For renters, the national recovery could be very bad news. That warning came from the Harvard Joint Center for Housing Studies’ latest report on America’s rental housing. Rental markets are now tightening, with vacancy rates falling and rents climbing. With little new supply of multifamily units in the pipeline, rents could rise sharply as demand increases. Regardless, affordability is likely to deteriorate further over the next few years as persistently high unemployment limits renter income gains.

When job growth regains momentum, the number of renter households could climb quickly. Given the long lead times needed to develop new multifamily housing, a sharp increase in demand could quickly reduce vacancy rates and put upward pressure on rents. While this would be good news for owners and investors in rental housing, it would also fuel the intense affordability pressures, the study warns.

A variety of rental market indicators suggest that the worst repercussions from the recession may be over. While this is good news for most of us, especially property owners, the recovery may increase the rent pressures on households still struggling in an environment of sluggish job growth. The ongoing foreclosure crisis should continue to spur growth in the number of renter households as former owners switch to renting. Single-family home foreclosures will also add a steady flow of units to the rental market. The ability of renter households to occupy these homes will be an important factor in maintaining the stability of distressed neighborhoods hard hit by the foreclosure crisis.

Although there appears to be an excess supply of rental housing at present, this could change quickly as the economy recovers and household formation among younger adults returns to a more typical pace. An upsurge in demand could outstrip the available supply and push construction activity back up, the study says.

One of the most important questions going forward is whether mortgage financing will be available to fuel rental property purchases and investments. Even before the financial crisis, Fannie Mae and Freddie Mac were an important source of financing for both multifamily and investor-owned single family properties. And during the crisis, the GSEs—along with FHA—accounted for the vast majority of new financing. As Congress takes up debate about what, if any, role the GSEs should play in the mortgage markets, policymakers must consider the vital importance they have as a source of capital for rental housing.

By Steve Cook