Greater City Providence
The Rhode Island Coalition for the Homeless brings to our attention a report from the National Low Income Housing Coalition which shows the relative affordability of Rhode Island rental units continues to decline.
Rhode Islander Renters Face Record High Levels of Rental Unaffordability
National Study Shows Rhode Island Rentals Remain Unaffordable
Providence-A new national report released today shows that despite the economic recovery that is beginning to take hold nationally, affordable rental housing remains out of reach for average Rhode Islanders. Rhode Island continues to have one of the highest rental costs in the country, coming in at number fourteen. Three other New England states, Massachusetts, Connecticut and New Hampshire, also remain in the top fifteen for unaffordablity. Hawaii had the highest rental costs in the country, Puerto Rico the lowest.
Additionally, the report highlights the growing housing cost burden shouldered by Rhode Islanders. Rhode Island was 2nd in the country, only behind Hawaii, with the highest percentage growth of the two-bedroom housing wage with a 68% increase from 2000-2011. This growth indicates the increase in what someone needs to earn to be able to afford a two-bedroom apartment at the Fair Market Rent (FMR).
The report, Out of Reach 2011, was released by the National Low Income Housing Coalition (NLIHC), a Washington, DC-based housing advocacy group. The report provides the Housing Wage and related data for every state, metropolitan area and county in the country. This year’s data demonstrates that the impact of the recession has only worsened an already severe housing crisis with the persistence of high rates of unemployment and under-employment making it more difficult for families to secure decent housing. The report highlights that low-income renters continue to face a large array of housing challenges and that prevailing incomes and wages are simply not enough to allow a family to afford a decent home in their community.
Out of Reach is a side-by-side comparison of wages and rents in every county, Metropolitan Area (MSAs/HMFAs), combined nonmetropolitan area and state in the United States. For each jurisdiction, the report calculates the amount of money a household must earn in order to afford a rental unit at a range of sizes (0, 1, 2, 3, and 4 bedrooms) at the area’s Fair Market Rent (FMR), based on the generally accepted affordability standard of paying no more than 30% of income for housing costs. From these calculations the hourly wage a worker must earn to afford the FMR for a two-bedroom home is derived. This figure is the Housing Wage.
According to the report:
- In Rhode Island, the Fair Market Rent (FMR) for a two-bedroom apartment is $996 (Up from last year’s figure of $983). In order to afford this level of rent and utilities, without paying more than 30% of income on housing, a household must earn $3,321 monthly or $39,853 annually. Assuming a 40-hour work week, 52 weeks per year, this level of income translates into a Housing Wage of $19.16 (Last year it was $18.90).
- In Rhode Island, a minimum wage worker earns an hourly wage of $7.40. In order to afford the FMR for a two-bedroom apartment, a minimum wage earner must work 104 hours per week, 52 weeks per year. Or, a household must include 2.6 minimum wage earner(s) working 40 hours per week year-round in order to make the two bedroom FMR affordable.
The report states, “In this environment, more than ever, Out of Reach underscores the fundamental mismatch between the wages people earn and the price of decent housing within our communities. The recession has indeed caused greater housing hardship, but in fact, the failure of this country’s housing system to produce sufficient affordable housing is itself at the root of the crisis.”
The release of the report raises serious concerns for the affordable housing community as it comes at a time when the foreclosure and unemployment crisis continues to hit Rhode Islanders particularly hard. A recent HousingWorksRI study found that Rhode Island’s foreclosure rate ranks in the top ten in the country and is the highest in New England. Additionally, Rhode Island has one of the highest unemployment rates in the nation. Advocates have seen first-hand how the unemployment and foreclosure crisis have exacerbated the barriers low income renters have encountered in their search for safe, quality, affordable housing.
For the first time since the Great Depression, more than half of all American renters lived in unaffordable housing in 2009. A recent Rhode Island Housing report found that, here in Rhode Island, 50% of renters spend more than 30% of their income on rent.
“This report verifies what we are seeing day to day here in our state,” stated Brenda Clement, Executive Director for Housing Action Coalition of RI. “Despite the national trumpeting of a recovery, what we see on the frontlines is more and more Rhode Island families struggling to remain in their home or find an adequate, safe and affordable place to live.”
Despite the growing need, housing assistance programs are at risk by proposed budget cuts at the federal level and locally in states and cities and towns around the country. Advocates state that given the current environment, the Housing Wage in the Out of Reach 2011 report underscores the fundamental mismatch between the wages people earn and the cost of safe, quality affordable housing in our communities.
