WORST CASE

HOUSING NEEDS

2023 REPORT TO CONGRESS

EXECUTIVE SUMMARY

U.S. Department of Housing and Urban Development | Office of Policy Development and Research

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WORST CASE

HOUSING NEEDS

2023 REPORT TO CONGRESS

EXECUTIVE SUMMARY

Prepared for

U.S. Department of Housing and Urban Development Office of Policy Development and Research

Prepared by

Thyria A. Alvarez

Barry L. Steffen

May 2023

ACKNOWLEDGMENTS

ACKNOWLEDGMENTS

The authors would like to thank Brian McCabe, Peter Kahn, and Jennifer Turnham for their leadership and expert advice in this report.

WORST CASE HOUSING NEEDS 2023 REPORT TO CONGRESS: EXECUTIVE SUMMARY

FOREWORD

FOREWORD The U.S. Department of Housing and Urban Department (HUD) presents to the U.S. Congress its 19th biennial report on Worst Case Housing Needs. The 2023

report on Worst Case Housing Needs provides national data and analyzes the critical problems facing low-income renting families. The report primarily draws on data from the 2021 American Housing Survey (AHS) sponsored by HUD

and conducted by the U.S. Census Bureau. AHS is a comprehensive national longitudinal housing survey conducted since 1973.

Households with worst case housing needs are very low-income renters—

households with incomes at or below 50 percent of area median income—who do not receive government housing assistance and who pay more than one-half of their income toward rent, live in severely inadequate conditions, or both. The 2023 report finds that in 2021, during the COVID-19 pandemic, 8.53 million households had worst case housing needs. This is an increase in worst case needs from the record high of 8.48 million in 2011 and 70 percent greater than the 5.01 million households with worst case housing needs in 2001.

The increase in renters with worst case housing needs since the last biennial report was published (using data from 2019, when 7.77 million renters had worst case housing needs) reflected the declining supply of units affordable and available to very low-income renters at a time when demand was rising. There is an urgent need to expand the supply of both homes affordable for very low-income renters and for-sale homes for renters locked out of the sales market.

The 2021 AHS captured housing needs in mid-2021, about a year and a half after the onset of the COVID-19 pandemic and its economic fallout. The financial shock to the labor market and household incomes contributed to the substantial increases in worst case needs. The major federal legislative response to the pandemic, including enhanced unemployment benefits, stimulus payments, and the Emergency Rental Assistance program, reduced the economic hardship experienced by renter households in 2021 and beyond. The 2021 AHS did not count one-time Federal stimulus payments, such as those that were part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, in its measurement of household income, so such payments were not considered for the estimates of worst case housing needs1. Although the AHS data collection does not capture the effect of the one-time stimulus payments or the Emergency Rental Assistance program, government relief measures provided over the pandemic have helped to offset the dire needs of many families with worst case needs.

Demographic and pandemic-related economic factors greatly increased the number of very low-income renters needing affordable housing units, increasing 1 It would be difficult to capture emergency payments in the AHS, as the survey instrument must be tested and finalized in advance and the survey fieldwork occurs over an extended period.

Additionally, changes in the number and content of income questions can depress response rates and disrupt the year-to-year comparability of income reporting without necessarily capturing temporary income sources accurately.

WORST CASE HOUSING NEEDS 2023 REPORT TO CONGRESS: EXECUTIVE SUMMARY

1

FORWARD

competition and driving up rents in a housing market that has long acted only partially and slowly to meet the housing needs of this very low-income renter population, which accounts for about 15 percent of U.S. households.

No group of very low-income renters was immune from worst case needs if they lacked access both to housing assistance and to sufficient affordable units to ease market pressure on rents. Among the various demographic subgroups, geographic regions, and urban-suburban-rural categories examined in this report, the rate of worst case needs among very low-income renters ranged from 23.4 to 58.2 percent. Two geographic variables explain much of this variation: first, places with more adequate supply than others have a greater share of unsubsidized very low-income renters who are free of severe cost burdens, and second, places with higher rates of housing assistance have less pressure on the most affordable housing units in the local housing supply.

This variation also provides the key to ending worst case housing needs—

increasing affordable housing through both more supply and more rental assistance. This report finds that in 2021, only 57 affordable units (including those with rental assistance) were available for every 100 very low-income renter households. Only 36 affordable units were available for every 100 extremely low-income renter households. HUD is committed to ending worst case housing needs and homelessness in America by increasing affordable housing access.

