Joint Center: Tight Supplies Fuel Concerns about Housing Affordability

Despite increasing “normalization” in the housing market since the Great Recession, housing and rental affordability is at its lowest point in years, the Joint Center for Housing Studies at Harvard University reported.

The Center’s annual State of the Nation’s Housing report ( warned increased demand for housing, combined with tight inventories of both for-sale and for-rent homes continue to push up home prices, adding to concerns about affordability. The report said nearly 19 million U.S. households pad more than half of their incomes for housing and in many markets, homeownership is out of the question for a large portion of the population.

“While the recovery in home prices reflects a welcome pickup in demand, it is also being driven by very tight supply,” said Chris Herbert, the Center’s managing director.

The report noted even after seven straight years of construction growth, the U.S. added less new housing over the last decade than in any other ten-year period going back to at least the 1970s. The rebound in single-family construction has been particularly weak, Herbert said.

“Any excess housing that may have been built during the boom years has been absorbed, and a stronger supply response is going to be needed to keep pace with demand–particularly for moderately priced homes,” Herbert said.

National home prices recovered from the pre-recession peak last year. The report said real prices rose last year in 97 of the nation’s 100 largest metropolitan areas. At the same time, though, the longer-term gains varied widely across the country, with some markets experiencing home price appreciation of more than 50 percent since 2000, while others posted only modest gains or even declines. These differences have added to the already substantial gap between home prices in the nation’s most and least expensive housing markets.

The report said, on average, 45 percent of renters in the nation’s metro areas could afford monthly payments on a median-priced home in their market area. But in several high-cost metros of the Pacific Coast, Florida and the Northeast, that share is under 25 percent.

“Among other factors, the future of U.S. homeownership depends on broadening the access to mortgage financing, which remains restricted primarily to those with pristine credit,” the report said.

The report also noted despite a strong rebound in multifamily construction in recent years, the rental vacancy rate hit a 30-year low in 2016. As a result, rent increases continued to outpace inflation in most markets last year. Although rent growth did slow in a few large metros–notably San Francisco and New York–the Joint Center noted “little evidence” that additions to rental supply are outstripping demand. In contrast, with most new construction at the high end and ongoing losses at the low end (interactive chart), there is a growing mismatch between the rental stock and growing demand from low- and moderate-income households.

The report said income growth did, however, pick up last year, reducing the number of US households paying more than 30 percent of income for housing–the standard measure of affordability–for the fifth straight year. But coming on the heels of substantial increases during the housing boom and bust, the number of households with housing cost burdens remains much higher today than at the start of last decade. Moreover, almost all of the improvement has been on the owner side.

“The problem is most acute for renters,” Herbert said. “More than 11 million renter households paid more than half their incomes for housing in 2015, leaving little room to pay for life’s other necessities.”

Looking ahead, the report said as the members of the millennial generation move into their late 20s and early 30s, the demand for both rental housing and entry level homeownership is set to soar.

“The most racially and ethnically diverse generation in the nation’s history, these young households will propel demand for a broad range of housing in cities, suburbs and beyond,” the report said. “The baby-boom generation will also continue to play a strong role in housing markets, driving up investment in both existing and new homes to meet their changing needs as they age. Meeting this growing and diverse demand will require concerted efforts by the public, private, and nonprofit sectors to expand the range of housing options available.”