Thursday, January 19, 2017

New Benchmark Data Modestly Lowers Remodeling Market Size Projections

by Abbe Will
Research Analyst
The Joint Center’s Leading Indicator of Remodeling Activity (LIRA) provides a short-term outlook of national home improvement and repair spending to owner-occupied homes and is benchmarked to national spending estimates from the Department of Housing and Urban Development’s American Housing Survey (AHS). The latest LIRA release projects national spending for home remodeling and repairs will grow to $317 billion in 2017, an increase of 6.7 percent from last year. This LIRA release also updates and revises historical spending levels and growth due to the incorporation of newly released historical benchmark data from the 2015 AHS. Compared to last quarter’s LIRA release, the updated LIRA now shows lower and less cyclical growth in homeowner improvement and repair spending in 2014 and 2015, a somewhat lower market size estimate, and also more modest projections for remodeling market growth in 2017. According to Joint Center tabulations of the AHS, spending in 2014 and 2015 was not quite as robust as the LIRA model predicted, growing 11.3 percent from $250 billion in 2013 to $278 billion in 2015 compared to LIRA estimated growth of 14.3 percent over this time period. As seen in Figure 1, the lower growth in remodeling spending in 2014 and 2015 has implications for the size of the market projected by the LIRA model for 2016 and 2017.

Notes: Data for 2014 and 2015 are based on estimates from the 2015 American Housing Survey. Data since 2016 are modeled by the LIRA. Source: Joint Center for Housing Studies.

Previously, the LIRA estimated a homeowner improvement and repair market size of $305 billion in 2016 and projected spending growing to $326 billion by the third quarter of this year. Now with the replacement of AHS-based benchmark data for previously modeled benchmark estimates, the LIRA model indicates remodeling activity reached $297 billion in 2016 and projects spending will reach $317 billion this year. The implication of slightly slower growth in actual remodeling and repair spending is a reduction in market size projections for 2017 of 2.9 percent or $9.5 billion. Incidentally, the more modest growth projected by the LIRA for 2017 compared to the prior release is not related to the addition of the new historical benchmark data. The LIRA projections revise routinely as the year-over-year trends in the LIRA inputs are updated or revised.

The weighted average of the LIRA inputs produces the LIRA estimates and projections as seen in Figure 2A (for modeling improvements spending trends) and Figure 2B (for modeling maintenance and repair spending trends) compared to the now updated AHS-based benchmark data series for 1994-2015. The improvements LIRA continued to track the reference series very closely in 2014 and 2015. The estimates produced by the improvements LIRA model and the AHS-based benchmark now have a correlation coefficient of 0.84 (p-value of 0.00). And a simple regression of the LIRA output on the benchmark spending series results in an R-squared value of 0.6759, which suggests that upwards of 70% of the variation, or movement, in the improvements spending benchmark can be explained by the LIRA model.

Sources: JCHS calculations using HUD, American Housing Surveys; Department of Commerce, Retail Sales of Building Materials; and US Census Bureau, Construction Spending Value Put in Place (C-30); Leading Indicator of Remodeling Activity.

Similarly, Figure 2B compares the weighted average output of the maintenance and repair LIRA model to its AHS-based reference series. The maintenance LIRA has also tracked its benchmark fairly well since 2013. The maintenance and repair LIRA and its reference series have a correlation coefficient of 0.73 (p-value of 0.00) and a simple regression of the LIRA output on the benchmark results in an R-squared value of 0.5362, which suggests that about 54% of the movement in the home maintenance and repair spending benchmark can be explained by this LIRA model.

Sources: JCHS calculations using HUD, American Housing Surveys; Department of Commerce, Retail Sales of Building Materials; and US Census Bureau, Survey of Residential Alterations and Repairs (C-50); Leading Indicator of Remodeling Activity.

