How Much Longer Can Millennials Rent?
America is facing a housing crisis, but this time it's renters and not homeowners who need a bailout. About 100 million Americans, including most students and people under 25, live in rental housing such as apartments. Yet affordable rental housing is on the decline.
For a generation so widely burdened by student debt, a shrinking supply of affordable housing is a new problem no one can afford.
Financial experts recommend that no more than 30 percent of one's income should be spent on an apartment yet nearly 53 percent of renter households spend more than a third of their income on housing, and one in four households spend more than half their income on housing.
The rational response would be to expand the supply of rental housing, but the number of affordable and adequate rental units has actually decreased over the past decade. Over the next four years, the United States will produce about 200,000 rental units per year, while the number of renters grows at a rate closer to 400,000 per year.
Much of this jump in demand comes from Millennials, who value travel and mobility over the permanence and financial strain of home ownership. But the extra demand they are creating is just one factor contributing to the problem as they are facing a still-recovering job market and a broken rental housing market. Our generation is suffering the consequences of our nation's failure to invest in affordable rental stock.
The rental market might have collapsed entirely during the Great Recession if it weren't for government assistance. But now, as the fiscal cliff approaches, officials at the Federal Housing Finance Agency and politicians are considering dissolving Fannie and Freddie’s rental housing business and cutting rental housing programs. This would reduce construction of new rental units, and would increase rents for millions of Millennials and low-to-moderate income Americans.
Instead, we should pursue smart reforms for financing multifamily rental housing by creating a sustainable and stable market that brings in private capital. At the federal level, Fannie Mae and Freddie Mac should continue working in the multifamily sphere, while reforms in the private sector should encourage firms to build affordable rental housing.
At the state and local level, leaders would do well to follow Gov. Deval Patrick's (D-Mass.) example. Patrick spearheaded an initiative to create 10,000 rental housing units per year through 2020 in his state. This exemplary plan, called Compact Neighborhoods, will help build vibrant, growing communities by placing high-density housing near public transportation, workplaces, and city centers.
And while it's true that most Millennials plan to buy a house in the long-term, renting is the option most are choosing now and the need for action has never been greater.
As we recover from the Great Recession, building policies that focus on rental housing and creating communities for young people are good for our future and good for the economy's growth.
Sam Hughes is an economic interns with the Center for American Progress