The serious scarcity of housing units affordable to the most vulnerable households and hard-working families makes it essential to prioritize production of affordable units, reducing regulatory barriers to affordable housing production and providing technical assistance to local governments to assist in removing barriers that drive up housing costs. Providing income supports to very low-income renters can also help address worst case needs. As these longer-term strategies take effect and as the nation emerges from the pandemic, increasing access to rental assistance may be essential to sustain affordable housing and prevent homelessness.

Although the pandemic has likely played a role in increasing worst case housing needs, this report and its predecessors provide clear, consistent evidence of the persistent, underlying structural gap in the affordable housing market. Ideally, a policy response that begins to bridge this affordable housing gap will also seek to address geographic disparities in resource allocation that contribute to inequities and pockets of distress.

Solomon Greene

Principal Deputy Assistant Secretary for Policy Development and Research U.S. Department of Housing and Urban Development 2

WORST CASE HOUSING NEEDS 2023 REPORT TO CONGRESS: EXECUTIVE SUMMARY

CONTENTS

EXECUTIVE Worst case need is a long-standing measure of the extent of unmet needs for affordable rental housing of adequate quality. Housing affordability is made possible through housing offered in the private market at affordable rents, SUMMARY through public rental assistance, or a combination of the two. Renter households are defined as having worst case needs for such housing if they have very low incomes—household incomes at or below 50 percent of the area median income (AMI), do not receive government housing assistance, and either pay more than one-half of their income for rent, or live in severely inadequate conditions, or both.

Worst Case Housing Needs: 2023 Report to Congress examines trends in and causes of worst case needs using the most recent data from the 2021 American Housing Survey (AHS)2. This report finds that since 2019, worst case housing needs have increased across demographic groups, household types, and regions throughout the United States. The unmet need for decent, safe, and affordable rental housing continues to outpace income growth and the ability of federal, state, and local governments to supply housing assistance and facilitate affordable housing production. As a result, the number of families with worst case housing needs in 2021 sets a historic record since the Great Recession of 2007–2009.

This report captures housing needs in mid-2021, about a year and a half after the onset of the COVID-19 pandemic and the associated brief recession early in 2020. The financial shock to the labor market and household incomes contributed to substantial increases in worst case needs as measured by the 2021 AHS.

Worst Case Needs Reached a New High

in 2021

There were 8.53 million renter households with worst case needs in 2021, an increase of 760,000 cases compared with 7.77 million in 2019 (exhibit ES-1). The 2021 count of households with worst case needs is the highest ever recorded, slightly higher than the previous record high of 8.48 million in 2011. The number of very low-income renters with worst case housing needs has averaged 8

million in the past decade, a major increase from the years preceding the 2007–

2009 recession when there was greater availability of affordable housing stock.

2 Unless otherwise cited, estimates presented in this report are the findings of HUD’s analysis of worst case needs and related factors using the AHS.

WORST CASE HOUSING NEEDS 2023 REPORT TO CONGRESS: EXECUTIVE SUMMARY

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EXECUTI VE SUMMARY

Exhibit ES-1. Change in Worst Case Housing Needs, 2001–2021

Prevalence of Worst Case

10.0

Needs Worsened Across

9.0

8.48

8.30

Demographic Groups and

8.0

7.72 7.77

8.53

7.72

7.10

7.0

Household Types

5.99

6.0

5.91

The percentage of very low-income renters experiencing 5.18

5.0

worst case needs varied among demographic groups.

5.01

4.0

In 2021, the prevalence of worst case needs was 52.6

percent among Asian households, 47.4 percent among 3.0

Hispanic households, 44.1 percent among non-Hispanic 2.0

White households, 41.6 percent among Native Hawaiian Renters with worst case needs (millions) 1.0

or Other Pacific Islander households, 39.3 percent among non-Hispanic Black households, and 36.4 percent among 0.0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

American Indian or Alaska Native households. Between 2019

and 2021, the prevalence of VLI renters with severe problems Source: HUD-PD&R tabulations of American Housing Survey data increased by 3.2 percentage points for non-Hispanic Blacks, by 2.3 points for Hispanics, by 0.4 points for non-Hispanic Alongside the growth in the number of households with worst Whites, and by 12.2 points for other races or other ethnicities.

case needs, the rate at which very low-income (VLI) renters The prevalence of worst case needs remained the same for experience worst case needs also has increased in recent Asian households. Despite the increased prevalence of worst years. The percentage of VLI renters experiencing worst case needs, the percentage of VLI renters receiving rental case needs (the “prevalence” of worst case needs) was 44.1

assistance decreased for non-Hispanic Blacks but remained percent in 2021, an increase of 1.9 points from 42.2 percent the same for non-Hispanic Whites and Hispanic households in 2019, surpassing the record prevalence of 44.0 percent between 2019 and 2021.

