NICHOLAS RETSINAS – ‘Huge part’ of market

Immigration and the growth in the number of young minority households will fuel demand for rental housing over the coming decade, according to a national study.

The study, released by Harvard University’s Joint Center for Housing Studies on Wednesday, illustrates why renting is a critical housing option in America. Some 34 million households rent and 95 percent of Americans have rented at some point in their lives, according to the report.

“It’s a huge part of the market,” said Nicholas Retsinas, director of the Joint Center.

“And it’s not just poor people that rent. It’s well-to-do people [who] rent by choice,” added Retsinas, noting that 20 percent of all renters have median annual incomes that exceed $60,000. “There’s a luxury market for renters, as well.”

Titled “America’s Rental Housing: Homes for a Diverse Nation,” the report is the first comprehensive study on rental housing in the nation, according to Retsinas.

Retsinas said that poor people are more likely to rent, but they are facing increasing pressure because of rising rents and a decrease in the stock of affordable rental units.

Among the lowest-income group of renters, some 70 percent pay more than half of their incomes for housing, and in high-cost areas such as Boston and San Francisco, even schoolteachers, nurses and other workers must pay more than 30 percent of their income to afford a modest two-bedroom apartment, the report shows.

The National Low Income Housing Coalition reported in December that a full-time worker would need to earn $15.78 an hour, more than three times the federal minimum wage, in order to afford a two-bedroom apartment and utilities in the private local housing market in every state of the country. In Connecticut’s New England neighbor Massachusetts, a full-time worker must earn $21.88 an hour to pay for a two-bedroom rental.

‘A Significant Shortage’

Compounding the problem is that approximately 200,000 rental housing units nationwide are being demolished each year, hurting millions of low-income families who are struggling to make rent payments, the Joint Center report found.

While programs like the Low Income Housing Tax Credit and other initiatives are helping to create over 100,000 new units of affordable rental housing each year, they are still not enough to make up for the number of low-rent units that are disappearing, the study asserts.

“We build about half as many rental units today as we did in the mid-’80s,” said Retsinas. The reason fewer rental units are being built, Retsinas said, is because many of the tax incentives that existed for developers to build rental housing subsided with tax reform in 1986.

“Federal, state and local governments all play a key role in ultimately determining whether our citizens are going to be able to look to a decent level of affordable rental housing,” said Jim Arbury, vice president of government relations for the National Multi Housing Council. “Congress must have tax and housing policies in place that encourage a steady stream of development.”

Arbury said housing programs like the Low Income Housing Tax Credit, a federal government program that funds the construction of new rental housing and the acquisition and rehabilitation of existing rental housing for low-income households, and Section 8, which provides vouchers for low-income tenants, are critical and should not be tinkered with.

“We need a continuation of the Low Income Housing Tax Credit and not place it in jeopardy when attempting tax or dividend reform,” he said. “We need to eliminate the onerous and unwise 25 percent depreciation recapture tax because buildings do in fact wear out. And we need full funding of Section 8 and other housing programs that help lower and fixed-income residents pay their rent.”

Nearly half of all rental production has been concentrated in the nation’s South over the last decade and another quarter in the West. Rising land prices and density restrictions have helped push up building costs. The median asking rent for a newly built apartment in 2004 stood at $974, up from $734 in 1994 and 37 percent more than median for all rentals, according to the report.

In Massachusetts, and particularly in the Greater Boston region, many rental units have been converted to condominiums and privately owned unsubsidized units have been transformed into market-rate housing, according to Aaron Gornstein, executive director of the Boston-based Citizens Housing and Planning Association

A significant number of two- and three-family homes in Boston and other cities in Massachusetts that have traditionally provided affordable rental apartments for families have been converted to condos, said Gornstein. And because property values have escalated dramatically, new owners of two- and three-family properties who haven’t converted the properties into condos are charging higher rents in order to meet monthly mortgage payments, he said.

While multifamily housing production in Massachusetts has increased over the last three years, particularly in the suburbs, because of Chapter 40B, the state’s so-called anti-snob zoning law, “we still have a significant shortage of affordable rental housing in the state and region,” he said.

Demand for rentals in Massachusetts comes from a variety of sources including students and recent college graduates who move on to professional jobs in the financial services, health care and high-tech fields. But demand for rental housing also comes from new immigrants who have helped temper the migration of residents from Massachusetts, according to industry watchers.

In recent years, policymakers have shifted their focus on increasing the homeownership rate and have largely ignored the importance of the rental sector, according to the report.

While Gornstein said he agrees that the national housing policy has emphasized homeownership in recent years, the Bay State’s housing policy still has a significant focus on rental housing.

“We need to get back to providing a more balanced national housing policy that includes rental housing,” he said.

The report recommends that more focus should be placed on loosening the restrictions on the development of affordable, higher-density rental housing in affluent suburbs and preserving older, lower-cost small multifamily and single-family rentals.

“The problem is that communities don’t want rental housing,” said Retsinas. “It’s unlikely that we can grow ourselves out of this problem.”

The rental housing report was sponsored by the John D. and Catherine T. MacArthur Foundation, which is trying to preserve affordable rental housing throughout the country through a $75 million initiative.