U.S. Faces ‘Growing Crisis’ in Housing Supply

With home prices rising and rents in some locations skyrocketing, affordable housing advocates assert that housing options are worse today than in decades.

“America faces a growing crisis in housing supply unseen since the aftermath of the Second World War,” wrote Joel Kotkin of The Center for Opportunity Urbanism in a report this week, America’s Housing Crisis (https://drive.google.com/file/d/0B-fbyryaEp_sWkdMb3R1aGZxWjQ/view?usp=sharing&pref=2&pli=1). “It is both driving families out of many regions, particularly along the ocean coasts, and forcing many others to live in more crowded dwellings than most prefer.”

In a separate analysis this week (http://www.zillow.com/research/housing-affordability-q4-2015-12111/), Zillow Inc., Seattle, said U.S. metros that historically have offered the best chance of success for children from low-income families have become among the least affordable cities in the country. This limits opportunities for low-income people who cannot afford to live in places that offer the most potential to climb the socioeconomic ladder.

The Zillow analysis said nationally, homebuyers could expect to spend 15 percent of their income on a monthly mortgage payment at the end of 2015, while renters could expect to pay just under 30 percent of their income on monthly rent payments. In two-thirds of metros, renters could expect to put more of their income towards rent than the historical average. In major job markets such as the Bay Area, New York and Los Angeles, the median rent requires more than 40 percent of the median income. Renters in Los Angeles can expect to spend nearly half of their income on rent.

“Across the country, low-income people have been most affected by unaffordability,” said Zillow Chief Economist Sylvia Gjudell. “Wages are growing slower than home values, and tight inventory at the bottom end of the housing market has driven up values, pricing many of them out of homeownership.”

Kotkin noted with supply limited, housing price inflation has re-emerged. In contrast, expenditures on food, apparel and transportation have dropped or stayed about the same. In 2015, rises in housing costs essentially swallowed savings made elsewhere, such as on energy. These high housing prices, he said, also boost rents, largely by forcing potential buyers into the apartment market. The COU report said rental costs now comprise the largest share of income in modern U.S. history. Since 1990, renters’ income has been stagnant, but inflation adjusted rents have soared 14.7 percent.

The COU report said middle and working class renters fare the worst. In New York, Los Angeles, Miami and San Francisco, for example, renters spend 40 percent of their income on rent, well above the national average of under 30 percent. In each of these markets there have been strong increases (income adjusted) relative to historic averages. In New York, rents increased between 2010 and 2015 by 50 percent, while incomes for renters between ages 25 and 44 grew by just 8 percent.

“Owning property constitutes the largest share of middle and working class assets,” Kotkin said. “Homes represent only 9.4 percent of the wealth of the top 1 percent, but 30 percent for those in the upper 20 percent and, for the overall three-fifths of the population in the middle, roughly 60 percent. But in many parts of the country even middle class families have been priced out of the market to purchase a home. Forced to expend their incomes on such high rents, they have little chance to afford a down payment, and could end their careers with extremely modest assets.”

The Zillow report noted while home buying is “relatively affordable” right now, lower-income people cannot take advantage.

“Conversely, persistently low mortgage rates are keeping the share of the income homebuyers can expect to spend on their monthly mortgage payments lower than the historical norm, even as home values continue to recover,” Zillow said. “However, low-income people may not be able to take advantage of relatively affordable mortgage payments, due to high rents making it difficult to save for a down payment and few available homes within their price range.”

“Getting ahead and improving your socio-economic status is at the very heart of the American Dream,” Gjudell said. “We already knew that high rents and growing housing costs were hitting low-income people hardest, and it’s clear the housing affordability crisis on the coasts is a barrier to their upward social mobility.”

In February, the National Housing Conference report Housing Landscape 2016 noted rental housing costs continue to rise as demand increases among working households. The report said more low- and moderate-working households are renting as opposed to owning their homes, with the share of households who rent increasing from 50.8 percent to 52.6 percent from 2011 to 2014.

“Working households are less likely to own their homes, due partly to the lingering effects of the foreclosure crisis, as well as the difficulties that many low- and moderate-income households have qualifying for a mortgage and saving enough money for a down payment,” said NHC Vice President of Research Lisa Sturtevant. “This increasing demand for rental housing puts upward pressure on market rents. High demand for rental housing and escalating rents prevent many working families from moving into homeownership, building wealth, and getting a foothold in the middle class.”