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August 26, 2020

Rental Affordability Reexamined

Our latest study shows that fewer than 10% of rental units are affordable to renter households earning 50% of median renter income (MRI).  The study looks at a new way to measure affordability that factors in a boost in high-income renters.   

Though prior analyses have shown strong income growth among renters in recent years, the report finds those numbers are skewed because there are now more high-income households among renters and the number of wage earners living in renter households has increased. Taking these changes in renter household composition into account, the study finds that despite aggregate statistics that suggest renter household income grew relative to rent growth, households are no better off as the availability of affordable housing for individual households has not improved in the past decade. 

“Rental affordability continues to be a major issue as demand remains high and supply of affordable housing is both insufficient and more likely to decline than it is to grow,” said Steve Guggenmos, vice president of Multifamily Research and Modeling at Freddie Mac.  “Our research demonstrates the need to focus on and understand the complexities of rental affordability as we continue to address the affordable housing crisis in this country.”

The paper outlines several key findings:

  • In every year since 2010, fewer than 10% of all rental units are affordable to households making 50% or less of MRI. That’s more than four times lower than when using the most common income measure: median family income.
  • Shifting household composition partly explains why affordability appears to be getting better over time. The arrival of higher income households into the renter group, including former owners with high incomes compared with most renters, drove up income for this new renting cohort.
  • The number of wage earners in each renter household increased by 2.4% between 2010-2018, which increased household income without boosting the income of individual renters.

Correcting for these factors relevant to income results, affordability levels have not improved when using renter income but instead remain essentially flat and are extremely low in all periods.

Read the study.

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