When built, housing is usually priced and sold or rented at a rate in line with the local community. Upper income areas get higher priced housing while mid-level areas get a broader range of pricing commensurate with the full range of incomes there. A better understanding of the nature of housing affordability is more important than ever as the COVID-19 pandemic has worsened the finances of millions of Americans, a factor that will change the availability of workforce housing.
Another factor enters the equation as an area ages and buildings age with it: filtering. A recent study by the NMHC (National Multifamily Housing Council) Research Foundation, an in-depth analysis of apartment filtering—the aging and obsolescence that produces naturally-occurring affordable rental homes—found that in past decades the substantial flow of new construction, largely targeted to middle- and higher-income groups, enabled the filtering process to operate and create affordable housing opportunities for low-income households.
However, following the Great Recession (2008-10) low-income occupancy declined as affordability challenges increased. Importantly, the review determined that a continued stream of new construction, even if it enters in higher price brackets, is important to the success of filtering in providing low-income shelter.
Unlike “gentrification” which restores and enhances buildings in older neighborhoods for occupancy by those seeking upscale housing, filtering provides a mechanism for providing affordable housing to lower-income households through the aging and obsolescence of housing over long periods of time.
Filtering is measured in the survey by the growing share of units in aging apartments that were occupied by low-income renters—defined as those whose household income is less than or equal to 50% of the median in their metropolitan area of residence. Major findings include:
- Filtering occurred at different rates in each decade, but produced rising shares of low-income occupancy until the Great Recession, after which the low-income occupancy declined. In 21 years, from 1990 to 2011, filtering increased the low-income occupancy share by an added 11.3% of 1960s built apartments, 8.6% of 1970s apartments and 10.3% of 1980s apartments. From 2011 to 2018, low-income share reversed, declining by 3.8%, 6.0% and 4.4%, respectively.
- Overall rents rose continuously over the study period, because each newly built vintage entered the market with ever higher rents. However, within each vintage, median rents generally fell between 1990 and 2006 (adjusted for inflation) but rose sharply after the recession.
- Rising rents in the market exceeded income changes of renters, and so affordability broadly declined. Even though the older units provided the greatest refuge for low-income renters, their rent-to-income ratio grew higher each decade.
- A continued stream of new construction, even if it enters in higher price brackets, is important to the success of filtering in providing low-income shelter. The sharp reversal of filtering after 2011 corresponded to the sluggish increases in housing supply despite resurgent job growth in metropolitan areas.
- The decline in homeownership rates was an added deterrent to filtering in the post-recession era, in addition to the slow rate of construction, because so many would-be homeowners were diverted into competition for rental housing. For everyone percentage point decline in homeownership rates among the 25-to-34 age group a 0.4% point decline in the rate of filtering could be found.
- Overall, nationwide, filtering in good years produced a substantial boost in housing opportunity for low-income households in apartments. After 2011, the filtering growth in opportunity turned negative and the federal subsidized supply programs also were greatly diminished.
As dwellings age and their relative quality declines, so do the rents they command, and, accordingly, so does the income of the occupants. However, the notion of “affordability” may be an elusive goal for filtering to achieve. The inflation-adjusted increases in rents have far outpaced the growth of incomes in recent decades. Between 2000-2016, the median gross rent in the nation increased 63.3%, while the median household income of renters grew only 35.9%.
In addition to affordability pressures, renters now face a more basic obstacle, a severe shortage of housing opportunities. There is simply an inadequate supply of housing to accommodate all the households who may be seeking apartments, no matter the price. As a result, household formation is being cut back, young people are staying longer with roommates or in their parents’ spare bedrooms, and more people are becoming, literally, homeless.
For lack of supply, typical patterns may be blocked as prices rise, instead of decline, and households may search downward to lower-quality housing that is more affordable. In effect, housing units are elevated into a higher-income bracket. That can be described as reversed filtering or housing units filtering upward.
Filtering is in fact multifaceted, involving incomes, rents, housing quality, affordability and possibly including education, class or social group membership. The correlation of these dimensions greatly complicates their inclusion in the same analysis. In the debate over whether filtering “works,” the key indicator seems to be whether lower-income households benefit by gaining greater housing opportunities over time.
The NMHC report concludes that filtering can no longer be taken for granted as a “naturally occurring” source of affordable housing. The shortage crisis has caused all housing to be unaffordable, consuming a larger share of occupants’ incomes, even in the middle class, than considered acceptable. Filtered units are not affordable, but they are shelter, which is especially valued in a shortage. The downward filtering of housing opportunity can no longer be viewed as a permanent fact of life. In decades past it was the substantial flow of new construction, largely targeted to middle- and higher-income groups, that enabled the filtering process to operate. In the face of its current constriction, well below levels normally associated with employment growth, fresh appreciation for the broader benefits of housing construction is gaining.
The housing stock requires nurturing if we wish to avoid losses of low-income opportunity as well as a surge in homelessness. Direct expenditures for subsidized housing may be a required solution, and substantial increases certainly are warranted in proportion to the growing problems. Unfortunately, tenant subsidies have never been supplied sufficiently for all those in need, and now the needs are so much greater than before. In the face of always-limited public resources, policy makers should reexamine the filtering process as a crucial solution for expanding low-income access to housing.
Want to tweet about this article? Use hashtags #construction #IoT #AI #5G #cloud #machinelearning #bigdata #sustainability #futureofwork #infrastructure #housing #rentals