Academic journal article Cityscape

A Constant Quartile Mismatch Indicator of Changing Rental Affordability in U.S. Metropolitan Areas, 2000 to 2016

Academic journal article Cityscape

A Constant Quartile Mismatch Indicator of Changing Rental Affordability in U.S. Metropolitan Areas, 2000 to 2016

Article excerpt

Introduction

The housing affordability crisis in the United States has drawn widespread attention for its severity since the onset of the Great Recession. Although the affordability problem has been mounting since the 1970s, in recent years it reached its greatest intensity, only slightly moderated since 2011. More than 38 million U.S. households, including homeowners and renters, paid more than 30 percent of their income for housing in 2016 (JCHS, 2018). This means that nearly one-third of all U.S. households live in housing they cannot afford. The affordability problem is especially severe among renters. The Census Bureau's 2016 American Community Survey (Ruggles et al., 2018) finds that nearly one-half (47.5 percent) of all renters were cost burdened, paying 30 percent or more of their income on rent.

Lack of housing affordability has serious consequences for households and their communities, placing greater stress on family budgets and leading to reduced retail spending in the community (Gabriel and Painter, 2018). This is a problem that many urban residents complain about, including renters and homeowners. A recent study based on Fannie Mae's National Housing Survey1 shows that about one-half of housing consumers, both homeowners and renters, say that housing in their area has become less affordable-renters more so than homeowners (Fannie Mae, 2018). Among renters with incomes above the median for their area, 61 percent feel that housing has become less affordable in their area in the last few years, compared to 50 percent of renters with lower income (Fannie Mae, 2018: 17). In fact, the Joint Center for Housing Studies (JCHS) of Harvard University shows how the percent of renters paying more than 30 percent of income for rent is greatest for lower income groups, but that incidence of excessive rent burden has been steadily climbing upward in moderate- and middle-income groups (see figure 28 in JCHS, 2017).

The traditional means of measuring housing affordability is the ratio of housing expenses to household income, as used in relation to the 30-percent criterion threshold for defining excess cost burden.2 This concept of individual-based housing affordability is generalized to entire market areas by averaging the ratios of local residents; however, that indicator is not wholly adequate for a number of reasons to be discussed. As a result, at least three alternative indicators have been proposed previously, each of which has value for illuminating a different facet of the housing affordability problem. Those include indicators of low-income supply gap, actual availability of lowcost housing for low-income tenants (after subtracting moderate- and higher income occupants), and the shelter poverty measurement (computing housing cost burdens relative to residual income after budget allocations for food and other necessities).

The authors propose an additional indicator for evaluating housing affordability that meets measurement needs not addressed by the others. The constant quartile mismatch indicator compares changes in the rent and income distributions since a baseline year to describe growing affordability problems in both high- and low-price brackets. The features of this mismatch indicator are compared with the other affordability indicators and its advantages discussed. It does not replace any of the other indicators, but it may work particularly well in combination with the traditional rent burden indicator, whose faults it at least partly redresses.

In brief, the proposed mismatch indicator separately tracks trends in renters' incomes and rents paid, calling attention to which quartiles of the rent distribution have greater changes than the corresponding changes in income quartiles, using a constant, inflation-adjusted set of quartiles established for the base year, which is 2000 for this analysis. Those shifts are grounded in each metropolitan area's distribution of rents and incomes, corresponding to local residents' market experiences and distinguishing affordability problems caused by falling incomes from those caused by rising rents. …

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