Last spring, the LIRA was re-benchmarked to a measure of home improvement and repair spending based on estimates from HUD’s biennial American Housing Survey, and at that time, historical remodeling and repair data from the AHS was available for 1994–2013. Until the 2015 AHS data became available, the LIRA model was used to estimate historical improvement and repair spending levels since 2013. Once every two years, with new historical AHS data, the LIRA benchmark series will be updated. With the January 2017 release, the LIRA model will be used to estimate historical spending levels since 2015 until the next biennial release of the American Housing Survey allows for actual 2016 and 2017 spending data to replace modeled estimates.

More information and analysis of recent and expected trends in home improvement and repair activity will be forthcoming in the Joint Center for Housing Studies’ latest biennial Improving America’s Housing report to be released on Tuesday, February 28th.

Wednesday, January 11, 2017

The Case for Allowing Tenants and Owners to Remain in Their Homes Post-Foreclosure

by Rachel Bratt
Senior Research Fellow
Although federal guidelines allow foreclosed homes to be sold with occupants, in a recently published article in Housing Policy Debate, I report that the guidelines are largely irrelevant in practice. In fact, data obtained from HUD through a Freedom of Information Act request shows that in Fiscal Years 2010-2014, there were a total of 23,746 requests for FHA-insured foreclosed properties to be conveyed while occupied. However, only 87 of those requests—much less than one percent—were approved by the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA), which is part of HUD.

The data—along with interviews done with key stakeholders in Greater Boston—raise troubling questions about the extent to which HUD/FHA as well as the Federal Housing Finance Agency (FHFA) and housing-related Government Sponsored Enterprises (GSEs)—specifically, Fannie Mae and Freddie Mac—are continuing to view foreclosed homes more as financial assets, whose value they seek to maximize by requiring that they be vacant when they are sold. In doing so, they ignore the fact that the buildings also are dwellings for financially strained households who, if evicted, may need additional housing subsidies as well as the fact that continued occupancy by prior owners and tenants can be part of an effective strategy to preemptively stabilize neighborhoods. 

While there have been some changes in an FHFA policy that could soften the GSEs’ “no occupants at conveyance” practice, it is not yet clear whether this will result in former owners and tenants being allowed to remain in their homes following foreclosure. More generally, several other recent policies pertaining both to the GSEs and to HUD/FHA provide reasons for optimism. However, the extent to which these translate into pro-consumer and pro-neighborhood practices is not yet known.

To enable former homeowners and tenants to continue living in their homes following a foreclosure, greater public resources and commitment are needed. Programs and financial assistance that would enable nonprofits to purchase foreclosed dwellings, then rent them back to the prior owners and tenants, and to successive low-income households, would result in a long-term source of affordable housing. Key to such a policy shift would be more detailed assessments of the ways in which HUD, FHA, FHFA and the GSEs approach their pre- and post-foreclosure mortgage relief and property disposition policies, and the various costs involved in allowing occupied conveyance vs. requiring forced displacement. It seems likely that when vulnerable, low-income households are facing the loss of their homes, other units of government may need to step in to help them find and pay for their new housing.

The long-term costs under this scenario—both financial and otherwise—are virtually certain to far outweigh a short-term, up-front investment in keeping these households in place. Absent these changes, the various agencies will continue to implement a highly problematic set of procedures that promote family instability, potentially increase homelessness, and result in vacant homes, which have adverse neighborhood impacts.

Rachel Bratt is a Senior Research Fellow of the Joint Center for Housing Studies at Harvard, and Professor Emerita, Department of Urban and Environmental Policy and Planning, at Tufts University.

Friday, January 6, 2017

Homeownership Rates for Children of Immigrants—Age Matters

by George Masnick
Senior Research Fellow
Analyses of data used in a recent Census Bureau report show that homeownership rates for younger adult children of immigrants are substantially higher than rates for immigrants in the same age cohorts. In addition, while homeownership rates for native-born residents with native-born parents under age 45 are higher than those for the children of immigrants, members of the latter group quickly make up this deficit after the age of 45.

