A new one report of Georgetown Law School’s Center on Poverty and Inequality says that in markets where developers built a lot of housing, rents for low-income units rose more than for other units. The researchers published their research in a New York Times article.
But the actual rent increases may have been smaller than the report made them appear, and in the context of rising costs, they should surprise absolutely no one.
They are also not an argument against a robust expansion of the housing supply. To their credit, the researchers do not reject the abundance strategy. But they do suggest that abundance does not help low-income renters.
I agree that very poor people need more than enough supply because their income is not enough to support any form of decent housing. This means that they need income support, such as rental vouchers.
But they also need a wide range of housing to accommodate people who earn more. Otherwise they will compete with them – a lost cause.
My first point of interest with the report is the title: “Abundance for whom?” To me, those are like fingernails on a chalkboard. Would it have killed them if they had said, ‘Abundance for whom?’
Then I have the LinkedIn message by Lelaine Bigelow, the executive director of the center behind the study:
“For years the story has been simple: just build more homes and prices will fall. But our analysis of six fast-growing metros shows it’s not that simple.
“Take Phoenix. The city built aggressively. New units had a vacancy rate of over 9%. Yet rents for extremely low-income households rose 26.7%, while rents for high-income households actually fell 5.3%.”
The alleged increase lasted eight years, from 2015 to 2023. And the “high income” statistic cited by Bigelow actually included middle- and middle-income households. These groups make up the majority of tenants.
That’s the first reason why the study’s numbers are—to use Bigelow’s words—”not that simple.”
The bigger reason is that researchers did not adjust for inflation by using the general consumer price index, but by using CPI for local rents for the metropolitan area in question.
Stay with me here, folks. Mathematical concept ahead!
Rent inflation in the Phoenix market was very low, perhaps even negative, from 2015 to 2023, thanks to aggressive construction for middle-to-upper income families.
But that rent inflation makes even modest nominal rent increases paid by extremely low-income households (those earning $30,000 or less) look very large — in this case, 26.7 percent.
“If you told Class C/D operators in Phoenix that rents increased 26.7 percent during that period, they would look at you like you were crazy,” says housing economist Jay Parsons. commented under Bigelow’s post.
Let’s take a look:
Phoenix built like crazy, resulting in a real (inflation-adjusted) rent drop for most households. That’s a clear win for housing affordability.
But because so many rents have fallen, if your household’s rent goes up, the relative increase will be a large percentage jump.
And why have rents for the cheapest units increased?
Lisa Gomez, CEO of major New York City real estate firm L&M Development Partners, answered that question:
“It’s as much about operating costs as it is about offering,” Gomez wrote on LinkedIn. “Each area has its own operating economy and you need to have corresponding revenues to cover these.”
Owners of the cheapest rental properties are much more sensitive to these increases than owners of the more expensive rental properties. Those landlords must either raise the rent to cover their costs or close the unit (which would remove it from the data).
Unfortunately, the study did not compare rent increases with increases in operating costs, such as utilities, insurance, property taxes and maintenance. But they probably were lower.
The bottom line is that in markets with an abundance of housing, most rents remained low due to competition. As operating costs rose, renters with the lowest incomes saw rents rise relative to rents for higher incomes. And without the glut to meet housing demand, their rents would have risen much more.
“We need to do MUCH more to help low-income families access safe, quality housing (more subsidized housing, vouchers, etc.),” Parsons wrote“but simply requiring us to build at a lower market rate would not provide any material boost to these families, because these projects will not deliver the rent levels needed.”
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