Introduction

The current state of the US housing market is characterized by a significant shortage of housing supply, particularly in urban areas. This shortage has dire implications for workers in lower income brackets, exacerbating issues of rental instability, homelessness, and health outcomes. The policies of the Biden administration and their influence on interest rates have only exacerbated this issue, driving up the cost of new multifamily housing developments and denying a steady supply of affordable units.

The Effect of High Interest Rates on Multifamily Housing

High interest rates, a direct result of Federal Reserve actions, have increased the cost of borrowing significantly. Since June 2023, interest rates for fixed-rate multifamily loans have risen to 5.5 for a 7-10 year fixed term. The increase in borrowing costs has made multifamily housing less attractive to investors, who now face rising operating and insurance expenses that outpace annual income increases. Consequently, the construction of new units has slowed, with a 30% drop in starts since October 2023 compared to the same period last year. Additionally, the number of mortgages for multi-family units has declined, further exacerbating the housing supply crisis.

Shift in Rental Market Demographics

The rental market has experienced a significant shift in the past decade. The number of units renting for less than $1000 has decreased by 6.1 million, while units renting for $2000 or more have increased by 4.1 million. The proportion of units renting for $1400 or more has nearly doubled, from 21% in 2012 to 38% in 2022. Conversely, the share of low-income units renting for $600 or less has dropped from 22% to 16% of the total stock. These changes are driven by the increasing number of high-income renters being priced out of homeownership, creating a captive market for landlords.

The Impact on Renter Household Income and Health

Rent burden is becoming a significant issue for lower-income households. Over the past two decades, median inflation-adjusted rents have risen by 21%, while median inflation-adjusted household income has risen by only 2%. As a result, residual incomes left after paying for base housing costs have declined, with households making less than $75,000 annually seeing their incomes drop from around $2,700 to $2,300. Lower-income renters making $30,000 a year, or $15 an hour, are even worse off, with their incomes dropping from $4,700 to $310 per month. These economic pressures have led to decreased spending on essential needs such as food and healthcare.

Health Risks Linked to Rent Burdens

High rent burdens and evictions have serious health implications for renters. A longitudinal study linking 2000 census data, the 2008–2012 American Community Survey, and Medicaid eviction records found that a 10% increase in rent burden was associated with an 8% higher mortality rate for middle-age renters who had rented for at least a decade prior. A 20% increase in rent burden was linked to a 16% higher mortality rate. Similarly, a rent burden of 50% of income was associated with a 9% higher mortality rate compared to a rent burden at or below the HUD affordability threshold of 30% of household income. Evictions, even with or without a judgment, were also found to significantly increase mortality rates.

Land Value Capture as a Long-term Solution

Shifting the paradigm of the housing market requires a fundamental change in how urban spaces are valued and developed. While increased subsidies and multifamily rental units are important, the primary obstacle is exclusionary zoning, which restricts 75% of residential land to single-family housing. Addressing this issue would involve a significant redistribution of wealth and a transition from land and property values capturing the rent paid by tenants to a system where land values are captured and used to fund public housing and community development. This solution, while politically challenging, offers a long-term, sustainable approach to ensuring that housing remains affordable for all income levels.

Conclusion

The current housing market in the US is largely driven by speculation and exclusionary zoning. While incremental solutions such as increased subsidies and multifamily housing are important, a more radical shift towards land value capture is necessary to create long-lasting change. The health and wellbeing of the most vulnerable renters should be a priority, and addressing the root causes of the housing crisis will not only benefit renters but also the economy and society as a whole.