Share this story
Close X
Switch to Desktop Site

Why rent takes a growing bite out of US paychecks

RIVERTOWER . . . Unparalleled Views and Services. 1 bedroom $1,920; 2 bedroom

This apartment ad appeared recently in the New York Times. If these prices sound steep, there is some consolation. There are plenty of two-bedroom, two-bath units available here at under $1,600 a month.

About these ads

New York is not the only city afflicted by astronomical rents. Tenants from New York to San Francisco to Boston are digging ever deeper into their pockets to pay for housing. The US Bureau of Labor Statistics reports that rental housing costs across the country rose 36.7 percent between March 1978 and March 1982. The consumer price index for the same period rose 34.4 percent.

But rising rents may be the manifestation of a more fundamental problem -- a shortage of rental housing. The rental vacancy rate nationwide is only 5 percent , according to US Census Bureau figures. Thus, prospective renters all over the country are bidding up the price on scarce units.

The obvious solution might be to build more apartments, under the theory that increasing the supply of rental units will at least moderate rent increases by fostering more the competition for renters' dollars. But two factors appear to be keeping the hammers and saws silent, according to industry analysts and government officials:

* Soaring interest rates have clamped a lid on construction. A spokesman for the National Association of Home Builders says interest rates on construction loans for many builders currently average about 20.5 percent (four points above the prime rate), compared with 13.5 percent in early 1979.

* Rent control. More than 200 communities across the country have some form of rent control, according to the President's Advisory Commission on Housing. Many housing experts say controls protect tenants from arbitrary or unfair rent increases by limiting the rate at which rents can rise. But critics argue that controls have dramatically curbed new apartment construction by preventing builders from getting a fair return on their investment.

Lester Day, executive vice-president of the Los Angeles-based American Development Corporation, says the ''infinitesimal'' amount of rental housing being built in cities like Los Angeles and New York shows that lending institutions and developers don't want to take a risk on rental housing under rent control.

''The general attitude of lenders here in Los Angeles is that they would need to have their heads examined to underwrite a project in a communty with rent controls,'' Mr. Day says.

About these ads

''Under controls, there is no way you can anticipate what future rental increases will be,'' he says, because often rent for an apartment can only rise significantly when the tenant moves out. This means rents rise on an apartment-by-apartment basis and not uniformly for the whole building.

Although new buildings are under construction and old ones are being renovated in some areas, experts say these largely are cooperative apartments or condominiums. They are sold at going market prices, providing owners with a more immediate and surer return on investment. Thus, in many communities, the number of rental units is shrinking instead of expanding as it did in the 1960s and '70 s.

President Reagan's 30-member Advisory Commission on Housing recently released a report that included a section on rental housing. Although the 10-month-old commission is being dismantled, a special Cabinet group will try to prod federal agencies to incorporate its recommendations.

According to Charles Fields, senior policy analyst for the commission, the group's chief proposal is a regulation exempting developers from local or state rent-control laws if their project either is financed in part by the US government or through loans from federally insured lending institutions. Dr. Fields and others say the regulation is fairer and should meet with less resistance than a proposed federal bill to end US housing assistance to any community with rent controls. Such measures have repeatedly failed to clear Congress.

E.S. Savis, assistant secretary for policy development and research for HUD, says the proposal is ''an intriguing idea that merits attention.'' But he adds that he doesn't expect HUD to adopt it this year. However, even if such a regulation is adoped, it is expected to be challenged in court by rent-control advocates.

US Rep. J. William Green (R) of New York has submitted legislation for the past three years that would, among other things, allow tenants to deduct a portion of their annual rent from their federal income tax. But Congressman Green and others don't think the bill will pass as long as large federal deficits loom on the horizon.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.