Michelle W Bowman: Welcoming remarks - FedCommunities event
Welcoming remarks by Ms Michelle W Bowman, Member of the Board of Governors of
the Federal Reserve System, at the FedCommunities event "Keys to Opportunity in the
Housing Market: Research on Strategies for Preserving and Expanding Rental Housing
Affordability", Washington DC, 26 September 2023.
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Welcome, and thank you for joining us for the Federal Reserve's Community
Development Research seminar series. This series enables the sharing of important
research on economic conditions and opportunities in lower-income communities. We
believe that conducting research to better understand these topics is an important way
to further the goal of promoting an inclusive U.S. economy.
The theme of this year's seminar is "Keys to Opportunity in the U.S. Housing Market."
Today's event is hosted by the Board of Governors and the Reserve Banks of
Philadelphia, Atlanta, and Minneapolis, and will focus on the affordability of rental
housing and exploring potential strategies to address this important issue.
We know that high-quality research can help us understand and address challenging
issues, so I appreciate that we are joined by researchers and practitioners to discuss
their work on this important topic.
Individual economic well-being and financial stability are often associated with access
to stable, affordable housing. Those at the lower end of the income spectrum tend to
face the most acute hardships.
We often find that renters face housing affordability challenges, in part because renters
typically have lower incomes than homeowners. In addition, the median renter also
tends to pay substantially more for housing as a percent of their income than many
homeowners. As a result, they tend to have less room in their budgets for discretionary
expenses, potentially leaving them more vulnerable to income disruptions or
unexpected expenses.
The most vulnerable populations faced significant risks going into the pandemic, but
public policy interventions mitigated many of these risks. Some of these policies will be
discussed today.
The job losses experienced during the pandemic and other economic disruptions
exacerbated concerns about ongoing rent affordability and delinquency, but fortunately,
those did not materialize. Looking back, and with the goal of informing future
policymakers facing similar circumstances, the pandemic experience provides a unique
opportunity for housing researchers to gain valuable insight into the utility and efficiency
of different policy actions.
Which programs were most effective in supporting renters throughout this period? Were
some more cost-effective than others? What are their lasting impacts on rental markets
from these policies and protections? Are the lessons from the pandemic unique to that
experience? Our first panel will offer insights into these questions as we think about
how to prepare for future economic conditions.
More recently, renters and their families have struggled with inflation. Rents also grew
rapidly as we emerged from the pandemic. While rent inflation has eased, prices for
renters seeking new leases grew by 18 percent in 2021 compared to 2 percent in 2019.
This price growth has strained renters' budgets. A common way to measure whether
renters are cost burdened is whether they pay 30 percent or more of their income on
rent.
While wages have also risen during this time, in 2021, the percent of renters facing
increasing cost burdens rose to 49 percent, up from 46 percent in 2019. These
increased cost pressures underscore the importance of the Federal Reserve's efforts to
fight inflation, which can complement efforts to address other factors affecting rent
prices, including increasing the supply of rental housing.
The rate of rent increases has come down from the extremes of 2021 as units built
during the pandemic-era construction boom have begun to hit the market. However, the
most recent data show that new lease prices remain more than 20 percent higher than
they were before the pandemic. This means that the average renter signing a new
lease in 2023 will pay over $200 more per month on rent than they would have in 2019.
For single-family rental properties, the average listing costs even more, around $300
more per month on average for a new lease today as compared to just before the
pandemic.
These rent increases can be particularly challenging, given that renters have long faced
difficulty with rent affordability. As of May, 65 percent of lower-income renters found it
difficult to meet usual household expenses, 6 percentage points higher than in March
but below peak levels from the summer of 2022. According to the Board's 2022 Survey
of Household Economics and Decisionmaking, 17 percent of renters were behind on
their rent in the prior year, up from 10 percent in 2019. I look forward to learning more
from the panelists and their research and experiences to understand how public policy
can best address these issues.
In our second panel, we will learn about promising approaches to address longer-term
rental affordability issues. For example, how do state and local land-use regulations
impact the availability of low-cost housing? How would novel approaches to housing
development increase supply and longevity of affordable units? Should practitioners
consider more comprehensive programs that include workforce development and
financial literacy to help renters and their families achieve economic stability? Access to
stable, affordable housing is critical for economic well-being, and it provides an
important foundation for an individual to fully participate in the economy.
I hope that today's discussion is valuable for all our panelists and participants. I am
excited that we are able to facilitate an ongoing dialogue among this distinguished
group of researchers and practitioners to share information and discuss policy
challenges related to affordable rental housing.
I hope that these conversations can lead to identifying evidence-based solutions to
meet the demand for affordable housing that is so crucial in maintaining vibrant
communities. Thank you for joining us.