observed in 2011. Further, between 2019 and 2021, the number of households with worst case needs grew More than 8.5 million renter households had worst case significantly more (9.8 percent) than the overall number of VLI needs in 2021, of whom 3.17 million lived in the South, 2.25

renters (5.2 percent). The most recent biennial change in million lived in the West, 1.62 million lived in the Northeast, total worst case needs is attributable to three factors: (1) the and 1.48 million lived in the Midwest. In the Midwest, ongoing formation of new households; (2) a modest increase Northeast, and South, the prevalence of worst case needs in the number of renters with very low incomes; and (3) among VLI renters increased by about 2 percentage increased competition for affordable units, which made them points between 2019 and 2021. The West, however, saw a less available to VLI renters.

prevalence decrease of almost 1 percentage point during the same period. The prevalence of worst case needs decreased VLI renter households comprise two income groups: in central cities between 2019 and 2021 but not in suburbs households with extremely low incomes (ELIs) and and nonmetropolitan areas. The greatest increase was households with incomes between 30 and 50 percent of AMI.

observed in urban suburbs.

ELI renter households account for the majority of worst case needs cases: 71.0 percent in 2021, down from 74.4 percent For very low-income renters, worst case needs remained a in 2019. The prevalence of worst case needs did not change serious and prevalent problem among all household types among ELI renters between 2019 and 2021 but increased in 2021: 44.4 percent among families with children, 40.1

among renters with incomes between 30 and 50 percent percent among households headed by older adults without of AMI.

children, 50.0 percent among “other family” households (including multiple family members without children), and 46.0 percent among “other nonfamily” households (mostly single individuals). Between 2019 and 2021, the prevalence of worst case needs increased by 4.2 points among families with children and 6.3 points among the other families group, remained the same among nonfamily households, and slightly decreased among households headed by older adults.

4

WORST CASE HOUSING NEEDS 2023 REPORT TO CONGRESS: EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

In absolute terms, worst case needs increased among all how these factors worked together to result in the increase in household types since 2019. In 2021, households with worst worst case needs. An attribution analysis estimated the case needs included 2.63 million families with children, independent contribution of each of four increasingly focused 2.63 million “other nonfamily” households, 2.35 million older demographic factors to assess its effect on the number of adult households, compared with 0.92 million “other family”

unassisted VLI renters and thereby on the number of worst households. About one in seven renter households with worst case needs. The positive or negative effects attributed to the case needs—14.7 percent or 1.26 million—included people four demographic factors are represented by the first four younger than 62 who have disabilities.

bars of exhibit ES-2: household formation increased worst case needs because there was a net increase in new This report includes a new analysis of the intersection households from population changes; tenure shift reduced between worst case needs and the related but less prevalent worst case needs because the growth in renters between problem of housing overcrowding. Overcrowding is defined 2019 and 2021 lagged the growth in homeowners; renter as the condition of having more than one person per room household income shifts increased worst case needs in a residence, considering only whole rooms such as because there was a net increase of renter households with bedrooms, living rooms, dining rooms, kitchens, recreation income below 50 percent of AMI; and the rental assistance rooms, lodger’s rooms, and other finished rooms. In 2021, gap increased worst case needs because there was a net about 948,000 very low-income renter households, or 4.9

increase in VLI renters lacking rent subsidies from the percent, were overcrowded. Of these, 390,000 households federal, state, or local government.

also experienced worst case needs.3 About two-fifths of households experiencing overcrowding also experienced worst case needs. The large majority—75.8 percent—of Exhibit ES-2. Worst Case Needs Markedly Increased as a VLI households with overcrowding had moderate or severe Result of Household Formation, Changes in Income, the Rental Assistance Gap, and Greater Competition for rent burden. Most VLI households with overcrowding—92.5

Affordable Units from 2019 to 2021

percent—were families with children. More than one-half of overcrowded households in 2021—54.4 percent—were 245,000

increase from

Hispanic, 17.9 percent were non-Hispanic White, 16.1

less affordable Net

percent were non-Hispanic Black, 7.1 percent were Asian, and available change:

102,000 units for VLI 760,000

and 4.4 percent were of other races and ethnicities. The increase

renters

increase

majority of overcrowded households in 2021—70.6 percent—

from

had from five to seven household members.

reduced

175,000 share of VLI

increase from renters

receiving

Demographic and Market

43,000 renter income

282,000

decrease changes

assistance

increase

from adding to VLI

Factors Shape the Persistent

from

homeowner numbers

additions to increases

Shortage of Affordable and

U.S.

relative to

households renter share

Available Rental Housing

For most households, worst case needs are caused by severe rent burdens—that is, paying more than one-half of the household’s income for rent. Inadequate market supply, competition for affordable units, and a shortage of rental Household

Renter

Renter

Rental

Affordable Net change

formation

share

income

assistance

unit

in worst

assistance continued to pose a substantial challenge for changes

gap

competition case needs

VLI renter households in 2021. Inadequate housing quality caused only 2.8 percent of worst case needs.

