Tanzina Vega: Long before COVID-19, there was an affordable housing crisis in the United States and like many other inequities we face as a society, the pandemic has only served to exacerbate it. As people with the means and flexibility to work remotely have slowly left metro areas, rental prices for the high-end luxury apartments they once occupied have fallen. Meanwhile, at the other end of the housing spectrum, people who have seen their hours cut, lost wages, or lost jobs altogether are noticing an increase in rent. For more on what's driving this inequity, I'm joined by Catherine Rampell, an opinion columnist for The Washington Post. Catherine, welcome to The Takeaway.
Catherine Rampell: Great to be here.
Tanzina Vega: What does the rental market look like these days? I'm sitting in New York and looking at luxury apartments that people are saying that they can snatch up much more easily now, but tell us what the landscape really looks like.
Catherine Rampell: It really depends on what rental market you're talking about. Yes, at the high-end, luxury buildings with lots of amenities, new construction, that sort of thing, there are great bargain-basement deals to be had not just in New York, but in virtually every big metro area. On the other side of the spectrum, the lower-end apartments, so those that might be older, fewer amenities, more run-down, those places have either held steady in their rents or even increased. It's this strange bifurcation depending on the kind of neighborhood it is, the kind of building it is.
Tanzina Vega: Is this happening nationwide or is it happening in big cities only?
Catherine Rampell: I have national data from a company called CoStar and that is the general trend nationwide. There's some variation by city. For example, in San Francisco, prices have gone down across the board, whether you're living in the fancy ritzy housing or the lower end units, your prices have fallen, but even there the prices have gone down much more for the high-end housing. They're down about 20% for what CoStar calls 4 and 5-star housing. Whereas it's maybe around 3% or 4% for the lower quality units. Generally speaking, this is the pattern across the country. Again, each city has its own dynamics, its own quirks, and zoning restrictions, and everything else that might affect things but this is the basic pattern that we see.
Tanzina Vega: What's driving a lot of this change? Is it that there were too many luxury apartments? I know that in many big cities, and like I said, I'm talking to you from New York, there's just seems to be a glut of luxury apartments that weren't really being filled even before the pandemic. Is it just a question of supply or is there something else?
Catherine Rampell: There are a few different things going on. At the top end of the market, yes, there was a lot of new luxury that came on the market. They may have been years in the pipeline that happened to become available last year, so there was an increase in supply. Meanwhile, there was also a decrease in demand because anybody who had the means to leave dense urban housing, which for various reasons was no longer as attractive as it once was when all of the perks of city living or many of them had been shut down, restaurants, bars, museums, what have you, those people left.
Many of them, not everyone obviously, but a lot of people decided I've always been on the fence about buying a house and moving to the burbs, maybe now is the time. A lot of people who had been in these higher-end luxury buildings, particularly if they could work remotely or they had children who were in virtual school, decided now is the time to find more space. Many of them ended up buying houses.
The housing purchase market is a totally different ball game that's been very hot over the past year. There's been a shortage of inventory because all these people are leaving. Those two things combined, more supply, less demand, obviously leads to lower prices. Vacancy rates are up too. At the bottom end of the market, a whole bunch of other things are going on.
Tanzina Vega: Let's talk a little bit about that because there have been stressors on small landlords, for example. There have been rent moratoriums that have been put in place for people who are struggling to pay their rent, particularly low-income folks who might be struggling. Then you have landlords who may own one building who are saying that they too are struggling. What's happening at the lower end of the market, Catherine?
Catherine Rampell: There are likely a few different stories or a few different forces, I should say, that may be driving up rents at the bottom. One is that as you point out, there's an eviction moratorium, which is generally a good thing for public health, a good thing for the financial security and housing security of the people who have lost their jobs, who might face displacement or even homelessness.
On the flip side of that, if you're a landlord who has, let's say six units, and one of your tenants cannot pay and will not be able to pay, and you don't have the option of getting that person out and getting in a new tenant, and your margins are already probably pretty low if you're a landlord at the bottom end of the market because those rents are close to operating costs, you might try to offset your losses from that one tenant by raising prices on everyone else. If one guy can't pay, then extract more from the people who can. That's one possible factor.
