A substantial flow of new construction apartments, largely targeted to middle- and higher-income groups, has enabled the “filtering” process to create affordable housing opportunities for low-income households, according to a new study released by the NMHC (National Multifamily Housing Council) Research Foundation.
However, following the Great Recession, low-income occupancy declined as affordability challenges increased.
Filtering occurs as units age and lower-income residents gain an increasing share of the units. The new study examines the trends between 1980 and 2018 and the consequences for very low-income households, those earning no more than 50% of the area median income (AMI).
The study is the first thorough and in-depth analysis of apartment filtering—the aging and obsolescence of units that produce naturally occurring affordable rental homes, says Mark Obrinsky, NMHC chief economist.
As the properties grow older, their relative quality declines as does the rents they command and the income of the occupants.
The report comes at a time when “a better understanding of the detailed nature of our housing affordability challenges is more important than ever as the COVID-19 pandemic has worsened the finances of millions of Americans, which will further exacerbate the shortage of workforce housing that predated the virus,” according to NMHC leaders.
Overall, nationwide, filtering in good years produced a substantial boost in housing opportunity for low-income households in apartments. A total of 69,000 additional low-income occupied units was generated annually between 2000 and 2006 in the existing stock, reveals the study.
In comparison, 22,000 units were added annually by growth in Department of Housing and Urban Development subsidy programs for apartment housing supply, with another 92,000 low-income (less than 50% of the AMI) units added annually through low-income housing tax credit subsidies.
A closer look at the data shows that from 1990 to 2011 filtering increased the low-income occupancy share by an added 11.3% of 1960s-built apartments, 8.6% of 1970s-built apartments, and 10.3% of 1980s-built apartments. From 2011 to 2018, the low-income share reversed, declining by 3.8%, 6%, and 4.4%.
The sharp reversal of filtering after 2011 corresponded to the sluggish increases in housing supply despite resurgent job growth in metro areas, according to researchers.
They also note that affordability may be an elusive goal for filtering to achieve. Rent increases have far outpaced income growth. In addition to those affordability pressures, there’s also a severe shortage of housing opportunities, with an inadequate supply to accommodate all renters seeking an apartment no matter the price.
While the filtering of market-rate units has been important, it can no longer be taken for granted as a “naturally occurring” source of affordable housing, says the report.
“For one thing, the shortage crisis has caused all housing to be unaffordable, consuming a larger share of occupants’ incomes—even in the middle class—than deemed acceptable. Filtered units still are not affordable, but they are shelter, which is especially valued in a shortage. However, the downward filtering of housing opportunity can no longer be viewed as a permanent fact of nature. In decades past it was the substantial flow of new construction, largely targeted to middle- and higher-income groups, that enabled the filtering process to operate. In the face of its current constriction, well below levels normally associated with employment growth, we gain fresh appreciation for the broader benefits of housing construction.”
The full report, “Filtering of Apartment Housing Between 1980 and 2018,” can be found here.