NMHC Research Foundation Study Examines Apartment Filtering

The comprehensive review finds the number of lower-income residents moving into naturally occurring affordable rentals has declined since the Great Recession.
Filtering graphic. Data and chart courtesy of NMHC

A new study by the NMHC Research Foundation has found the nation’s acute housing crisis is driving up rents, worsening affordability problems, spurring a rise in homelessness and limiting the impacts apartment filtering had previously had in providing homes for low-income renters. Apartment filtering, the process in the housing market that has traditionally produced naturally-occurring affordable rental homes through aging and obsolescence, has declined since the Great Recession as rents rose, leading to lower occupancy by low-income residents. 

“This is the most comprehensive review of filtering in rental housing ever undertaken. As the study shows, the Great Recession resulted in a sea-change on how the filtering process worked. While it is too early to tell whether the current economic crisis will have a similar impact, this study provides both the framework and a baseline to make that assessment. It also reinforces the need to continue to build housing at a variety of price levels.” Caitlin Walter, vice president for research at the National Multifamily Housing Council, told Multi-Housing News.

The study, “The Filtering of Apartment Housing between 1980 and 2018,” is the first in-depth analysis of apartment filtering and NMHC hopes it can provide critical information to multifamily industry leaders, policymakers and researchers. The report was researched and written by Dr. Dowell Myers, professor of policy, planning and demography in the Sol Price School of Public Policy at USC, and Dr. JungHo Park, postdoctoral researcher at the USC Population Dynamics Research Group.

As the country grapples with the ongoing COVID-19 crisis and subsequent impact on the economy, NMHC notes fallout from the pandemic will further exacerbate the shortage of workforce housing that pre-dated the virus. That’s because following the Great Recession in 2008 and 2009 low-income occupancy declined in the nation’s apartment housing stock as affordability challenges increased, despite new construction of properties largely targeting middle- and higher-income groups.

In decades past, the new construction would then free up apartments in the older properties for the lower-income residents but that is not happening. Instead the research found from 2011 to 2018, the low-income occupancy share declined by 3.8 percent in properties buildings constructed in the 1960s, by 6.0 percent for 1970s apartments and by 4.4 percent for 1980s apartments. From 1990 to 2011, the opposite occurred with filtering increasing the low-occupancy share by 11.3 percent for 1960s buildings, 8.6 percent for 1970s apartments and 10.3 percent for 1980s building.

“Rising rents in the market exceeded income changes of renters, and so affordability broadly declined. Even though the older units provided the greatest refuge for low-income renters, their rent-to-income ratio grew higher each decade,” according to one of the study’s findings.

The report also points to the decline in homeownership rates as another deterrent to filtering in the post-recession era as it shifted another 8 million more households into competition for rental apartments. Combined with the slow rate of new construction at that time, many potential homebuyers ended up competing for rental units. The research shows that every one percentage point decline in the homeownership rates among the 25-to34-age group equated to a 0.4 percentage point decline in the rate of filtering.

While the report does note that a continued stream of new construction, even if it enters the market with higher rents, is still important to the success of filtering in providing low-income residences, the housing stock “requires nurturing if we wish to avoid losses of low-income opportunity as well as a surge in homelessness.”

Part of the solution has been direct expenditures for subsidized housing, but tenant subsidies have never been sufficient to deal with the needs and now the need is greater than ever, according to the report.

The study noted that in the past, filtering did provide substantial boosts in housing for low-income residents. About 69,000 additional low-income occupied units were generated each year between 2000 and 2006 in the existing stock. Approximately 22,000 units were added annually through growth of HUD-subsidy programs with another 92,000 low-income (50 percent of AMI) units were added each year through LIHTC tax subsidies. After 2011, federal subsidized programs were reduced and the natural filtering turned negative.

“We see how low-income access to housing depends on trends that impact the middle class as well. In the end, we are reminded that the housing market is an integrated web of substitutions serving a diversity of people, all of whom are struggling for shelter, and none of whom can be neglected without consequences for the others,” the study’s authors concluded.