In 2023, an increase in renter incomes and the expansion of rental assistance led to a modest decrease in the number of renter households facing worst case needs, according to Harvard’s Joint Center for Housing Studies (JCHS).
A recent report from the U.S. Department of Housing and Urban Development (HUD) indicates that this was the first decline in worst case needs since 2017, after a series of significant increases. The recent improvement resulted from shifting trends that reduced the total number of very low-income renter households and expanded affordability.
Key Findings:
- As of the last measurement in 2023, there were 8.46 million households that qualified based on these criteria.
- Worst case needs rose from 2017 to 2021, growing from 7.72 million to a record-high 8.53 million.
- While the recent decrease was small (62,000 households), it was a notable change from consecutive increases.
Note: Renter households have worst case needs if they make no more than 50% of area median income, do not receive rental assistance, and spend more than half of their income on rent and utilities or live in severely inadequate housing.
According to HUD, renter households are classified as having worst case needs if they have very low incomes (not exceeding 50% of the area median income), do not receive rental assistance, and either spend over half of their income on rent and utilities or reside in severely inadequate housing.
Examining Worst Case Housing Needs, Improved Access to Rental Assistance & More
Overall, the decline was due to a mix of factors that were significantly different from those of prior years. The analysis presented in the report points to four important trends that changed and ultimately helped reduce worst case needs from 2021 to 2023.
To begin with, the incomes of renters increased, which led to a decrease in the number of households that were classified as very low-income. According to HUD, adjustments to renter incomes could have cut worst case needs by 163,000 households, which stands in stark contrast to prior years when suppressed renter incomes led to a net increase in need.
From 2021 to 2023, the actual count of renter households with very low income decreased by 198,000. The drop came entirely from a substantial drop in extremely low-income renters making no more than 30% of area median income.
Further, rental assistance became more available. A larger proportion of households that qualify for income assistance received it this year compared to past years. According to HUD’s estimates, this reduction in the rental assistance gap could have led to a decrease of 169,000 households experiencing worst case needs. This was again a significant difference from the previous two reports when the growing assistance gap was a driver of rising worst case needs.
While assistance still does not meet the need, the number of very low-income households receiving aid increased from 5.1 million in 2021 to 5.4 million in 2023, partly because of emergency assistance programs established during the pandemic. The proportion of those receiving aid increased by 1.4 percentage points, yet the assistance rate remains only 28% for renters with very low incomes. Over this period, households with extremely low income experienced the largest increases, with their assisted share rising from 33% to 36%.
Robust overall household formation that could have pushed up worst case needs was offset by a larger share of households becoming homeowners. As a result, the formation of renter households would have led to an increase in worst-case needs by only 74,000 households from 2021 to 2023, a significant decrease from the contribution of 239,000 households from 2019 to 2021. This resulted in household formation being a less significant factor behind worst case needs compared to prior years.
Renter Household Trends & What to Expect
Market conditions for renters with extremely low income improved a bit. The main driver includes all the factors influencing occupancy rates and rents, which subsequently determine the availability and affordability of homes for renters with very low incomes. The shortage of these homes was a smaller factor this year, potentially pushing worst case needs up by an estimated 245,000 households in 2019 to 2021 but by only 196,000 in 2021 to 2023.
The recent decline in worst-case needs, while modest, is a welcome change after years of increases. Despite this bit of good news, many housing challenges remain. The number of households experiencing worst case housing needs remains near record highs.
Moreover, although extremely low-income households have received some relief from the most severe housing challenges, the support provided remains insufficient to address the significant need that persists. Severe housing problems have also emerged among higher income brackets.
As a result, an increasing number of unassisted renter households that make no more than 80% of area median income (the threshold for low income) are severely cost burdened or live in severely inadequate conditions. This indicates that the growth of renter incomes did not completely address the fundamental housing issues; rather, it moved households above the very low-income threshold for worst case housing needs.
The HUD report identifies strong immigration and intensified competition for rental housing as key reasons maintaining the number of renters with worst case needs at near-record levels. However, a detailed investigation of these drivers does not corroborate this conclusion. Indeed, the strong increase in renter households contributed to the significant escalation of worst case needs from 2019 to 2021. However, this factor proved to be considerably less influential between 2021 and 2023.
Similarly, although the competition for low-cost rentals increased the number of worst-case needs from 2021 to 2023, this competition was actually somewhat less than that of 2019 to 2021. In the more recent period, the most significant factors that differed from 2019 to 2021 were increased renter income gains and rises in rental assistance, both of which contributed to a reduction in the growth of worst case needs compared to what it would have otherwise been.
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