December 7, 2018

In recent years, housing has become less affordable for low- and moderate-income residents across the United States. New Federal Reserve research provides insight into how this trend is playing out across the Southeast.

Andrew Dumont, a senior community development analyst at the Federal Reserve Board of Governors in Washington, DC, examined the need for rural rental housing across the country and the state of federal programs intended to foster the development and upkeep of affordable housing. In a recent report, he explained that while the burdens of high rental housing costs are generally considered a problem for people in urban areas, rural households have also been forced to spend an increased amount of their income on rent since the Great Recession.

For example, the percentage of renter households in U.S. cities that face a housing cost burden—defined as spending more than 30 percent of their gross income on lodging expenses—rose to 49.3 percent in 2014 from 47.3 percent in 2009, according to an analysis of data from the Census Bureau's American Community Survey. In rural areas, the percentage of renters facing housing cost burdens jumped to 41.7 percent from 39.3 percent during the same period.

Dumont described how "households forced to spend a significant share of their income on housing expenses often forgo spending on other important needs, such as health care, education for themselves or their children, and nutritious food." He further explained that "making these trade-offs can help these households balance their budgets in the short term, but often at long-term expense to themselves and the economy overall by negatively affecting their health and skill level, thereby depressing their earnings and overall productivity."

The foreclosure crisis that began last decade produced more renters in both urban and rural areas across the nation, which placed further pressure on the already limited supply of affordable rural rental housing, Dumont's analysis showed. This increase in demand for affordable housing came at a time when renter incomes were stagnating and rents were increasing.

The increased unaffordability of rental housing is hitting rural renters hard in the Southeast. From 2009 to 2016, the percentage of rural renter households in five of the six states in the Federal Reserve’s Sixth District—Alabama, Florida, Georgia, Louisiana, and Tennessee—that had any housing cost burden rose, according to data from Dumont's study. Only Mississippi had a decline during the period.

Atlanta Fed paper looks at housing unaffordability in Southeast

This summer, a separate report from the Atlanta Fed and the Shimberg Center for Housing Studies at the University of Florida found that about three million renter households in the Atlanta Fed's district, or 47 percent, devote more than 30 percent of their income to housing, based on U.S. Census Bureau data. (Unlike Dumont's paper, this paper considers both rural renter households as well as those in urban areas.) Among low-income renter households, more than two-thirds, or 69 percent, are cost burdened, the study indicated. It cited a shortage of more than 1.2 million units of affordable housing for people who earn 50 percent or less of the median income across the Atlanta Fed's district.

Among southeastern states, Florida's levels of unaffordability stood out. Fifty-one percent of the Sunshine State's renter households devote 30 percent or more of their income to housing costs. Of Florida's renter households that earn 30 percent to 50 percent of the area median income, 62 percent pay more than half of their income in rent, data from the Atlanta Fed study show.

When examining metropolitan statistical areas in the Southeast, Florida had some of the highest cost-burdened renter households across all income levels. In Miami, for example, 66 percent of moderate-income households (those earning 80 to 120 percent of the area median income) and 19 percent of upper-income residences (those making more than 120 percent of the area median income) are cost burdened. Compounding this problem, Florida had the smallest number of affordable housing units available per 100 renter households at all income levels compared with other Southeast states, the data showed.

Large, small metros alike squeezed

"Alabama, Mississippi, Georgia—we traditionally think of these as affordable places to live," said Ann Carpenter, one of the writers of the Atlanta Fed study. "That's just not the case as it used to be."

As for the other states in the Atlanta Fed's district, the share of total renter households that are cost-burdened ranged from 41 percent in Alabama to 46 percent in Louisiana. Overall cost-burdened rates for rental households stood at 45 percent in Georgia and 42 percent in both Mississippi and Tennessee. Georgia and Louisiana also had higher percentages of renter households that devote more than 50 percent of their income to housing, at 53 percent and 49 percent, respectively.

Carpenter said the dominance of service-oriented jobs in Florida that tend to pay lower salaries helps explain the cost squeeze felt by residents. “You have a huge service industry at the lower end of the income spectrum, and housing costs just keep skyrocketing,” she said.

Around the Southeast, cities such as Atlanta and Nashville have been losing more than a thousand units a year with monthly rents of $750 or below, 2016 Atlanta Fed research noted. Furthermore, data from the National Housing Preservation Database indicate that about 59,255 rental units in the Atlanta Fed’s district that were built with subsidies are at risk of converting to market rates over the next five years if no additional investments are made to preserve their affordability mandates.

"There's a lot of instability as a result of the lack of affordable rental housing," Carpenter said. Difficulties in securing housing priced within their means forces people to move around more often (for instance, because of an eviction), worsening health and educational outcomes, she added.

Affordable housing resources strained

A big hurdle to expanding the supply of affordable housing in rural communities, Dumont found, is that many of the programs that have historically provided resources to help build or preserve affordable housing units have had funding cuts. Also, the gap between what it costs to develop affordable housing in rural areas and what low-income residents there can afford is an obstacle. Historically, this chasm has been bridged with federal and state resources, but they are increasingly strained.

One program that has proven resilient in the face of funding cuts elsewhere has been the Low Income Housing Tax Credit (LIHTC). The LIHTC, created under the Tax Reform Act of 1986, is the primary means to develop affordable housing in the United States. It lets state and local agencies offer financial incentives to obtain, refurbish, or build rental housing for low-income residents and provides tax credits for specific projects whose rents are priced below market. Between 1995 and 2016, an annual average of more than 1,435 projects and about 108,800 units were placed in service, according to the U.S. Department of Housing and Urban Development.

Though the LIHTC is an effective tool overall, "in some communities and for some populations, especially the very low-income, the expenses associated with developing and operating a LIHTC property on an ongoing basis can be greater than the maximum rents that can be charged for the associated rental units" because of rent caps imposed, the Dumont paper states. "As a result, the LIHTC is not an effective way of serving the rental housing needs of all low-income households by itself" but requires complementary resources.

In terms of affordable housing programs that cater to rural areas, one of the biggest is the U.S. Department of Agriculture's Section 515, which makes loans to provide lodging for the low income, elderly, and people with disabilities. Since the program began, it has aided the construction of more than 533,000 rental units, with about 416,000 still in use, according to Dumont's research. However, he added, with funding for these and other similar initiatives at very low levels, the 515 program has produced virtually no new units since 2011.

Dumont's analysis of LIHTC data showed that some states appear to be faring better than others in meeting the need for affordable housing in rural areas. His examination indicated mixed results in the Southeast. For example, his report showed that for LIHTC projects placed into service from 2010 to 2014, rural areas were overrepresented in the state of Alabama but underrepresented in Mississippi.

photo of Karen Jacobs
Karen Jacobs

Staff writer for Economy Matters