Sizing Housing’s Role in the Economy Before and After Recessions

by Dan McCue
Research Manager

The most direct measure of housing’s impact on the economy is Residential Fixed Investment (RFI). RFI includes spending on construction of new housing units and manufactured homes, as well as improvements spending, brokers’ commissions on the sale of residential property, spending on some types of built-in equipment (such as heating and air conditioning equipment), and also net purchases of residential units from the government.

In any single period of time, RFI is a modest part of the total output of the US economy as measured by gross domestic product (GDP). According to the US Bureau of Economic Analysis’s National Income and Product Account (NIPA) tables, which provide quarterly GDP data for most series dating back to 1947, RFI has on average represented just 4.2% of the economy. In terms of economic growth, however, growth in RFI can have influence that far exceeds its share of the economy (Figure 1). This is particularly the case in the time periods around recessions, when decline or growth in RFI can account for 15 or even 20 percent of overall decline or growth in GDP – enough to push the economy into or out of a recession (see Leamer (2007) “Housing IS the Business Cycle“). Prior to the Great Recession of 2007-9, for example, the preceding downturn in RFI alone shaved fully 1 percentage point off of GDP.

Note: Shaded areas are recessions.

Source: JCHS tabulations of BEA and NBER Business Cycle data.

In the five recessions that occurred prior to the Great Recession between 1970 and 2001, housing construction was both a drag on the economy leading into the recessions and a buoy immediately afterwards (Figure 2). In the four quarters leading into each of these recessions, RFI’s contribution to GDP growth was normally negative, ranging from a mild -0.1 percentage point prior to the 2001 recession up to a half a percentage point drag on GDP prior to the 1980 double-dip recession. Following these recessions, RFI’s influence not only returned positive, but its positive contribution to GDP growth generally skyrocketed to several multiples above normal. The average percentage point contribution of RFI to GDP growth ranged from 0.3 to 1.1 percentage points in the first year after each of the past five recessions. Such growth in RFI during those periods equated to about one-fifth of all GDP growth at the time - a nice boost to the economy.

RFI’s positive contribution to GDP following the Great Recession has been nowhere near those seen after past recessions. As shown in figure 2, while RFI’s drag on GDP heading into the Great Recession exceeded that heading into any recession since 1970, RFI provided just 0.1 of a percentage point to GDP in the first four quarters after the recession, and was still providing negligible impact fully nine quarters after the recession officially ended. However, the third quarter of 2012 marks 13 quarters after the Great Recession, and RFI’s impact to GDP over the past year has been consistently positive on the order of 0.3 percentage points, or about 12 percent of current GDP growth. With housing construction starts rising, the positive economic contributions of RFI will follow.

More Working Americans Struggling to Afford Housing

by Eric Belsky
Managing Director

With growth in incomes lagging growth in housing and utility costs, the share of Americans spending large sums of their income on housing has climbed nearly uninterrupted for decades.  But the Great Recession has taken an especially heavy toll, as millions of families have slipped down the income scale due to job loss or curtailment of hours. Indeed, while households with incomes under $15,000 made up only 12 percent of all households in 2001, they made up 40 percent of the net growth in the number of households over the past ten years. Faced with reduced incomes, some of these households have moved so that they can save on housing costs but many others are instead stretching to make their rent or mortgage payments.

As shown in Figure 1, even households with incomes above $15,000 (slightly above the equivalent of full-time work at minimum wage) are finding it harder to keep up with housing costs.  Fully 64 percent of all households with incomes in the $15,000-$30,000 range are housing cost burdened, spending 30 percent of their income on housing and utilities. Among those with incomes of $30,000-45,000, a smaller but still substantial 42 percent are cost burdened, while more than a quarter of those with incomes in the $45,000-$60,000 range are cost burdened. These shares are each up over seven percentage points across all three of these income bands in just the past ten years.

Notes: Income groups are defined using inflation-adjusted 2011 dollars.  Cost-burdened households spend more than 30% of pre-tax household income on housing costs. 

Source: JCHS tabulations of US Census Bureau, American Community Surveys.