VLI = very low-income.

Note: The columns of ES-2 are cascading in the sense that each column begins where the previous one ends, while the final column displays the The net increase in worst case needs by 760,000 cases net effect on worst case needs.

Source: HUD-PD&R analysis of American Housing Survey data between 2019 and 2021 is attributable to a combination of the demographic changes affecting the number of unassisted VLI renter households and the housing market’s Contributing most to the increase in worst case needs were response to affordable housing demand. Exhibit ES-2 shows household formation—individuals creating new single-person or multi-person households in a separate housing 3 HUD categorizes overcrowding as a moderate housing problem rather than a severe problem, so households that experience overcrowding but do not experience severe rent burden or severely inadequate conditions are not included in the count of households with worst case needs.

WORST CASE HOUSING NEEDS 2023 REPORT TO CONGRESS: EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

unit—and the increased competition for affordable units Access of VLI renter households to a sufficient supply of that reduced their availability to households with very low naturally affordable rental units or assisted units is critical to incomes. Changes in income among VLI renters4 and the the extent of the worst case needs problem. Exhibit ES-3

widening of the already large gap between the number of presents how the availability of rental units affordable to VLI households eligible to receive housing assistance and the households has responded to demand trends over the past number who receive it were also major factors contributing 10 years.

to raising worst case needs to a level never before seen.

The only demographic factor that helped improve the worst Exhibit ES-3. Trends in Housing Supply

case needs picture between 2019 and 2021 was the modest Mismatch and Worst Case Needs, 2011–2021

increase in homeownership rates (by definition, only renters 100.0

10,000

can have worst case needs).

9,000

The four demographic factors together created the 80.0

8,000

environment for a substantial net increase in worst case needs between 2019 and 2021 by increasing the size of the 7,000

unassisted VLI renter population. The market’s increase of 60.0

6,000

competition among renters for affordable units aggravated worst case needs through 2021. The net increase attributed 5,000

to demographic changes was exacerbated 32.2 percent 40.0

4,000 orst Case Needs (thousands)

more as the modest pace of additions to the rental stock Units per 100 Renter Households

W

relative to increases in renter households reduced the 3,000

availability of affordable VLI units, as indicated by the fifth 20.0

2,000

bar of the exhibit. If the supply of affordable rental units fails 2011

2013

2015

2017

2019

2021

to increase at the same rate as the renter population, greater Affordable and available

Affordable and available

Worst Case

demand would be expected to increase competition for units for ELI renters

units for VLI renters

Needs

affordable units, drive up rents, and increase the prevalence (per 100 households)

(per 100 households)

(thousands)

of worst case needs. Competition may include higher-ELI = extremely low income. VLI = very low income.

income households choosing to occupy units that would be Source: HUD-PD&R tabulations of American Housing Survey data affordable to households with significantly lower incomes, making those units unavailable to those with greater needs.

Although the supply of rental units slightly expanded in 2021, rental housing production has significantly lagged By 2021, the VLI renter population increased by 950,000

household formation since 2010. At the same time, the households while the rental units affordable and available number of households receiving rental assistance has risen to them decreased by 463,000. ELI renters increased by only modestly and has not kept pace with the increase in the 571,000 households while the supply of affordable and number of VLI households. Rental units added to the stock available units for these renters decreased by 252,000.

have tended to be in higher-rent properties. As a result, Added rental units, including converted owner-occupied the ratio of affordable and available units to VLI renters units, increased the rental unit supply by only 1.5 percent followed a downward path from 2009 to 2017. After a modest between 2019 and 2021.

improvement from 2017 to 2019, the ratio again worsened from 62 units per 100 renter households in 2019 to 57 units With tighter supply, rents increased at a much higher rate per 100 renter households in 2021. For ELI households, the than renter incomes between 2019 and 2021. Median renter ratio decreased from 40 to only 36 affordable and available housing costs5 increased by 10.6 percent, substantially more units per 100 households in 2021. Increasing the affordable than the 2.5 percent increase in the median renter income housing supply by providing rental and sustainable (see exhibit 3-2). For VLI renters as a group, mean rent homeownership options for households across the income increases of 13.8 percent between 2019 and 2021 nearly spectrum—including by expanding rental assistance, doubled their mean income increases of 7.6 percent (exhibit particularly for poorer households—is critical for reducing A-14), explaining why the prevalence of severe rent burdens worst case needs.

increased.

