end of the middle class, but vast swathes of people are left behind.

The more people you leave behind, the higher the odds of a revolution.

Currently, the Anglo Saxon elite is just not being as clever as traditionally they were.

Posted by Urban_Guerilla | Report as abusive

High rents are not a cause, they are an effect. They are not the disease, they are a symptom.

We did not have this problem before three things happened:
1) outsourcing allowed millions of middle class jobs to leave the country; giving companies that do this low tax rates only increases their motivation,
2) we gave assets to the wealthy instead of spreading them out over the population (think bailouts and lower taxes than the ’50s, 60s, and 70s), and
3) H-1B and other visa fictions allowed corporations to replace Americans with much cheaper foreign workers.

Bring back the jobs we lost and Americans will have enough money to pay rent or even buy homes.

Posted by baroque-quest | Report as abusive

Well at least we know the left is on the problem and has a solution. Allowing an additional 50 to 60 million unskilled, lower educational level immigrants into the country should do the trick! “Comprehensive” solution in so many ways.

Posted by Justafarmer | Report as abusive

The problem with trying to better the poor against the rich is it always ends up privileging the old against the new. If it is expensive to rent, I suggest buying, and if you can’t afford the latter, you probably can’t afford the former.

Posted by MyLord | Report as abusive

I wish someone would pay me to blather the obvious on the internet.

Posted by rikfre | Report as abusive

There is certainly a problem now with high rents in many cities, and some of it is somewhat cyclical. It’s always been the case that our big cities had expensive neighborhoods that only the well-off could afford. But there also places where you could live on less money, working-class and immigrant neighborhoods. It was also the case that the majority of the population lived in more rural areas, away from the cities. Now a much higher percentage live in or near cities. Suburban sprawl is being somewhat reversed; being closer to the urban core is more desirable now as transportation costs rise, and that’s where the jobs are. The old working-class hoods are gentrified and the working-class are pushed out to the edges. Development costs in the cities is so high that only housing for the wealthy is built. More housing is needed, but it is only part of the solution. Better transit options so people can get from the edges in to the city without cars. Also, there are cities where there is cheap, plentiful housing, usually due to low demand, people leaving those areas for lack of work, and not just Detroit. Do we write those cities off or try to make them desirable places to live again? Do we end up with a country where everyone lives within 100 miles of the coasts and nowhere in the middle? Because that’s where we’re headed, and that really is not going to be good in the long run.

http://stateofthecoast.noaa.gov/features  /coastal-population-report.pdf

Posted by Moopheus | Report as abusive

@Moopheus “Do we end up with a country where everyone lives within 100 miles of the coasts and nowhere in the middle? Because that’s where we’re headed”

After fracking contaminates our aquifers, e.g. the Ogallala, we won’t have any choice but to live near the coasts, the Great Lakes, or major rivers, because those will be the only sources for drinkable water (the coasts will require desalinization, of course). Not to mention the food shortages.

Posted by baroque-quest | Report as abusive

Baroque, haven’t you heard? Apparently we’ll be able to pipe water from aquifers under the sea bed. And I expect that at the rate we’re going, we’ll have drained the Ogallala dry before it gets too contaminated. Yeah, we’re probably f’d no matter what we do.

Posted by Moopheus | Report as abusive

I agree with baroque-quest and Auros. Less inequality would lead to more people being able to buy more stuff, but real estate can be uniquely constrained due to zoning, historic preservation and other land-use restrictions. The current squeeze on renters is not just due to rising income inequality.

Posted by Eastvillagechic | Report as abusive

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Posted by AndrewDavid | Report as abusive