Renters and owners are both experiencing rising housing cost burdens. On the rental side, the share of renters with cost burdens has doubled, from a quarter in 1960 to a half in 2011, while the share with severe cost burdens (spending more than half their income on housing and utilities) shot up from 11 percent to 28 percent over that period, spiking in the last decade. Renters with incomes of $15,000-$30,000 who have severe cost burdens climbed from 2.0 million in 2001 to 3.2 million in 2011, and those with incomes of $30,000-$45,000 doubled from 300,000 to 600,000.

Cost burdens have also reached record highs for homeowners. Among homeowners under age 65, 39 percent of those earning one to two times the minimum wage and 18 percent of those earning two to three times the minimum wage are now severely housing cost burdened.

Notes: Income groups are defined using inflation-adjusted 2011 dollars.  Severe housing cost burdens are households who spend more than 50% of pre-tax household income on housing costs. 

Source: JCHS tabulations of US Census Bureau, American Community Surveys.

There is an irony to the situation of homeowners: millions of them can’t take advantage of today’s low rates to lower their housing costs because their homes are worth less than they owe on their mortgages. Despite many federal efforts to ease the path to refinancing for such owners, it remains blocked for large shares of them.  Those who have loans not endorsed by FHA, Fannie Mae, or Freddie Mac are out of luck.  And for those with loans endorsed by these agencies, they may still not meet credit score, debt-to-income ratio, and documentation requirements for refinancing.  Even if existing owners can refinance, loss of an earner or curtailment in hours may result in payments that still stretch them thin.

These affordability problems are not likely to abate any time soon.  Rents are back on the rise, and in many areas sharply. Incomes remain under pressure from high unemployment rates and an ongoing shift in the composition of jobs to lower paying work, where entry-level workers in many key occupations are priced out of affordably covering their housing costs. For example, two-thirds of households that include a retail worker in the lowest wage quartile for that occupation are severely cost burdened, along with seven in ten of those including a childcare worker in the lowest wage quartile for that occupation.

Meanwhile a golden moment is being missed to place people into homeownership at record low interest rates.  Additionally, home prices have fallen by about a third nationally, and by much more in many places. As a result, relative to renting, the cost of owning a home for first-time buyers has not been as favorable for at least 40 years, on average, nationally. But lenders are reluctant to lend, fearful of the impact of new regulations and that they will have to buy back poorly performing loans. As a result, many would-be homebuyers are missing a chance to lower their payments relative to today’s rents and also to lock in their mortgage costs with extraordinarily low fixed-rate loans.

Having so many Americans spend so much on housing is a concern not just for those affected. Housing cost burdens affect the national economy, leaving less to spend on other items and making it harder for Americans to save for the future.  As an example, families with children in the bottom quarter of spenders with housing and utility payments of more than half of total outlays spent a third as much on healthcare, half as much on clothes, and two thirds as much on both food and pension and insurance as those with housing outlays of less than 30 percent. In retirement, more will be entitled to programs like Medicaid, placing strains on social service systems.

Note: Low-Income families with children are those in the bottom expenditure quartile. Severely cost burdened households spend over half of all expenditures on housing; unburdened households spend less than 30 percent.   

Source: JCHS tabulations of the Bureau of Labor Statistics, Consumer Expenditure Survey.

Hemmed in by budget pressures and the enormity of the problem, our political leaders have done little to forestall or address growing housing affordability problems. Federal programs are costly and also have limited reach. Indeed, only about a quarter of all renters eligible for housing assistance (those earning half or less local area median incomes) receive it and there is essentially no comparable program to help struggling homeowners apart from a very small, temporary, emergency program put in place in 2010.

Still, some places at least, have found ways to reduce housing costs in their areas through regulations and land use policies that do not involve taxpayer subsidies or tax incentives.  These include some cities that are relaxing minimum unit-size requirements to encourage production of small micro-units of only a few hundred square feet.  Others with markets strong enough have been offering density bonuses to encourage set-asides of affordable housing units in new construction projects.  Yet most local governments continue to restrict residential densities.  Lenders, meanwhile, are so cautious after having so badly missed the mark with their lending standards that many who could lock in today’s low home prices and record low rates are unable to do so.

Americans will face daunting housing cost burdens that thwart savings and sap spending on non-housing items until: 1) lenders ease standards back to reasonable levels, 2) homebuilders are freed of barriers preventing them from building at greater densities, and 3) governments provide greater tax incentives or subsidies to close the gap for more low and moderate-income households between what they can afford and the costs of market-rate housing.