The report highlights, for homeless prevention and affordable housing advocates, the need for policymakers to invest in strategies that will ensure a long-term supply of affordable
housing in Rhode Island. This year at the State House affordable housing advocates are
working to ensure that the Neighborhood Opportunities Program (NOP) is adequately funded and that legislators establish a dedicated funding stream for affordable housing.
Rhode Island is one of only nine states in the country without a dedicated stream of funding for affordable housing.NOP is the state’s most critical program for ending homelessness and developing affordable housing. NOP is the only state funded program that subsidizes the cost of affordable rental housing for very low-income families and individuals with disabilities. The program provides funds to cover the difference between the rental cost affordable to very low-income Rhode Islanders (generally 30% of their income) and the actual operating cost to owners.
Advocates contend that funding NOP is particularly important this year as our state continues to recover from the foreclosure, employment and economic crisis. They argue that a cut in the funding will only worsen the affordable housing and homeless crisis the state faces.
Jim Ryczek, Executive Director of the Rhode Island Coalition for the Homeless added, “This report reminds us why the state programs that support affordable housing and homeless prevention are so critical. Now, more than ever, we need our elected officials to act boldly to prevent more Rhode Island residents from slipping into homelessness.”
“The Out of Reach Report 2011 reminds us that the most vulnerable renters, those with special needs and the very lowest incomes, are at the greatest risk,” commented Michelle Brophy, Director of New England Program-Corporation for Supportive Housing. “That is where we, as a state, need to direct our resources and energy.”
Established in 2001, the Neighborhood Opportunities Program is a unique state-funded program that subsidizes the cost of affordable rental homes in Rhode Island. Since its inception NOP has funded the acquisition, new construction, and/or rehabilitation of 1188 housing units in 28 Rhode Island cities and towns.
This includes the production of family housing, permanent supportive housing, and homeownership opportunities. These housing units are located at sites that contain a total of 2525 affordable housing units.
NOP has also contributed $44 million in gap funding for the development and operation of 1188 units. This investment has leveraged $418.3 million, or $10 for every dollar invested by the State of Rhode Island.
“For the past ten years NOP funding has allowed the CDCs (Community Development Corporations) and other affordable housing developers to provide high quality, affordable housing to residents of our state,” explained Chris Hannifan, Executive Director of the Housing Network, the state’s association of CDCs. “NOP is a crucial component that ensures the continuum of affordable housing that is needed in our state.”
The full report is available from the National Low Income Housing Coalition
Not unexpected since many of the landlords bought high in the market, jobs have vanished, and the demand has gone through the roof now that so many can’t buy a house.
It’s a perfect storm.
If you are a landlord of a three family, three bed each floor, and you can rent each floor for 1500 ($500 per for three JW or Brown or RISD students) why wouldn’t you? In all my years living in Providence there was ONE thing that made rents go up and that was student rental housing. So that’s probably an unintended, negative impact that the universities have on Providence’s economy.
It’s not just university students. The student population of the city’s universities has not grown significantly in decades and recently there’s been a great deal of new dorm construction.
Many building owners bought high because the Rhode Island real estate market was soaring for almost a decade in large part due to out-of-state investors from Boston and New York. Newport and South County were more severely affected with higher rents than the Providence area because of the competing forces of rental investors and second homebuyers. Ten years ago Newport rents were a third less than Providence rents. Providence’s current average 2-bedroom rent of $996 is a bargain compared to Newport County‘s average of $1,200 today. Newport’s rent pressure is shifting lower wageworkers to Fall River and Providence, not to mention those relocating from points north to Providence.
If owners that overpaid have mortgages, they’re stuck and often can’t lower rents even if that’s what the market is without losing money or risking default, further keeping rents high. Another strain effecting rents is all the foreclosed vacant multi-family buildings in the city. In some of the poorer neighborhoods buildings have been vacant for two or three years. There are still probably several thousand of the city’s apartments vacant and off the market due to the foreclosures, all of which contributes to higher rents.
I laugh when I see places smaller than what I have for $1,500 to $1,800 a month.
I also laugh when I see them empty month after month.
Yes, it definitely has to be more than the college students, since there has been a lot of dorm construction. Landlords and real estate people I’ve talked to actually say that there are so many fewer students out there now that it’s put a real strain on both groups and that’s why you see more “For Rent” signs than ever on the East Side.
They also claim that they can’t lower prices that much for rent due to high taxes and utility costs, high repair costs (it’s a fairly old housing stock), and of course that some people bought high in the last decade.
Considering how much I know people are paying for rent in NY, Boston, etc, PVD still seems to be a bargain. In fact, renting in PVD for the average 2 bedroom apartment still seems significantly lower than what your average PIMI would be for an average 2 bedroom condo or home.
