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Buyers looking to purchase a new home in many areas of the country are facing skyrocketing home prices. In some hot markets, buyers are making all-cash offers thousands of dollars above the asking price. Many of these offers are being made without even an inspection of the property. But what does this frenzy in the homebuying market mean for low-income renters?
In short, current housing market trends are making it harder for low-income renters to find affordable apartments. At the same time, the limited supply of rental housing has pushed rents higher just as the country starts to re-open from the coronavirus pandemic.
How is the housing supply being squeezed?
Before the pandemic, there was already a shortage of affordable housing. According to the National Low-Income Housing Coalition (NLIHC), there are only 37 affordable rentals for every 100 extremely low-income households.
The pandemic’s economic crisis has also led to a shortage in building supplies and construction labor. This has raised the cost of new construction and slowed down building new single-family homes and apartment buildings alike.
Corporate investors are also getting into the game. Pension funds, real estate holding companies, and other corporate entities are out-bidding ordinary buyers. Corporate investors are also able to purchase whole subdivisions from homebuilders. The builders can make more profit, while having to deal with only one closing rather than many individual buyers.
Corporate buyers may “flip” many of these homes, making minor improvements and putting them back on the market at a higher price. Increasingly, corporate buyers will just rent out the homes that would have otherwise been available for first-time homebuyers.
How is this situation affecting the rental market?
Many first-time homebuyers have had to put off looking for a home because prices have risen too much. Many of these young households are choosing to stay in their rentals, saving money while they wait for home prices to come down. This leaves fewer affordable rental units for low-income households.
Homeowners who take advantage of the hot market to sell their homes at a higher price may find themselves looking for rental housing. Although sellers are getting record offers, other homes are rising in price too. Even with profits from a sale, many sellers are deciding to rent for a while. Their hope is to afford a nicer home once the market cools off and prices drop.
Meleah Spencer is CEO of The Kitchen, Inc., in Springfield, Missouri. Her organization assists homeless people and provides affordable housing in the Springfield area. Addressing a NLIHC webinar on July 19, she said that the hot market was making it harder to help their clients find rental housing.
Spencer pointed to more rental competition from sellers looking to wait for lower home prices. She also observed that many people who did not qualify for low-income affordable housing before the pandemic lost income or jobs. These people are now also competing for affordable rental housing. “We’re seeing an audience enter the low-income affordable housing market that we haven’t seen before,” she said.
These new entrants to the rental housing market over homeless clients trying to find an apartment. Spencer noted that they “are more attractive on paper” than The Kitchen’s typical client facing homelessness. They often do not have past evictions, felony records, or other issues that make landlords reluctant to lease to low-income renters.
How does the hot market affect low-income renters, then?
As purchase prices continue to rise, fewer first-time buyers can get into homes. Sellers cannot afford new homes right now and are turning to rentals. New construction for both single-family homes and apartments is slowed because of the pandemic.
This means there are fewer affordable rental homes available for a growing number of renters. Increasing demand and scarce supply mean that rents are going up around the country. Low-income renters will be paying more for rent or having to settle for poor quality homes.
In addition, rising rents are likely to keep inflation up. This means that everyday items like food, gas, and clothing will go up in price. This will hit low-income renters harder than middle class workers.
These trends in the homeownership and rental markets also hurt low-income renters in the long run. They are increasing the country’s already sizable wealth gap. Homeownership is the number one source of wealth for most Americans. The current market is squeezing many people out of homeownership and swelling the ranks of renters. Instead of growing their assets like homeowners, renters will be left out.
The pandemic has only accelerated an affordable housing crisis that has been building for decades. The only solution is to create millions of new affordable rental homes. President Biden has proposed billions of dollars for affordable housing in the American Jobs Plan. It will be up to Congress to make affordable housing a priority as it debates a new infrastructure bill and next year’s federal budget.