When it Comes to Home Remodeling, Younger Generations Aren’t Doing it Themselves

by Kermit Baker
Director, Remodeling
Futures Program

In the world of home improvement activity, do-it-yourselfers (DIY) have become a very important market segment. Younger homeowners, with more energy to undertake these projects and generally fewer resources to hire a professional remodeler, generally have been active participants. In 2011, while DIY spending accounted for almost 18% of overall home improvement spending, owners under age 35 devoted 29% of their spending to DIY projects. For 35 to 44 year olds the share was 22%. In recent years, however, these younger owners have become less active in this realm.

Before the housing bust, about a quarter of all home improvement spending by homeowners typically was on projects installed on a DIY basis. And even this statistic is an underestimate, because as reported in the American Housing Survey (AHS), a DIY project includes only the cost of the products installed, while a professionally installed project also includes labor and contractor overhead and profit. As such, the Joint Center estimates that on a project basis typically about 40% of all home improvement activities are primarily DIY projects. Home Depot, Lowe’s, and countless numbers of local hardware stores and home centers owe their success to their DIY customer base.

However, recent data from HUD’s AHS indicates that the DIY share of the home improvement spending has been steadily declining. As of 2011, it was eight percentage points below its level in 2003 when it reached its most recent high, and six percentage points below the 1995 level, which was a fairly typical year for home improvement spending. This trend is particularly perplexing since the DIY share is thought to be countercyclical. Households are more likely to do an improvement project themselves to save money when economic times are uncertain, according to industry logic. 

Source: JCHS tabulations of the 1995-2011 American Housing Surveys

There are, however, other factors that influence the likelihood of undertaking a DIY home improvement. One is the mix of projects undertaken. Households seem quite comfortable undertaking minor kitchen and bath projects and other interior projects like flooring and paneling. They are less inclined to replace their roofing or siding or upgrade major electrical, plumbing, or HVAC systems. So if the mix of projects were to change during an economic cycle, that might well influence the DIY share.

Indeed, the mix of home improvement projects has changed in recent years in favor of exterior replacements and systems as more discretionary projects have been deferred. However, the DIY share of spending within all major home improvement categories has been declining. In 1995, 30% of spending for kitchen projects was done by DIYers; by 2011 that share had dropped to 22%. Ditto for bath projects (30% to 26%); exterior replacements (17% to 12%); systems and equipment upgrades (16% to 15%). With the DIY share declining for all major categories, the mix of projects is much less important in explaining the decline in the overall share.

A more likely explanation is that traditionally active younger owners are less engaged in these activities. Younger owners seem to have less inclination or ability to undertake these projects, at least in part because they have been hardest hit by the housing downturn. Fewer of them have been buying homes, and the ones that did were more likely to have purchased nearer the peak of the market. As house prices fell, many lost their homes to foreclosure or short sales. Of those that have remained homeowners, most have lost a significant share of the equity in their home, with many currently underwater with their mortgage.

All of this has discouraged young owners from undertaking all kinds of home improvement projects, including the DIY variety. Between 1995 and 2011, the DIY share for owners under age 35 fell twice as much as for the overall population. Indeed, in 1995 owners under age 35 accounted for 22% of all DIY spending. By 2011, this share declined to 16%. Older owners have continued to undertake some DIY projects, but not enough to offset the decline of younger owners. With younger owners doing fewer projects, it’s likely to take a broader recovery in the housing market to get these younger owners back to improving their homes, and to get DIY activity back near its historical levels.

Defining the Generations

by George Masnick
Fellow

Demographers and other analysts have yet to reach a consensus about how we define post-WWII generations – regarding both naming the generations and defining the age spans that each generation covers.  Yes, there is general agreement that the oldest of these generations are called baby boomers and that they were born between the mid-1940s and mid-1960s.  Some choose 1946 to 1964 to correspond with the period of increasing birth rates, but some choose 1945 to 1964 to produce a cohort that better lines up with typical age groups published in census and survey data, say 15-34 year olds in the 1980 census.

