With interest rates and housing prices at an all-time low things are looking up for home buyers, but not so much for renters. Since the downturn the requirements for mortgage approval have tightened up leaving hard-working Americans who would normally be on the market shopping for a home, stuck in rental units.
In addition to the tough mortgage requirements, many neighborhoods are facing inventory shortages. The low cost to purchase has become so appealing that there has been a spike in home purchases and the competition for purchasing a house has become fierce. For example, the Phoenix metropolitan area with a population of 4.3 million has only about 12,315 single-family homes listed for sale. This equates to a supply that would normally be exhausted in less than two months, while local markets are usually stocked with eight or none months worth of homes.
This increased demand coupled with stringent lending rules has lead to a surplus in renters compared to available rental units. From 2008 to 2011, the rental supply versus demand has led to an increase of almost six percent in renting costs, while the income for renters has fallen by 3.2 percent, according to a recent report from the Center for Housing Policy.
In the past, federal policy has supported homeownership exemplified by tax policies like the mortgage interest rate tax deduction, or the first time home buyer credit. However, now renters are also looking for favor. A new MacArthur Foundation survey, found that three in five people, regardless of their political affiliation, say they believe the “focus of our housing policy should be fairly equally split on rental housing and housing for people to own.”
To boost the rental market the government issues the Low Income Tax credit, which gives tax breaks for building or rehabbing affordable rentals. The Bipartisan Policy Center has called for the government to increase these credits by 50 percent to spur more construction. And the Center on Budget and Policy Priorities proposed creating a renter’s tax credit that would reduce the tax burden for landlords who lower rents to no more than 30 percent of a family’s income.
These changes could possibly lead to improvements in the unreasonable priced rental market, but the results will not be immediate.