I am sure there are plenty of factors that go into the higher rents, including the sad sacks who thought they’d clean up by buying rental units at the height of the market, but I lived on Federal Hill for more than 10 years and in that time I saw entire streets being turned into JW housing stock. So while they may be building more dorms, I did not see the correlation of fewer students in Federal Hill. I have been gone now for 3 years so perhaps that has changed, but I doubt it.
I don’t understand how mortgages have a material affect on the Supply/Demand curve for rents. At most they contribute to an inelasticity of the price point (i.e. landlords are less willing to drop prices) and a slight inefficiency in the market. But the actual price points of rent are going to be determined by the demand for housing and the available housing stock far more than any other determining factors.
I find reports like this annoying. Of course it is more expensive to rent in Rhode Island and the other New England states. That’s because people who can afford to don’t want to live in places that have lots of available housing stock. Otherwise the market would take care of itself. While I understand where these guys are coming from given their own perspective on the world, high rents are actually a GOOD indicator for us amongst a world of bad economic news. It means that despite high unemployment people still want to live here. If I were to be actually concerned, it would be with the fact that so many people paying rents in RI do so while working in MA or I suppose CT (though I imagine the MA contingent is much larger).
While the cost of ownership certainly has a factor, again, in the elasticity of the prices, there is some pretty simple math to be done. Say you have a house that you want to collect $2500 in rent to cover PITI and basic maintenance. If the market only lets you collect rent of $2100 then what are your choices? You take $2100 or you take $0 and hope for things to get better. A year long lease would mean you are taking a $4800 hit compared to your target ($2500-$2100 x 12). So basically, by the time two months have passed with the place empty, you have already lost more money than you would have for the year if you just rented at the lower price.
Landlords will talk about their costs and believe me they are significant (a typical 3 family on the East Side will devote close to 30% of its rental income to paying R.E. taxes). So just to re-iterate the point, these forces should all be working together to continually drive down the price of housing, and they really haven’t in desirable areas. That means demand is driving the prices both in terms of how much it costs landlords *and* how much it costs renters. Meanwhile, if you wander through Hartford, Silver Lake, Manton areas there is plenty of cheap housing stock and rentals.
I think affordable housing is an important topic. I also think this metric is at best a blurry lens in looking at the problem they are trying to address.
I’m not sure supply and demand works with rental housing. Sure, there might be supply, but if a good majority of the landlords are all in the same boat with regards to paying mortgages, taxes, etc., then all the rental housing will be about the same cost. That won’t drive anything down. If you get enough landlords lowering rents, the others will have to follow.
The elasticity of the demand curve is going to be slower than it is for say, plasma TVs or even for cars. Because people have families, jobs, etc. and also because they have some inertia. But over the long term, even an inelastic market will move toward equilibrium. And renters are a lot more fluid than homeowners typically and can seek out better deals if they need to.
I just mean to add, if rents cannot support the cost of housing, you get what we had in the late 00’s already. Vast amounts of housing stock coming on the market because people couldn’t afford their mortgages.
I’m oversimplifying on purpose because the metric in question is such a dull knife that I don’t feel the need to get into all of the details of what can affect a rental market. But let me put this is the simplest terms. When people don’t want to live in a place and rents free fall, landlords abandon. That’s my point about the West End neighborhoods. Lots of foreclosures there and lots of cheap apartments. Perhaps a more jarring example would be Detroit. Structural costs cannot prop up a lack of demand.
Until three or four years ago West and South Side apartments were filled to overflowing with immigrants, many of who were illegal. When the economy tanked a lot of those immigrants went back to their home countries. The empty buildings pushed many of building owners into default on mortgages creating the current inventory of boarded up bank-owned properties that just sit empty.
If all those units were suddenly to become available again at lower rents, the citywide rent average would be forced to come down. If that happened it would put many landlords into the same position as their predecessors potentially creating another round of foreclosures, which would be a double-edged sword. The city might become more competitive with lower rents, but many properties would likely languish for years empty, as has been the case with the current batch of foreclosed bank-owned properties. How many of those empty buildings would be burned or stripped of mechanicals and how de-stabilizing would it be for the city?
Part of the reason why people invest in real estate can be linked to greed. However, often if not usually investors are looking for a stable investment. Real Estate is much more risky to investors than the stock market, which in part is why returns are higher. The last few years have demonstrated just how risky real estate can be. To prevent Providence or any other city from becoming a Detroit, preventing seismic shifts in the real estate market is critical.
A hopeful sign is what’s currently occurring in Smith Hill, as well as in other sections, where non-profits are acquiring entire blocks of empty foreclosed multi-family buildings and gut-renovating them to offer as affordable housing for lower-middle and low income people.