Another is that with the recession, predominantly hitting lower-income, moderate-income workers, there are a lot of people who decided, "Now I really need to save money on my single biggest monthly expense, rent." They're trying to move down the housing ladder, they're trying to downsize. They're trying to go to maybe lower-quality buildings with fewer amenities. There was already, as you point out Tanzina, a shortage of those affordable units. If you have more people chasing after the same amount of buildings, which were too few, to begin with, they end up bidding up rents.
Those things combined are probably driving some of this. Then finally, if you are a lower-income tenant, you just don't have a lot of bargaining power if your landlord, for whatever reason, maybe because they have people who can't pay or their expenses have gone up or whatever, if they ask you for more rent because you just don't have that many options. There are not enough affordable housing units and it's expensive to move, particularly during a pandemic. You need a security deposit.
Maybe your income has gone down and you no longer meet the threshold of three times rent as your income, which a lot of landlords have, so people are kind of stuck. All of those factors combined mean that lower-income tenants, the people who have obviously suffered the most in terms of job loss, are also having to deal with the biggest increases in, again, their single biggest monthly expense, their rent.
Tanzina Vega: We talked about, Catherine, what's driving the pressure particularly on the lower end of the housing market. We also know that it's a challenge to build more affordable housing. Why is that? Are we going to see more affordable housing units coming on the market as a result of what the pandemic has wrought?
Catherine Rampell: Anyone who has spent their lives working on housing issues will tell you, and I interviewed many of them for this piece, that it is always a struggle to get more affordable units however defined onto the market. There are a lot of barriers in the way. One is that it's expensive to build. If the margins are going to be smaller, if the returns from building a lower-end unit are smaller, then developers are going to gravitate towards higher-end buildings.
Another is even if you have subsidies to try to make the economics work to say, "Okay, we'll give you a tax abatement or whatever," there are often zoning or other regulatory issues. Even if you get rid of those, there's often quite a bit of nimbyism. You see this all around the country in blue states and red states, that people don't want new construction and they often, especially don't want new affordable housing. They don't like the idea of a bunch of poor people, as they can see them, moving into their neighborhood. There are many barriers, both political, regulatory, economic that make it hard to get more units that are affordable to people onto the market.
Tanzina Vega: We have a new HUD secretary, Marcia Fudge, has she or anyone in the federal government talked about alleviating this problem long-term, or is this something that's solely in the hands of the states right now?
Catherine Rampell: A lot of the regulatory issues and a lot of the hard work and strategizing about this really needs to happen at the state and local level. That said, the FEDS could create better incentives to encourage state municipal officials, whoever, to make this a priority. There are, I should say, I think signs of hope that some of those complicated obstacles that I just talked about that make it harder to build or create new supply of affordable housing, that those could be alleviated.
There are already cities and states that are doing creative things because of the recession and because of the migration trends that we were just talking about. They're kind of reclaiming or converting existing buildings into additional housing. Some of them did it just as a temporary measure because of the pandemic, they converted a motel or whatever into housing for people who would have otherwise been homeless.
States and cities could think creatively about doing more of that, particularly if you find that in the years ahead, some of the people who left cities end up staying in the suburbs, or there are other forces that lead to more buildings becoming vacant and available for other uses. That's difficult, but not all office park buildings can be turned into housing, for example, but some buildings can be converted and it's relatively easy to see how.
There are other things that give me hope in any event, that now is a moment when we could have more political momentum, I should say, for affordable housing and that's that I think we're in a moment right now where people seem to have greater faith that government can sometimes get stuff done. There's a lot of cynicism about that in the United States, I think that's in our DNA as a country, but you look at how popular the American rescue plan was, it remains to be. The Biden administration has obviously been advocating itself as a brain trust of people who can help come up with solutions to some of these long-standing problems.
Tanzina Vega: Catherine Rampell is an opinion columnist for The Washington Post. Catherine, thanks so much.
Catherine Rampell: Thank you.
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