The mortgage crisis that devastated the economy has received endless attention, but it’s not just homeowners who have suffered badly in this economy.
As of 2012, renters made up 35 percent of American households. Their numbers are growing, reversing a decades-long uptick in home ownership.
And in the last 50 years, the percentage of income they’re spending on the rent has increased dramatically. A quarter of renters are spending more than half their income on rent.
Ymelda Alvarez, her husband and their two daughters live in a tiny one-bedroom apartment just east of downtown Los Angeles in a neighborhood called Boyle Heights. It’s not a fancy or trendy area; it’s a poor part of town with a lot of crime and most of the schools are struggling.
Their apartment consists of a front living room converted to a bedroom, a small kitchen and a little room in the back with bunk beds for the kids. Other amenities include sagging ceilings, leaky faucets, doors that don’t lock and pests like cockroaches and rats.
For this they pay $1,000 a month.
But it’s currently their only option. Antonio, her husband, can’t land a full-time job and only makes about $1,200 month from stringing together part-time work at a school nearby.
“That would only be enough for the rent and some bills,” Ymelda Alvarez says. She says they spend so much on rent they have to cut back in other areas.
“I always think about the rent first, then about food. If it is not enough we have to cut back on food,” she says.
‘We Have To Embrace Development’
Across Los Angeles, others like the Alvarez family are struggling. The city is now home to the highest proportion of renters of any major American city. A lot of people want to live there; it’s almost always sunny, after all, and the beach is right there.
On a more somber note, in the last eight years, 143,000 new renters have entered the Los Angeles market — many of them displaced by the foreclosure crisis. But there aren’t enough places for them to live in. The construction of new apartments hasn’t kept up with the increase in renters.
A big part of the problem, developers say, is that L.A. is a particularly difficult city to build in. The apartments that do get built tend to be pricey; meanwhile, the city faces a shortage of funds for affordable housing.
Beverly Kenworth, the head of the California Apartment Association, says it’s fundamentally an issue of supply and demand.
“If we really want to address this housing crisis — because it is a crisis — we have to really be much more forward-thinking,” she says. “We have to embrace development; we have to embrace the growth that’s happening.”
Kenworthy says developers have to navigate a city zoning code that is almost 70 years old. All but the biggest, best-funded builders have simply given up — including members of her organization.
“Some of them build, and some of them look to build here in L.A.,” she says. “I have others who simply won’t do it anymore because it’s just too hard and too uncertain, and it’s too costly.”
Developer Carl Lambert says there’s a phrase used in the industry to describe the agony of getting a project approved: “brain damage.”
He says before he could break ground on recent building, he needed 33 separate sign-offs. It’s not uncommon for it to take three years from when he buys a piece of land to when he can start construction.
“Now I’ve experienced all this wonderful pain over the years and I am now open and do you think I’m going to want to go out and give everybody deals, or give them a $600 a month apartment with an ocean view?” he asks. “No, it’s going to be fair market value.”
And therein lies the problem. Apartments are being built in L.A. — at levels not seen since before the recession — but most are top-of-the-line.
Funding Cuts Hamper Affordable Housing Efforts
When it comes to affordable housing, there’s a shortfall of almost half a million units in L.A. County, and it’s only getting worse.
That’s because there is half a billion dollars less available in state and federal funding for affordable housing in the county than there was before the recession.
“We focus on creating jobs here in Los Angeles for people who live outside the city, and we don’t focus on building housing for people so that they can live near where they work,” says L.A. councilman Gil Cedillo.
In April, Cedillo led a “Renter’s Day” to highlight the problem of affordability. There was a modestly attended rally, but as for action? That will have to wait.
New York City mayor Bill de Blasio recently announced a $8.2 billion plan to build and maintain 200,000 affordable housing units over the next decade.
“I really admire what those people do in New York because they really move aggressively on these problems,” Cedillo says. But in L.A., a city that’s trying to balance its budget, the money simply isn’t available:
“We don’t have those types of resources to commit to housing,” he says.
Cedillo has been lobbying for a state bill that would raise $500 million a year for affordable housing by charging a fee on real estate transactions, but the measure seems unlikely to pass.
That means that now, for first time in three decades, there are virtually no state funds available for affordable housing in California.
Los Angeles is one of the most expensive rental markets in the country, but the problem isn’t just in California. Across the country, rental prices have risen as wages have stagnated.
Chris Herbert is the director of research at Harvard’s Joint Center for Housing Studies. Just last December they released a report on rental housing in the country. He says the situation is bad everywhere and it’s just a question of how bad.
“About 50 percent of renters are paying more than 30 percent of their income for monthly housing costs,” Herbert says. “At last count, more than a quarter of households were spending more than 50 percent of their income for housing.”
Herbert says that 30 percent is the standard amount of what people should pay for housing out of their budget to still have enough left over for life’s necessities. So if you’re spending significantly more than that, like the Alvarez family, the odds of having enough for other basic needs like food, health care and any sort of retirement savings is severely diminished.
“The tradeoffs people are making are not tradeoffs between going to the movies or going out to eat, but basically … nutrition, basic health care and saving for their future,” he says. “Those are really important tradeoffs people are making in trying to find affordable housing.”
As bad as things are, it looks like they’ll be getting worse. The Harvard study projects that around four to five million more people will start renting over the next decade.
Ben Bergman is a business reporter for Southern California Public Radio.