Harvard Joint Center: Improvement in Housing Market, But Much Has Worsened

In its 30th annual edition, the Harvard Joint Center for Housing Studies State of the Nation’s Housing Report said while the U.S. housing market appears to be on “sound footing,” opportunities for low-income and medium-income households have worsened, with the gap between white and black homeownership widening further.

The report (www.jchs.harvard.edu/state-nations-housing-2018) said in the past 30 years, more than 40 million housing units have been built in the U.S., the country has added 27 million new households; and last year’s national homeownership rate of 63.9 percent approached the 64 percent rate of the late 1980s. However, the number of Americans burdened by housing costs has risen by nearly 14 million households over the past 30 years; the number of households with student loan debt has nearly doubled; and the gap between black and white homeownership has widened.

“By many metrics, the U.S. housing market in 2018 is on sound footing,” said Chris Herbert, managing director of the Harvard Joint Center for Housing Studies. “But a number of challenges highlighted in the first State of the Nation’s Housing report 30 years ago persist today, and in many respects the situation has worsened for both the lowest-income Americans and those higher up the income ladder.”

The report said the real median income of households in the bottom quartile increased only 3 percent between 1988 and 2016, while the median income for adults aged 25-34 rose by just 5 percent. Meanwhile, the median home price grew 41 percent faster than inflation between 1990 and 2016, the median rent grew 20 percent faster, and the nation had 2.5 million fewer units renting for less than $800 a month.

The report also noted increases in prices and rents combined with a growing lack of subsidies for low-income households mean that nearly a third of all households (38.1 million) paid more than 30 percent of their incomes for housing in 2016, the widely accepted metric for affordability. These include 20.8 million renters (47 percent), and of these, 11 million pay more than half their income for housing. While these figures are down slightly from their peak during the recession, they are significantly higher than in previous decades.

“If incomes had kept pace with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs,” said Daniel McCue, a senior research associate at the Harvard Joint Center for Housing Studies and lead author of the report. “But that hasn’t happened.”

The report also points to constraints in the supply of new housing, which is fueling affordability challenges. Construction started on 1.2 million new housing units in 2017, up slightly from 2016. The entire increase last year came from single-family starts, which were up 8.6 percent but, at just 849,000 units in 2017, remained well below the 1.1 million per year historical average. In contrast, multifamily starts declined by 9.7 percent to 354,100 units. The relative lack of new housing, along with Americans’ decreasing propensity to move, limited the number of homes for sale, which dropped to record lows in 2017.

As a result, house prices rose 6.2 percent in 2017 and now top their pre-crisis peaks in a majority of the nation’s largest metros. While rents also increased by a more modest 3.7 percent, there are signs that rent increases are slowing and vacancies are increasing, particularly for new, high-end units.

“If the nation is to make real progress in addressing its housing challenges, there is a clear need to expand assistance for those beyond the market’s reach,” Herbert said. “We need strategies to help the private sector produce more moderately-priced housing. Doing so will require new approaches for making effective use of public funding, reducing construction costs, and easing regulatory barriers.”