These findings emerge from additional analyses of data used in a first-ever report on the characteristics of three generations of US residents by nativity that was released late last month by the Census Bureau. The report is the first to use a unique question in the Current Population Survey‘s Annual Social and Economic Supplement (CPS/ASEC) asking the birthplace of both the respondent and the respondent’s parents. This allows one to identify people born abroad (1st generation), native-born children of at least one immigrant parent (2nd generation), and those whose parents were both born in the United States (3rd-and-higher generations).

The Census report discusses differences among the three groups in such areas as age, education, labor force participation, income, poverty, occupation, and homeownership. The last section is particularly interesting because other Census Bureau data the Joint Center has used to study homeownership, such as the Decennial Census, the American Community Survey, and the American Housing Survey, do not ask respondents where their parents were born. Moreover, as I have shown in an earlier post that also used CPS/ASEC data, immigrants are an important part of a recovering housing market. Foreign-born people have accounted for about one-third of all net household formations over the past two decades, and slightly under 30 percent of all gains in owner-occupied housing. Fully half of all household growth between 1994 and 2014 by under-30-year-olds came from 2nd generation children of immigrants, and another 35 percent from immigrants themselves.

The Census Bureau report notes that incomes and homeownership rise sharply between the 1st and 2nd generations but tend to level off for the 3rd-and-higher-generations. However, these findings may obscure significant differences between the 2nd and 3rd-plus generations because, as other parts of the Census Bureau report note, the generations have dramatically different age distributions. In particular, the majority of immigrants are middle-aged, and their children are 20 or younger. Adult children of immigrants have their largest percentages in the under-30 age group. Baby boomers dominate the 3rd-and-higher generations at age 50-70 in 2013 (Figure 1).

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Source: U.S. Census Bureau, Characteristics of the U.S. Population by Generational Status: 2013, Current Population Survey Reports, Nov. 2016, Figure 9.

Because of these differences in age structure, it is impossible to compare the three generations broadly on any variable that varies with age, such as income or homeownership. For example, as the Census report shows, the median income among all individuals age 15 and over rises dramatically from $36,669 for the 1st generation to $46,764 for the 2nd generation. But, at $46,795, it is virtually unchanged for the 3rd-and-higher generations. However, when the data are broken down by age groups, they tell a somewhat different story. The Census report, which looks at median personal income for four broad age groups, shows significant income advantages for the 2nd generation over the 3rd-and-higher generations for 25-44, 45-64, and 65+ year olds. When median household income (a more relevant definition of income with respect to homeownership) is broken down into 5-year age groups, the 2nd generation can be seen to earn significantly more than their parent’s generation at every age, and importantly, more than the 3rd-and higher-generations as well (Figure 2).

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Source: Joint Center for Housing Studies tabulation of 2015 CPS/ASEC data.

The need to control for age is especially important when examining generational differences in homeownership. In four of the five household family types discussed in the Census report, when age is not controlled, 2nd generation homeownership rates are lower than those for the 3rd-and-higher generations (and in the fifth, the difference between the groups is quite small) (Figure 3).

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Source: U.S. Census Bureau, Characteristics of the U.S. Population by Generational Status: 2013, Current Population Survey Reports, Nov. 2016, Fig. 28.

If we control for age, would 2nd generation homeownership rates still be lower than those for the 3rd-and-higher generations? Also, since the Census report examined generational differences for a single year (2013), if there are differences by age, how well have they held up over time?

To answer these questions, we examined homeownership rates by age by 5-year age groups for the three generations for each year 1994-2015. These tabulations first can be summarized by examining the trends for two broad age groups (Figures 4 and 5). For households age 25-44, 2nd generation homeownership rates are well above those of their parents’ generation but below those of the later generations. This last pattern is partly explained by the greater concentration of younger 25-34 year olds in the broader 25-44 age group for the 2nd generation, and probably also due to the greater concentration of immigrants and their children in locations that have below average homeownership rates, such as the Los Angeles, San Francisco, New York City, Boston, and Chicago metropolitan areas. There might also be a greater ability of 3rd-and-higher generation parents to help their children financially in buying their first home, and a corresponding need for children of immigrants to save longer for a downpayment.