The generations that come after baby boomers are much less consistently defined.  The next youngest was first called the baby bust to identify cohorts born during the period in which birth rates and the number of births were rapidly declining. When this generation became teenagers and young adults, it was discovered that the baby bust would likely behave quite differently from the baby boomers that preceded them in the age structure. Pundits on Madison Avenue and in the media rebranded it Generation X.  Some analysts claim that this generation arrived in the early 1960s (perhaps as early as 1961) and that its youngest members were born in 1981 or 1982. Others chose sometime in the mid-1970s as the date at which the youngest of the baby bust came into this world.

The next youngest generation, called Generation Y by uncreative verbivores, and millennials by a more hip crowd, is even less consistently defined by starting and stopping birth years. Called echo boomers by many demographers, birth years can be anywhere from the mid-1970s when the oldest were born to the mid-2000s when the youngest were. 

The problem with these differing birth year definitions is that either the generations overlap or they cover different age-spans, making data analyses very complicated.  For much of the research done at the Joint Center for Housing Studies, we define the baby boom as the cohort born 1945 to 1964, the baby bust from 1965 to 1984, and the echo boom from 1985 to 2004.  The primary reason for choosing these dates is to have the three generations cover equal 20-year age spans, and have age ranges that line up with typically published age groups.  And, not coincidently, these chosen years line up nicely with levels of annual births (see figure below).  Early baby boom cohorts quickly move to annual birth numbers in the 3.7 million range, and the youngest baby boom members are from a cohort when births returned to approximately this number. The baby bust ends when annual births returned to these same levels.  The echo boom begins and ends with numbers consistently above 3.7 million.

Though it is the number of births used to fix the year of birth of the oldest and youngest members of each generation, the size of each generation moving forward in time is also determined by immigration.  Thus, the baby boom generation arose from approximately 79.3 million births over the 1945 to 1964 period, but by 1985, when the generation was age 20-39, it was over 80 million in number, having been inflated by immigration that more than offset Vietnam War era baby boom deaths.  The baby bust generation contained only 69.7 million persons born in the United States, but high immigration flows from persons born abroad resulted in a cohort size that just surpassed the size of the baby boom when each was age 20-39.  Finally, while the echo boom has about the same number of U.S. births for its base as the baby boom, it will surely further surpass the size of baby boomers as young adults.  The current set of low immigration household projections from the Joint Center are based on population projections that estimate 86.5 million persons age 20-39 year old in 2025. 

Sources: United States Census Bureau and the National Vital Statistics Report

It is not uncommon to hear the claim that the baby boom is being succeeded by a much smaller cohort.  But this is simply no longer true if the comparison is among similar 20-year deep generations. Immigration has backfilled the birth deficit that created the baby bust and it is now larger than the baby boom.  The 2010 decennial census counted 81.5 million baby boomers and 82.1 million baby busters. But perhaps the most relevant comparison generation to aging baby boomers should be the echo boom.  It is this generation that will largely be buying baby boomer housing and making significant contributions to their Social Security and Medicare benefits when all boomers are over the age of 65. After 2030, when the ever-smaller cohort of surviving baby boomers are age 65-84, the echo boom will be age 25-44, and far fewer from this still expanding generation will have died.

The Promise of Big Data for Accelerating ‘Prosperity Development’

by Ben Hecht
Guest Blogger

From time to time, Housing Perspectives features posts by guest bloggers. This post was written by Ben Hecht, President and Chief Executive Officer of Living Cities.  His post reflects thoughts he shared at a Brown Bag Lecture delivered at the Harvard Kennedy School on November 1, 2012.  His talk was entitled "From Community to Prosperity."

Recently, I was asked to contribute a chapter to Investing in What Works for America’s Communities, a book that examines what we can learn from the history of community development and provides a multitude of ideas from diverse perspectives about the future of the field. My essay, entitled From Community to Prosperity emphasizes that powerful forces of change, such as globalization and the internet, have transformed the way that people live, work, and interact; and that the community development industry has failed to adequately adapt to these seismic changes. Today, there is a new 'social operating system’ that is in stark contrast to the one that was built around geography and small tight-knit groups. We must fundamentally re-think how we define “community”, and change the way that we work to reflect the needs and realities of the present and the future. I call this new, broader, focus ‘prosperity development’.  Prosperity development requires us to invest in new models for collective problem-solving that acknowledge that no one institution or sector can solve today’s increasingly interconnected and complex problems alone. It requires overhauling long-broken systems. And, it requires harnessing new technologies in creative ways to accelerate social change efforts.

