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Catherine Rampell: Rents for the rich are plummeting. Rents for the poor are rising. Why?

Catherine Rampell: Rents for the rich are plummeting. Rents for the poor are rising. Why?

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Faye Porter’s heat frequently doesn’t work, leaving icicles inside her windows during Chicago’s brutal winters. Faulty wiring nearly started a fire in her kitchen not long ago. Yet, despite all this, her landlord recently raised her rent by $70.

“They say that the cost of living continues to rise, but then never provide additional amenities,” said Porter, who lives in Hyde Park, a diverse neighborhood on the city’s South Side. “They remain the same or are less.”

Porter could be the poster child of the rental housing market over the past year: rent hikes on lower-quality housing, generally occupied by the most financially insecure tenants, and steep discounts on luxury apartments catering to the rich.

Much has been written about the two-track, or “K-shaped,” economic recovery, in which higher-income households have generally been doing well financially, while lower- and moderate-income ones are foundering. High-wage employment has recovered to roughly where it was pre-pandemic; the number of low-wage jobs, on the other hand, is still deeply in the hole. But that’s not the only way that the poor have gotten a raw deal. Low-income households are getting squeezed from both directions — less income and higher prices for what is usually their biggest single monthly expense: rent.

For well-off tenants, bargains abound. In most major metro areas, rents for high-end residential housing have plummeted, according to data from CoStar, a real-estate analytics company.

Meanwhile, rents for lower-end apartments — older or lower-quality structures, with fewer amenities — have held steady or increased, depending on the area. In Dallas-Forth Worth and Chicago, they’re up about 2% and 1%, respectively.

And some unlucky tenants have endured much bigger hikes. Porter, whose contract job at a nonprofit recently ended, is paying a nearly 5% increase, bringing the monthly price of her two-bedroom apartment to $1,500.

So what’s going on? Why are higher-income people getting a break they don’t need, and lower-income people facing rent hikes when they’re more at risk of losing their jobs?

The dynamics at the high end of the market are clearer. With covid-19 largely shutting down the perks of city life, many tenants who had the means to leave did so. Higher-wage workers who were juggling remote work and virtual school sought out more space, often purchasing a house in the ‘burbs.

“A lot of renters who were already the marginal home buyer — who have stronger credit, have assets, higher income — decided to make the transition to homeownership,” said Jenny Schuetz, a senior fellow at the Brookings Institution. Sales prices for houses in the suburbs of New York, Washington, Chicago and other cities spiked last year, as high-income city residents fled.

That placed downward pressure on rents in the luxe, urban buildings these new homeowners had vacated. Rents were also kept down by a surge in supply, because a lot of newly built, luxury housing happened to come on the market last year.

The story at the low end of the rental market is more complicated. One likely explanation, Schuetz and others say, is that when the economic crisis hit, more people decided to move down the housing ladder to save money. There was already a shortage of affordable units, though. So, this surge in demand for lower-price-point homes ended up bidding those rents higher.

Rent increases at the bottom of the market might also be an unintended consequence of the federal eviction moratorium imposed last year. The moratorium, scheduled to expire this month, shields struggling tenants from displacement and possible homelessness. As of late February, about a quarter of adults in low-income tenant households were behind on their rent, according to the Census Bureau’s Household Pulse Survey. Landlords stuck with tenants who can’t pay may try to offset these losses by raising rents on everyone else.

For many lower- and even moderate-income tenants, this dynamic predates the pandemic. Thanks to chronic shortages of affordable housing, most of these renters spent at least a third of their incomes on housing well before covid. The pandemic simply made things worse. President Joe Biden’s American Rescue Plan appropriates more money for emergency rental assistance and vouchers, which will help some tenants. But alleviating rent pressure, both during the current crisis and after, will ultimately require expanding the supply of affordable housing.

That’s challenging for many reasons. Developers usually expect more limited returns for lower-end units. Subsidies to entice developers can be politically volatile or poorly targeted. Even when developers and municipalities are on board, other red tape or NIMBYism can stall projects.

But popular support for pandemic-related government assistance, coupled with covid-driven shifts in prices and migration patterns, may present an unusual opportunity to overcome these challenges.

Without a greater supply of affordable housing, the two-track pattern is likely to continue. And without more housing options, Porter and her fellow tenants have little leverage to push back on rising rents and deteriorating living conditions. Though, as a volunteer tenant organizer, she still tries.

“The one thing that I do know is that I deserve to be warm and I deserve to be safe and I deserve to be clean,” she said. “Those things, they’re not negotiable.”

Catherine Rampell’s email address is crampell@washpost.com. Follow her on Twitter, @crampell.

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