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Source: Joint Center for Housing Studies tabulations of 1994 through 2015 CPS/ASEC data.

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Source: Joint Center for Housing Studies tabulations of 1994 through 2015 CPS/ASEC data.

This analysis also shows that among younger adults the gap between the homeownership rates of the 2nd and 3rd-and-higher generations has widened since the Great Recession. The growing gap might be due to compositional shifts within the broad 20-year age cohort in such factors as age, ethnic composition, household composition and income. Alternatively, tightening credit markets might affect the generations differently. This could be particularly important for undocumented members of the 2nd generation. In any case, both the generational gap for younger adults and their recent trend certainly deserve further investigation.

For the broad adult age group over age 45, the story is quite different. Among older adults, the homeownership rates among the 2nd and 3rd-and-higher generations have been essentially equal for the past two decades except for a few years at the height of the Great Recession. The slower entry into homeownership we noted for younger 2nd generation households appears to have simply reflected the timing of the transition from renting to owning, rather than the effects of any structural differences between these two generations. After age 45, the 2nd generation has consistently closed the gap with the 3rd-and-higher over the past two decades. Another way to look at this homeownership data is to follow different birth cohorts of young adults as they age from the 25-44 age group into the 45-64 group. For each of the five-year 2nd generation cohorts under age 45 in 1995, the homeownership rates are lower than the respective cohorts in the 3rd-and-higher-generations. However, by 2015, when each of these cohorts is 20 years older, the homeownership gap between the generations has been completely eliminated (Figures 6 and 7).

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Source: Joint Center for Housing Studies tabulations of 1995 CPS/ASEC data.

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Source: Joint Center for Housing Studies tabulations of 1995 CPS/ASEC data.

The higher median income of 2nd generation adults above age 45 perhaps provides just the leverage they needed to make up the lost ground. And it is also likely that the older 2nd generation households are more concentrated in locations that have lower homeownership rates than the national average. If we could control for metropolitan location as well, middle-aged 2nd generation age-specific homeownership might well be higher than for the 3rd-and-higher generations. Unfortunately, the CPS/ASEC sample size does not allow such sub-national trends to be observed.

In sum, it is important to underscore that failing to recognize the important age differences between the three generations can lead to erroneous conclusions about levels and trends in income and homeownership. Because the 2nd generation age structure is so young, comparisons that lump adults of all ages together will result in unduly low incomes and homeownership for this group. As the Census report concludes, most 2nd generation U.S. residents surpass their parents’ generation in many measures, particularly education, income and homeownership. Once proper age controls are introduced, they equal or surpass the 3rd-and-higher generations in these dimensions as well.

Tuesday, January 3, 2017

Projection: US Will Add 25 Million Households by 2035

by Dan McCue
Senior Research Associate
The United States will add 13.6 million households between 2015 and 2025 and another 11.5 million households between 2025 and 2035, according to Updated Household Projections, 2015-2035: Methodology and Results, a new Joint Center working paper. This growth represents an increase from the past decade that is in line with historic rates of growth seen in the 1990s, but still well below the levels experienced in the 1970s (Figure 1). An addendum to the paper indicates that the projected growth in households could lead to continued growth in residential construction activity.

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Sources: JCHS Tabulations of US Census Bureau, Housing Vacancy Surveys, Decennial Censuses, and 2016 JCHS Household Projections  

The new household projections incorporate newer population projections from the US Census Bureau that are substantially larger than the Bureau’s 2012 population projections used in our 2013 estimates of household growth, which projected that the U.S. would add 12.4 million households between 2015 and 2025 and 10.35 million households between 2025 and 2035. Our new household projections also make methodological changes related to headship rates—the ratio of households to people—designed to reflect the fact that shifts in headship rates have significantly impacted household growth over the past decade. (As the paper discusses in more detail, rather than continuing the Joint Center's recent practice of holding current headship rates constant, the new estimates use trended headship rates.)

