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 were 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 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.

Look at this 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%.”

That 26.7 percent number looked dubious to me, and I wasn’t alone.

“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.

I did some sleuthing and figured out how the researchers jacked up that number.

First, the alleged increase was over eight years, from 2015 to 2023. Second, the “high-income” statistic Bigelow cited actually included moderate- and middle-income households too.

Third, some low-earning households surely relocated to better apartments that became available as other tenants moved into newly built housing. The study tracked what households paid, so if they moved to a nicer place, the study counted that as a rent increase.

But those aren’t the biggest reasons that the study’s numbers are — to borrow Bigelow’s phrase — “not that straightforward.”

Stay with me here, people. Math concept ahead!

The researchers didn’t compare low-income rent increases to general inflation (the Consumer Price Index). Instead, they measured them against local rents for moderate-income to high-income households. Those rents went up very little or even fell, because of the supply boom.

That circular inflation adjustment made even modest nominal increases in rents paid by extremely low-income households (earning $30,000 or less) look very large — in Phoenix’s case, 26.7 percent.

Let’s review:

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

Because so many rents fell, if your household’s rent went up, the comparative increase was big.

But why did rents increase for the lowest-earning households?

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.

The bottom line: 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.

I would add that without abundance to absorb demand from higher earners, lower earners’ rents would have gone up far more as people bid for scarce housing.

Extremely poor people do 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.

“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.”