A rental-housing shortage squeezes poor and young
Washington — The tight US rental housing market -- already reaching a "crisis situation" in some communities -- is expected to get worse during the 1980s, barring significant changes in tax and housing laws.
For million of low- and middle-income families, as well as younger couples, that poses the unhappy dilemma of soaring rents and fewer alternative apartments to choose from. And, an increasing trend toward conversion of existing rental properties to condominiums as landlords seek more favorable tax treatment only adds to the problem.
Currently, apartment vacancy rates in a number of major US cities are in the 2 to 4 percent range.
Meantime, condominium conversions the past year or so have been running at an annual rate of around 130,000 units, compared with as few as 50,000 units in 1977.
According to analysis by the National Association of Home Builders, only 274, 000 rental housing units will be built during 1980. That compares with 484,000 units in 1978 (a peak year for the housing industry), and 375,000 units in 1979.
In 1981, according to the national association, some 303,000 rental units will be built.
But that slight increase -- from 274,000 units this year -- will still trail far behind the expected increase in total housing starts, and even farther behind the projected 60 percent increase over 1980 in single-family housing units.
Some federal officials here with the Department of Housing and Urban Development (HUD) in fact, are privately concerned that the total number of new housing starts could be even lower this year and in 1981 because of the slide into recession.
Yet, that comes just as the "baby boom" generation of the 1950s is entering the homebuying age.
Some lawmakers here, such as Maryland Democrat Michael D. Barnes, are now labeling the upcoming shortage of rental units a potential "national emergency."
Two major contributors to the decline in rental housing appear to be rent control in some areas and the US tax code. A report prepared by the Congressional Research Service (CRS) earlier this year at Representative Barne's request, as well as a US General Accounting Office (GAO) report released last November, both reached this conclusion.
Though some renters are high-income families, private sector firms that build and operate rental units basically serve low and moderate income families. The median income of renters in the late 1970s, for example, was around $9,200, compared with $17,800 for homeowners.
However, rent levels in recent years have tended to lag behind general increases in the inflation rate. Thus, most rental unit owners -- who deal with lower or more modest income wage warners -- are limited in what they can charge to offset inflation.
At the same time, with steep inflation and high interest rates, homeowners are finding more valuable their deductions of mortgage interest costs and real estate taxes from their federal income taxes -- deductions that will cost the US Treasury $19 billion in 1980 alone. This has boosted the demand for newly converted condominiums.
To offset the projected decline in rental housing, a number of legislative proposals are being introduced in Congress. They would provide special tax incentives to builders or would allow renters to deduct from income taxes that portion of their rent that is used by the owner for mortgage and property tax payments.
One more "modest" variation of the deduction concept has been boosted in Congress by Rep. Herbert E. Harris II (D) of Virginia, whose constituency includes such condominium and rent-oriented communities as Alexandria and Fairfax County. Mr. Harris would allow renters to make a tax deduction for property-tax payments also made by the owner -- but not for mortgage interest payments.
The loss to the Treasury, he estimates, would run around $2.3 billion annually.
In some communities, meanwhile, local laws are currently putting a check on condominium conversions.
Denver, Boston, and Washington, D.C., now give tenants the right to have first crack at buying their building before a prospective conversion. Late last year Philadelphia imposed a year-and-a-half ban on condo conversions. Los Angeles and San Francisco have both imposed limited time frames on conversions.
But all the same, housing experts here point out, such restrictions merely "hold" in place some of the existing rental housing units. They do not encourage new construction -- which is where the more pressing need exists.
Housing experts point out that the low 2 to 4 percent vacancy rate in many communities is already below the 5 percent level traditionally used as a yardstick for a "normal" mobility rate.