While both changes are significant, the increases from our 2013 household projections are due entirely to the new Census Bureau population projections. In contrast, the methodological changes produce slightly lower projected growth than our previous methodology. However, the methodological changes do affect the distribution of household growth by age, race and ethnicity. In particular, they increase household growth among the oldest age groups and also among non-Hispanic whites between 2015 and 2025. In contrast, they reduce growth among 25-44 year olds as well as from black and Hispanic households.

Despite these shifts, millennials and minority households are still projected to be the main drivers of household growth in coming decades. Indeed, millennials under age of 30 in 2015 are projected to form 23 million net new households between 2015 and 2025, while 72 percent of household growth overall is expected to be non-white households. At the same time, aging of the baby boom generation will bring the number of senior households up to unprecedented heights (Figure 2). Together these forces will reshape housing demand over the next two decades.

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Source: 2016 JCHS Household Projections

In addition to the estimates on household growth, the working paper includes an addendum with baseline estimates for the amount of new residential construction that might be needed to accommodate future household growth, as well as the demand for replacement units, second homes, and other changes. Combined, these factors suggest that the baseline demand for new housing units between 2015 and 2025 will range from 16.0 to 18.2 million units. While this estimate is well above most recent rates of new unit completions and mobile home placements, it is consistent with historic averages for past 10-year periods (Figure 3). Although the analysis does not factor in estimates of over- or under- supply, the estimates do suggest underlying demand will support higher construction levels and that the growth in residential construction seen over the past five years is likely to continue.

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Source: JCHS Tabulations of US Census Bureau, New Residential Construction data

Tuesday, December 20, 2016

Panel Discussions Focus on Housing Policy in the Next Administration

by Shannon Rieger
Research Assistant
From tax reform to fair housing, the incoming Trump administration and new Congress are likely to adopt policies that could greatly affect housing, particularly affordable subsidized housing, noted speakers at a conference held in Boston last week. Organized by The New England Housing Network, a broad coalition of housing and community development organizations from the six New England states, the December 16th event focused on what the new administration and Congress will “do about the unmet need for affordable housing in our country” and what advocates can do to encourage a robust federal affordable housing agenda in 2017.

Speakers, including national experts, state officials, and leading advocates from throughout New England, touched on a variety of issues, including tax reform, the future of Government Sponsored Enterprises (GSEs), infrastructure initiatives, anti-poverty programs, and fair housing policies. Everyone noted that many current programs and initiatives are threatened and that much of the discussion is speculative because there is tremendous uncertainty surrounding the Trump administration’s plans, as well as the likelihood that Congress may not support the new administration’s policies. Nevertheless, panelists discussed several potential strategies for bringing together an effective coalition to advocate for affordable housing at a particularly challenging time.

(Photo courtesy of Asian Community Development Corporation)

In opening remarks, several panelists warned that the incoming Trump administration’s stated focus on increasing defense spending while cutting corporate taxes from 35 to 15 percent will shrink the non-defense discretionary budget. With new capital investment therefore unlikely to materialize, several panelists noted that it will be tempting – and perhaps necessary – to go into “preserve and protect” mode to maintain existing affordable housing programs.  However, discussants went on to emphasize the importance of pushing back against proposed spending cuts instead of focusing on potential losses. The panelists agreed that agencies and advocates must join forces to fight for the common goal of increasing overall non-defense spending, and pointed out that squabbling over the pieces of a shrinking pie would likely only undermine critical potential alliances.

Identifying and fostering cross-sector alliances and interdependencies emerged as a central theme throughout the forum. The panelists suggested that lifting up housing’s strong ties to health and to economic opportunity, in particular, will be critical in order to keep housing on the agenda. Barbara Fields, Executive Director of Rhode Island Housing, a state entity that works with developers and non-profit groups, illustrated how this might be accomplished by referencing an oft-cited quote from Rakesh Mohan, Deputy Governor of the Federal Reserve Bank of India, who in 2007 said, “Because housing is where jobs go to sleep at night, the quantity, quality, availability and affordability of housing is a key component in national economic competitiveness.”

