Abundance Kept Rents Down, But Not for Poor Tenants. Why?

Anti-poverty advocates are using some tricky math to push back on the “abundance” movement as a solution to housing affordability.

A new report by the Center on Poverty and Inequality at Georgetown Law School says that in markets where developers built a lot of housing, rents for low-income units went up more than for other units. The researchers got their study featured in a New York Times article.

But the actual rent increases might have been smaller than the report made them seem, and in the context of rising expenses, they should surprise absolutely no one.

Nor are they an argument against adding robustly to housing supply. The researchers, to their credit, don’t reject the abundance strategy. But they do suggest that abundance doesn’t help low-income tenants.

I agree that very poor people need more than ample supply, because their incomes aren’t enough to sustain any kind of decent housing. That is, they need income support such as rental vouchers.

But they also need an ample supply of housing to accommodate people who out-earn them. Otherwise they will be competing with them — a losing proposition.

My first bone to pick with the report is its title: “Abundance for Who?” That’s like fingernails on a chalkboard for me. Would it have killed them to say “Abundance for Whom?”

Then I took a close look at the LinkedIn post by Lelaine Bigelow, the executive director of the center behind the study:

“For years, the narrative has been simple: just build more housing and prices will come down. But our analysis of six high-growth metros shows it’s not that straightforward.

“Take Phoenix. The city built aggressively. New units had a vacancy rate over 9%. Yet rents for extremely low-income households jumped 26.7% while rents for high-income households actually fell by 5.3%.”

The alleged increase was over eight years, from 2015 to 2023. And the “high-income” statistic Bigelow cited actually included moderate- and middle-income households. These groups make up the majority of renters.

That’s the first reason the study’s numbers are — to borrow Bigelow’s phrase — “not that straightforward.”

The bigger reason is that researchers adjusted for inflation not by using the general Consumer Price Index but by using CPI for local rents for the metropolitan area in question.

Stay with me here, people. Math concept ahead!

Rent inflation across the Phoenix market was very low, perhaps even negative, from 2015 to 2023, thanks to aggressive building for moderate- to upper-income families.

But that rent inflation makes even modest nominal increases in rents paid by extremely low-income households (earning $30,000 or less) look very large — in this case, 26.7 percent.

“If you told Class C/D operators in Phoenix their rents were up 26.7 percent over that period, they would look at you like you were crazy,” housing economist Jay Parsons commented below Bigelow’s post.

Let’s review:

Phoenix built like crazy, resulting in a real (inflation-adjusted) drop in rents for most households. That’s a clear win for housing affordability.

But because so many rents fell, if your household’s rent went up, the relative increase is going to be a big percentage jump.

And why did rents increase for the cheapest units?

Lisa Gomez, CEO of the big New York City real estate firm L & M Development Partners, answered that question:

“It’s as much about operating expenses as it is about supply,” Gomez wrote on LinkedIn. “Every area has its own operating economics and you have to have corresponding income to cover them.”

Owners of the cheapest rental housing are far more sensitive to those increases than at the high end. Those landlords must either raise rents to cover their costs or shutter the unit (which would remove it from the data).

Unfortunately, the study did not compare rent increases to the increases in operating costs, such as for utilities, insurance, property taxes and maintenance. But they were probably lower.

The bottom line is: in markets with housing abundance, most rents stayed down because of competition. Because operating costs rose, the lowest-income tenants saw rents increase relative to higher earners’ rents. And without abundance to absorb demand for housing, their rents would have gone up a lot more.

“We need to do A LOT more to help low-income families access safe, quality housing (more subsidized housing, vouchers, etc.),” Parsons wrote, “but simply demanding we build less market rate wouldn’t provide any material boost to these families because those projects aren’t gonna pencil out at the rent levels needed.”