Neighborhood Transformation

Neighborhood Transformation
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May 5, 2011 - Bloomberg Businessweek

Miami Renters Feel the Heat
As income growth stagnates, rising housing costs strain renters around the country. Miami renters have it the worst

Home prices may have plummeted in Miami, but the rising cost to rent has become an unbearable burden for more low- and middle-income households in the area. City of Miami Commissioner Francis Suarez says his office receives more inquiries about affordable housing than any other issue. When Miami-Dade County opened a lottery for public housing and housing vouchers in 2008, he says, 70,000 people applied within 30 days. At a turnover rate of about 1,400 units per year under existing funding, "it would take 50 years for the demand created in 30 days to be satisfied," he says.

The problem spreads well beyond the city. David O. Deutch, partner at Pinnacle Housing Group, which has built about 3,000 affordable housing units in Miami-Dade County, says, "Central and north Dade County have a voracious need for affordable housing." The occupancy rate in these properties, whose rents range from about $700 per month for a one-bedroom to $960 for a three-bedroom, stays at about 97 percent, he says. According to apartment market research firm AXOIMetrics, the average effective rent (which includes concessions) in Miami is $1,269 per month. In the U.S. as a whole, it's $964.

While renters in such high-cost cities as New York and San Francisco grumble about how much they pay their landlords every month, residents in the Miami, McAllen (Tex.), and Detroit metro areas are actually more strained, according to a new report by Harvard University's Joint Center for Housing Studies.

More Than Half Your Income

Metro Miami has the greatest share of renters nationwide who pay more than half of their income to rent. The share reached 34.2 percent in 2009, up from 26 percent in 2000, as growth of real household income stagnated and median rent in the area, adjusted for inflation, rose 22.2 percent during that period, according to the Joint Center report. In McAllen, the proportion of severely burdened renters rose to 33.1 percent and in Detroit to 32.8 percent.

"The impact is on what decisions families have to make. They will spend less on things that are important to their well-being, such as health care, food, and savings," says Chris Herbert, research director at the Joint Center. "There are also tradeoffs on the types of places they occupy and where they live, which also affects other life outcomes" and access to jobs, schools, and other opportunities, he adds.

Matthew Greer, chief executive of Carlisle Development Group—Florida's biggest developer of affordable housing with about 4,000 affordable rental units in the Miami metro area—says, "It's not bad to be a lifelong renter, but there's something ignoble for [a government] to say you will live and die here, but you'll never live comfortably, or you'll never be able to live in what the federal government considers to be a reasonable home or pay a reasonable amount for rent."

Decline in Low-Cost Housing

In the past few decades, rental affordability has become a widespread problem. Households paying more than 30 percent of income for rent and utilities are considered moderately cost-burdened, and those paying more than half of income are severely cost-burdened. In 1960, about one-quarter of renters in the U.S. were at least moderately burdened, including 12 percent with a severe burden, according to the Joint Center. By 2009, the rate doubled to nearly half of renters with at least a moderate burden, including 26 percent with a severe burden.

The problem is that rent levels have grown faster than renter income. Median gross rent (rent and utilities) in the U.S. climbed nearly 10 percent, after adjusting for inflation, from 1997 to 2007, according to the Joint Center report. Real median renter income in that period barely changed.

While many Americans shifted to homeownership in the past decade, easing demand for rental housing somewhat, median rent still rose as thousands of low-cost units were demolished: The supply of low-cost units renting for less than $400 dropped 28 percent from 1999 to 2009, according to the Joint Center. Also, developers focused on building new high-end units with unprecedented asking rents, states a report by the Center for Housing Policy, a Washington (D.C.) research group.

A report by the Miami-Dade County Department of Planning and Zoning shows that gross rent in the county from 1980 to 2000 was well below the 30 percent affordability threshold, but costs escalated quickly over the next few years. By 2006, the average renter was spending more than 27 percent of income on rent, and the share of cost-burdened renters rose to 64.5 percent, from 47.1 percent in 2000.

Strain on Middle-Income Renters

Of course, low-income households represent a large share of severely cost-burdened households, but more middle-income earners are also under pressure. The share of moderately and severely burdened middle-income renter households in the U.S. rose from 4.3 percent in 1960 to 10.2 percent in 2000, according to the Joint Center. That rate more than doubled, to 22.6 percent, by 2009.

In metro Miami—where the U.S. Bureau of Labor Statistics estimates the jobless rate reached 11.5 percent in 2010—42 percent of working households (both owners and renters) were severely cost-burdened in 2009, according to the Center for Housing Policy.

Still, middle-income renters currently receive less help than low-income renters. Deutch says the population earning 60 percent to 120 percent of area median income doesn't get much attention.

Tax Credits for Developers

Developers' ability to add affordable housing supply depends heavily on government support, according to Jeff Goldstein, executive vice-president and chief operating officer at Boston Capital, the country's largest apartment owner and an investor in affordable multifamily housing.

Through the Low Income Housing Tax Credit program, the federal government subsidizes the private-sector development of affordable rental housing for low-income households. The federal government allocates credits to each state based on population, and state housing authorities decide how the credits are awarded.

The tax credit is the critical resource for building affordable rental housing and currently "the only viable incentive to produce new affordable housing," says Goldstein, as it allows apartment owners to drive rents down. While profits on tax credit projects are limited, the subsidy makes affordable housing a stable business.

The Obama Administration's budget for its fiscal year 2012 includes a proposal that would effectively raise the income limit for a portion of the tax credit housing units in a given development from 60 percent of area median income to 80 percent, capturing some of the need from middle-income renters, according to Michael Novogradac, who heads the San Francisco accounting and consulting firm Novogradac. Funding for housing, however, is being reevaluated as budgets are cut.

As much as the tax credit is the major enabler for developing affordable new housing, it is also a limitation: Only a finite number of government dollars is budgeted for the program each year. Carlisle's Greer says demand in Miami is so large that even if developers had the resources to build five times as many units per year in the area, thousands would still be in need.

As more Americans are expected to rent in the next few years until restrictions on homeownership ease, increases in rent levels are expected to continue outpacing income growth. Demand for rentals also may continue to grow as the preference for homeownership changes. Unfortunately for cost-burdened renters, Greer says, as this happens, "the supply of affordable housing near the job core or by rapid transit lines is going to be unbelievably insufficient."

Click here to see the U.S. cities that are toughest for renters