The mortgage crisis is having a devastating effect on the nation’s rental housing market, according to a new report by Harvard University’s Joint Center for Housing Studies supported by the MacArthur Foundation.

More people are competing for low-cost rental housing as a dramatic rise in foreclosures and sluggish home sales last year resulted in nearly one million more renter households – more than four times the rate of renter growth from 2003 to 2006. At the same time, many renters are threatened with sudden eviction because 20 percent of all foreclosures involve small, investor-owned rental properties for families. Adding to the affordability dilemma, the mortgage crisis has tightened lending, making it more difficult to secure financing for rental housing construction and preservation.

“This new report underscores that the demand for affordable rental housing is increasing at the same time that the supply of low-cost rental homes is declining,” said MacArthur President Jonathan Fanton. “The debate on national housing policy must not exclude the more than 35 million renter households. We clearly need policies that honor the role of rental housing as well as homeownership. Within that context, preservation and improvement of existing affordable rental homes is an essential element.”

Fanton announced 21 finalists who will compete for $35 million in new MacArthur funding to states and localities that demonstrate innovative public-private initiatives that focus on affordable rental housing. These state and local efforts reflect a growing movement across the country to address rental housing challenges and build a new policy environment, making possible the preservation of one million units over the next decade. The funding is part of MacArthur’s $150 million Window of Opportunity initiative, which seeks to preserve directly 300,000 rental units across the nation.

The 21 finalists, chosen from 80 applicants, are Atlanta, Georgia; Austin, Texas; Denver, Colorado; Connecticut; Florida; Idaho; Indiana; Iowa; Los Angeles, California; Maryland; Massachusetts; Minnesota; New Mexico; Ohio; Oregon; Pennsylvania; St. Louis County, Missouri; Seattle, Washington; Vermont; Virginia; and Washington State. The ten localities selected for funding will be announced in early 2009.

Documenting the contraction in the affordable rental housing supply, the Joint Center report finds that the number of units in large multifamily properties that were converted from rentals to condos rose from a few thousand in 2003 to 235,000 in 2005 – more than the total new family completions that year. From 1995 to 2005, nearly 2.2 million rental units were demolished or otherwise permanently removed from the inventory.

The report also finds that affordability remains a significant challenge for many renters. The national median gross rent rose 2.7 percent in real terms from 2001 to 2006 while the median renter income fell by 8.4 percent. Nearly half of all renters paid more than 30 percent of their incomes for housing in 2006, and about a quarter spent more than half.

Access to homeownership has been the centerpiece of government housing programs for the past decade. The report finds such policies have unintentionally contributed to soaring foreclosure rates by extending homeownership opportunities to higher-risk households with limited incomes and wealth. The fallout from the mortgage crisis is particularly acute in low-income minority communities. While acknowledging the importance of efforts to assist homeowners facing foreclosure, the report proposes the development of new policy initiatives that better balance housing opportunities for renters and homeowners. Read the report.