Similarly, Chris Estes, President and CEO of the National Housing Conference, recalled Megan Sandel’s description of housing as a “vaccine” that can improve health.  Chrystal Kornegay, Undersecretary of the Massachusetts Department of Housing and Community Development, added that we should think of housing as a beginning rather than an end, highlighting housing’s potential to bring together a variety of groups that ordinarily might not collaborate.

Turning to specifics, panelists noted that tax reform could dramatically affect both the Low-Income Housing Tax Credit (LIHTC) and Private Activity Bonds. Panelists referenced a House bill that would eliminate Private Activity Bonds but keep LIHTC, while a Senate bill introduced in May 2016 would expand the LIHTC program by 50 percent. They also discussed House Speaker Paul Ryan’s June 2016 tax plan which, by greatly increasing the standard deduction, would substantially reduce use of the mortgage interest deduction. Although it is far from certain that this proposal will become law, panelists suggested that if reforms do happen, housing advocates should insist that any revenue generated by the changes be re-invested in housing on measures such as a renters’ tax credit and not used for other purposes.

Discussants also noted that Treasury Secretary designate Steven Mnuchin and key members of Congress appear to significantly disagree on GSE reform. Mnuchin has said he is interested in seeing that Fannie Mae and Freddie Mac are taken out of “government ownership,” restructured, and privatized.  However, Congress has not demonstrated support for a “recap and release” of the GSEs. These disagreements may impede any efforts to reform GSEs, noted several panelists.

The conflicting perspectives about both issues within the Republican Party will make it hard to substantially change the tax code or restructure the GSEs, said Benson “Buzz” Roberts, President and CEO of the National Association of Affordable Housing Lenders. He also noted that “inertia is the most powerful third party in the United States”, and may slow down or even block substantial changes in tax policy or GSE reform in the next several years.

Several panelists pointed out that President-Elect Donald Trump’s plan to substantially increase spending on infrastructure explicitly includes roads, bridges, tunnels, airports, railroads, ports and waterways, and pipelines. However, they added, it is unclear whether or not housing will (or could) be part of this spending package.  Including housing in those programs, panelists noted, might be an effective way to fund housing in coming years. In thinking about how to effectively communicate the role of housing as an economic engine, Fields suggested that investments in the skilled labor needed to build housing (along with the other forms of infrastructure explicitly mentioned in the Trump administration’s plan) may help to mitigate existing labor shortages and grow the economy.

Turning to anti-poverty, mobility, and fair housing policies under the incoming Trump administration, the discussants agreed that the AFFH (Affordably Furthering Fair Housing) initiative will certainly be under threat from a Republican-majority Congress and from incoming HUD Secretary Ben Carson, who last year wrote an op-ed denouncing the rule. The future of anti-poverty policies is less certain. Speaker Ryan’s “welfare reform 2.0” plans are the most concrete indication of how the Trump Administration might approach “anti-poverty” policy. Ultimately, panelists concluded that while there is little concrete information about how the Trump administration will proceed in this arena, the strong focus of the Trump campaign on economic opportunity and mobility for all Americans may present some opportunities. For example, by highlighting housing’s role in advancing mobility, housing advocates could align a housing agenda with other Trump administration priorities.

Taken together, the upshot of the discussions was that while many existing programs and initiatives could be under threat, the future of housing policy in a Trump administration is very uncertain.  Opportunities may arise from uncertainty, though, such as the potential to insist that housing be included as a part of infrastructure investment. The panelists added that recognizing such opportunities, and starting today to proactively build strong, cross-sector coalitions able to take advantage of potential openings, will be critical to advancing an affordable housing agenda in coming years.