Harvard Joint Center: As Housing Recovery Strengthens, Affordability, Other Challenges Remain
The national housing market has regained enough momentum to provide an engine of growth for the U.S. economy, according to The State of the Nation’s Housing report released by the Joint Center for Housing Studies, Cambridge, Mass.
The report (http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs_2016_state_of_the_nations_housing_lowres.pdf?_ga=1.57516842.1880529900.1466602874) noted robust rental demand continues to drive the housing expansion. While sales, prices and new construction of single-family homes are on the rise. Even more importantly, the report said income growth has picked up, particularly among the huge millennial population that is poised to form millions of new households over the coming decade.
However, the report also cautions that obstacles continue to hamper the housing recovery–in particular, lingering pressures on homeownership, eroding affordability of rental housing and growing concentration of poverty. Chris Herbert, managing director of Harvard Joint Center, said the national homeownership rate has been on an unprecedented 10-year downtrend, sliding to just 63.7 percent in 2015.
“Tight mortgage credit, the decade-long falloff in incomes that is only now ending and a limited supply of homes for sale are all keeping households–especially first-time buyers–on the sidelines,” Herbert said. “And even though a rebound in home prices has helped to reduce the number of underwater owners, the large backlog of foreclosures is still a serious drag on homeownership.”
The report said as lingering effects of the housing crash fade, homeownership may regain some lost ground, but how soon and how much are open to question. It noted income inequality became more pronounced over the past decade, with households earning under $25,000 accounting for nearly 45 percent of the net growth in U.S. households between 2005 and 2015.
“The question is not so much whether families will want to buy homes in the future, but whether they will be able to do so,” Herbert said.
The report said mirroring persistent weakness on the owner-occupied side is an equally long surge in rental housing demand, with increases across all age groups, income levels and household types.
“With vacancy rates down sharply and rents climbing, multifamily construction is booming across the country,” the report said. “But with strong growth among high-income renters, so far most of this new housing is intended for the upper end of the market, with rents well out of reach of the typical renter making $35,000 a year.”
Because of the widening gap between market-rate rents and the amounts many households can afford at the 30-percent-of-income standard, the report said the number of cost-burdened renters hit 21.3 million in 2014, with a record-high 11.4 million of these households paying more than half their incomes for housing. Rent burdens are increasingly common among moderate-income households, especially in the nation’s 10 highest-cost housing markets, where three-quarters of renters earning $30,000-45,000 and half of those earning $45,000-75,000 paid at least 30 percent of their incomes for housing in 2014.
“Cost burdens are nearly universal among the nation’s lowest-income households,” the report said. “Federal assistance reaches only a quarter of those who qualify, leaving nearly 14 million households to find housing in the private market where low-cost units are increasingly scarce. Low-income households with cost burdens face higher rates of housing instability, more often settle for poor-quality housing, and have to sacrifice other needs-including basic nutrition.”