30% of rent goes to RE tax. Remember that next time some bigot hollers about how immigrants, undocumented or otherwise do not pay taxes.
I think the pattern of foreclosure leading to abandonment, removing housing from the market, is not a bug but a feature meant to keep rents and housing prices as high as possible, protecting the collateral value underlying mortgages that are still performing. What we might consider a worthy goal, making housing more affordable and not wantonly destroying inhabitable structures, conflicts with the goals of the bankers. It therefore does not happen.
It’s unlikely that there’s a conspiracy to keep rents high. Banks aren’t in the business of losing money and don’t really care about rents. What they care about is getting their monthly mortgage payment. They have no interest in becoming property owners and only do so if a mortgagor defaults on a loan. Most of the foreclosed properties in the city that have burned in the last few years have been bank-owned. It’s hard to sell a property with no boiler, copper piping, or electrical service and near impossible if it’s burned-out. Any buyer would have to pay cash, because no institution will finance a property unless it can be immediately occupied.
correction:
Most of the properties in the city that have burned in the last few years have been bank-owned.
I have been living in the city for about 5 years now and as a college student I would like to share my renting experiences to maybe add a little perspective.
Like most students, my first apartment was on Fed Hill and we rented a 5 bedroom apartment for $1500. One bedroom was bigger, and that roommate/parents paid 400, while the rest of us paid $275. For us it was a great deal, especially since we were all (except of the roommate who was paying more) living paycheck to paycheck to cover our expenses. Our landlord there was awesome, always around to fix what needed to be fixed, helped us move in and just an all around good guy. Unfortunately he was a carpenter and around this time he moved to Boston to find more work that he couldn’t find here in RI. He sold the house to his ex-wife and we moved out because she raised the rent.
My second apartment was on the East Side near Wayland Sq. and it was $1200 for a two bedroom. I could afford the rent but after utilities (oil heat) and a sour economy (less hours at work), I could no longer afford to live there and stopped paying rent and left. The realtor I was renting from didn’t even care or realize that I wasn’t paying rent because he fired the woman who kept track of these things and to this day I still see the man I signed the lease with and he dosen’t even remember me, so in that respect I was kind of lucky. (even though I was the one at fault here, he mismanaged his business and paid for it.)
I then moved over off Eaton St. where every apartment I visited had the same layout and was more or less, $400 per person. I had no problem dealing with the whole party scene there, but at times I did feel bad for anyone in that neighborhood who wasn’t a college student. The feeling I got from landlords there was mostly that they knew that students would treat the apartment like crap, but at the same time would be a steady income for the property, so they would deal with it.
After that apartment I moved to a 1 bedroom carriage house on the East Side that was $800 a month, but I split it with my girlfriend at the time, so it was $400, but by far the best place to live as far as renting goes. It was everything you could want in an apartment; quiet, secluded, no people living above or below you, and the people who owned the property were super cool and were only renting it out to help pay their mortgage. Then this past November they had to sell the carriage house because their property taxes were raised and they could no longer afford to let us live there.
After they sold the carriage house I was forced to find an affordable 1 bedroom in the beginning of December, which was rather difficult since I work on the east side and have no other transportation other than my feet and a bike. So I settled on a room share where I basically live with 4 strangers and share a bathroom and kitchen. The owner of the property lives in Pennsylvania and basically sends someone to collect rent if we don’t deposit it straight into her account. Even in a city with 7 colleges she has trouble finding tenants who are willing to stay for more than a few months and has recently decided to sell the property due to the cost of owning it.
So in conclusion, from my experiences, owning property to rent in the city appears to be either to difficult or costly, and the city itself is the one that loses out. Everyone I have known from school seems to have the feeling that Providence is a city that is very “live-able” but not one they would want to call home. Which is somewhat sad for a city that has a lot of potential.
No conspiracy to prop up rents? After the housing bubble burst, all policy proposals designed to reset the housing market so as to promote affordability and not destroy existing housing stock, like allowing bankruptcy judges to rewrite mortgages, or Right-to-Rent have been studiously ignored. Banks, congress, state legislatures, federal reserve and all news media save a few bloggers are somehow all on the same page. I guess it is not technically a conspiracy.
@Andrew I, Sorry, I didn’t understand what you had previously posted. Wasn’t there a Providence proposal to prevent banks or other lenders for evicting tenants, if they foreclosed on a property? Was that was ever adopted? Foreclosures shouldn’t be a problem alone. It’s the evictions and then leaving properties vacant vulnerable to vandalism and theft, which have been so devastating on the city’s housing stock and neighborhoods.