4 The 2021 AHS did not count one-time Federal stimulus payments, such as those that were part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, in its measurement of household income, so such payments were not considered for the estimates of worst case housing needs. AHS captures the total money income in the 12 months before the interview for household members ages 16 and older, where “money income” is defined as income received on a regular basis (exclusive of certain money receipts such as capital gains and lump-sum payments). See definition of income at https://www2.census.gov/

programs-surveys/ahs/2021/2021%20AHS%20Definitions.pdf.

5 Those housing costs include rent, utilities, property insurance, land rent, and association fees but exclude any separate security deposit or parking fees.

6

WORST CASE HOUSING NEEDS 2023 REPORT TO CONGRESS: EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Availability ratios are as important as worst case needs and available housing units as of 2021. Rental housing measurement for understanding affordable housing assistance—such as that offered by HUD programs, other problems. Availability ratios demonstrate the critical role of federal programs, states, or localities—help many vulnerable rental assistance in expanding affordable housing options renter households who have such limited incomes. Among for VLI renters: among VLI renters with access to affordable VLI renters in 2021, 26.6 percent of households were able to housing, a large share have such access by virtue of the avoid worst case needs because they had rental assistance.

rental assistance they receive. Availability ratios, when Rental assistance is in short supply: because of inadequate compared with affordability ratios, also make clear the funding, only about one in four eligible households received intense competition for the most affordable housing. For rental assistance. Another 29.3 percent of VLI renters were each affordability bracket, renters with incomes above the able to avoid severe housing problems in the unassisted bracket levels occupy large shares of units affordable to private rental market by finding affordable units of adequate households within the bracket. Such crowding-out affects 40

quality. The remaining 44.1 percent, however, were left with percent of the units affordable to ELI renters, 40 percent of worst case needs and almost five in seven of those were the units affordable at incomes of 30 to 50 percent of AMI, ELI households. Worst case needs weigh upon families and 35 percent of the units affordable at incomes of 50 to of all types; in all regions of the country; and in rural, 80 percent of AMI. When higher-income renters defer home suburban, and urban areas. Non-Hispanic White households purchases, they continue to compete for affordable units and experienced worst case needs as well as households of sustain rental demand, limiting the availability of affordable color and worst case needs were found among families with rental units for lower-income renters by nearly two-fifths. In children, older adults, people with disabilities, and people short, the effect of weak growth in the rental housing supply, living on their own.

a shortage of rental assistance, and strong competition for available rental units from higher-income renters seem to be A broad strategy at the federal, state, and local levels has having the most detrimental effect on the availability of units long been needed to continue to grow the economy, support affordable to renters with incomes at and below 30 percent market production and access to affordable homes, and of AMI. Improving the availability of affordable rental units for provide rental assistance to the most vulnerable households.

ELI renters will be crucial to reducing worst case needs.

With the impact of the COVID-19 pandemic and associated economic difficulties in 2020 and 2021, worst case housing Conclusion

needs have increased substantially, reaching a new record high and highlighting more than ever the need for Worst case housing needs increased markedly between a comprehensive approach to addressing the affordable 2019 and 2021 due to household formation (new households housing crisis.

formed as a result of population increase), the widening of the rental assistance gap for eligible very low-income households, and the continuing shortage of affordable rental housing. Reductions in worst case needs generally result when economic growth improves household incomes, when the production of affordable housing is sufficient to reduce market rents, or, alternatively, when the availability of rental assistance increases.

The worsening between 2019 and 2021 of severe housing problems among the nation’s VLI renter households is attributable to demographic factors, beginning with substantial household formation, that increased the number of VLI renters needing affordable units and increased competition for such units, combined with an inadequate response of the housing market to quantitative changes in demand. The weak supply response of the housing market exacerbated the increase in worst case needs cases resulting from demographic and economic factors—

especially household formation, income loss, and the widening gap between renter households eligible to receive housing assistance and those receiving it. More than three in five ELI renter households and three in seven VLI renter households continued to lack access to affordable WORST CASE HOUSING NEEDS 2023 REPORT TO CONGRESS: EXECUTIVE SUMMARY

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U.S. Department of Housing and Urban Development Office of Policy Development and Research

Washington, DC 20410-6000

August 2023