There’s a reason it’s impossible to avoid the affordability topic these days, and it has nothing to do with bloggers, press releases or market-research firms.
It’s got to do with renters, plenty of them, struggling to pay the rent.
Now, we all know conventional thinking that households shouldn’t spend more than 30% of their income on housing. Increasingly, many approach or exceed that threshold, various studies such as this Harvard report show.
But according to MPF Research, the median market-rate apartment household pays only 21% of its income on rent, a stat similar to what the publicly traded REITs report.
So, MPF concludes, there’s no affordability problem, nothing to see here, move along …
Hold up a sec, let’s talk.
Disguise the Limit
First, we have to define the terms—“market rate,” vs. “affordable”—and acknowledge that public REITs tend toward the higher end (though Home Properties was an outlier).
How did MPF arrive at that 21% rent-to-income ratio? The particular dataset (renter incomes) was dependent on how property managers code their own properties within RealPage software, MPF said.
OK, so what about “workforce” housing? Does MPF’s definition of “market-rate” factor-in area median incomes (AMIs)? Parsons said no, AMI is not a direct consideration in defining “market-rate.”
How about the smaller owner/operators out there, the mom-and-pops, the entrepreneurs, the lion’s share of our industry? Do we count those units and renters too?
“In the Sun Belt, the “mom and pop” apartment market is basically non-existent, but it’s the majority of the multifamily rental stock in much of the Northeast, Midwest and in the big West Coast cities,” said Jay Parsons, MPF's director of analytics and forecasts. “’Mom and pop’ is basically excluded from all the market data ...”
Fair enough, that’s like trying to count hay in a haystack. But if most of the units in our biggest markets are excluded (and we haven't even discussed single-family rentals) then it’s difficult to invest faith in anybody's rent-to-income ratio.
It’s a brutal science, defining “affordability," yet another struggle in trying to understand a highly fragmented industry. What do national trends mean for a hyper-local profession, where the 10 largest owners claim less than 15% market-share?
Yet, MPF’s assessment—based on institutional, investment-grade properties—paints the affordability issue with a very broad brush by focusing-in on a slim segment.
So it’s difficult to qualify “market-rate." That’s no reason to deny the affordability problem—it’s an opportunity to build more housing.
A Privileged Class
The median annual U.S. household income is about $54,000 (or $4,500 per month), and the average market-rate unit goes for about $1,240. So, conventional wisdom holds that renters are spending around 28% of income on rent.
MPF disagrees, saying the median market-rate renter is wealthier than the median U.S. household—“and the data tell us this is somewhat of a privileged class.”
First, that median monthly income ($4,500) is gross, not net, so it’s difficult to dismiss or verify. The rent-to-income ratio definitely moves up if we account for “take-home pay.” To do that, though, would be nearly impossible since it needs to factor-in so many different state and municipal tax rates.
But if you’re looking only at the top 10% of rental households in institutional-grade properties, then of course there’s no affordability problem.
“Anyone still worried about an affordability crisis should read through earnings-call transcripts from the public REIT,” MPF wrote.
I have to respectfully disagree—and not just because reading an earnings-call transcript is dull as dishwater—but because public REITs and Class A renters are not what people talk about when they talk about our nation's housing affordability problem.
So, it's difficult to qualify "market-rate," and to quantify units, that much we know.
The Real Problem
The real problem isn't the reliability of this or that statistic; the real problem is messaging.
When we parse the affordability debate for political reasons—to stave off rent-control measures, for instance—we muddy the waters and lose focus of the real enemy.
What are arguing about? We all agree that more affordable housing is needed.
The debate really is: How can we build more of it for those who aren’t privileged—the teachers, firefighters, and nurses living paycheck-to-paycheck: the majority of renters? And what about those a step below, the working-poor and disadvantaged, people wait-listed out into obscurity?
The cold hard truth is, government over-regulation—and under-funding—is often a contributing factor to the lack of affordable housing production.
So, let’s take that message to the public. If we can build more support for programs like the National Housing Trust Fund and the Low-Income Housing Tax Credit, then we can steer the rent-control debate to where it really belongs: developing units for people who need them the most.
We shouldn’t run from the affordability issue, playing defense behind select rent-to-income ratios. We should run toward it, pointing to overly prescriptive zoning regulations and shameful under-funding of housing programs as the real roadblock to affordability.
We can own this debate.
We just need to show the public that:
- We agree there's an affordability problem,
- We're trying to solve it, and
- Their elected officials—not us—are to blame for the lack of affordable housing.
If we demand more money for affordable housing production—with one very loud voice—then suddenly, the whole multifamily industry become a part of the solution, not the problem.
Who could argue with that?