There is no ‘accelerant’ with greater promise than Big Data, which a recent New York Times article described as “shorthand for advancing trends in technology that open the door to a new approach to understanding the world and making decisions.” Today, more data is being created from more places than ever before. Tweets, clicks, YouTube videos, retailer loyalty cards, cell phones, even sensors on buildings are producing tons of data daily. Trends in public sector data transparency are adding even more valuable data to the mix. In order to turn the promise of Big Data into reality, we must make a real commitment to more evidence-driven decision making, and be willing to challenge entrenched ideas and beliefs. The benefits of such a commitment are significant and have the potential to make cities much better places for all residents:

1. Better Decisions about People and Places. Many people often criticize government for making decisions without full consideration or understanding of the facts. Big Data can really change that. If harnessed right, it can allow us to make better decisions about people and places. On the people side, data collection systems have evolved rapidly over the last decade with more sophisticated and varied sources for capturing information including 311 calls, educational performance and health care. On the place side, more buildings, roads and machines today have sensors that are providing data 24/7 about volume of usage, energy consumption, etc., what people often refer to as the Internet of Things. This proliferation of data enables us to tie an array of decisions to real-time, current and substantial data sets.

2. Opportunities for Accelerating Technology for Civic Change. The growing trend of the public sector to make more of its data open to the public has led to an explosion of innovation and is redefining how citizens participate and interact with their government. To date, ‘civic tech’, or the building of apps based on public data, has focused on improving civic life generally, from real-time bus schedules to virtual land use planning. However, it’s not hard to imagine how civic tech, intentionally applied to the lives of low-income people and communities, could be transformational – from changing the relationship between police and neighborhoods to enabling online appointment scheduling and enrollment for public benefits that now force people to take off work or suffer face-to-face humiliations.

3. Predictive Possibilities. The predictive power of Big Data is being explored and will be a big part of improving fields as diverse as health care, economic development and education. We are already seeing the potential to use big data to predict student performance in states like North Carolina where education leadersare using high-tech data analytics to examine grades, attendance, course failures, declines in grade point average, and disciplinary incidents of elementary school students to predict who might be at risk of falling of track and even failing to graduate high school. Big data’s predictive power is also of increasing interest to police forces that face greater limitations due to municipal budget constraints. New efforts are emerging in cities to map the location and time of crimes to better understand where police need to be and when to provide the greatest benefit to communities. This predictive element of big data can dramatically improve effectiveness and drive efficiency and this will be one of the most exciting areas for cities to focus on especially as more and more of theworld’s population continues to move to metropolitan areas.

As we work to move the community development sector into the future, a fundamental question will be: How can we harness Big Data for common good?

Cities are Growing but Sprawl Continues

by Dan McCue
Research Manager

The 2010 decennial Census provided new data to look at urban growth patterns over the past decade, enabling us to update our views on the latest trends in suburban sprawl and movement ‘back to the cities’.  Growth in our nation’s largest cities has been of particular interest not just because these areas are home to so many people, but because they are the engines of economic growth that often serve as bellwethers of the overall economic health of a region or even the nation as a whole. As has been reported elsewhere, growth in cities has been positive over the past decade, with the majority of the core cities in the nation’s largest metropolitan areas experiencing household growth.  Indeed, our analysis has found that core cities in 72 of the 100 largest metro areas grew in the 2000s. But at the same time, and in contrast to many headlines, our research also shows that the pace of growth in suburbs and exurbs exceeded that in the central cities in all but five metros. Suburban sprawl was alive and well.

Tracking Urban Growth:  Data and Methodology

Using 2000 and 2010 Census data for the top 100 metros, we analyzed the spatial distribution of household growth over the last decade by looking at changes in core urban cities (defined as large cities with populations over 100,000), suburbs (defined as urbanized parts of metros not in large cities), and exurbs (defined as all remaining non-urban tracts).

Our analysis found that, while household growth in core urban cities did occur, on the whole it was slower and smaller than growth in the suburbs and exurbs (See Figure 1).  Overall, the rate of household growth in the core urban cities of these 100 metros was just 6.4 percent, which was much slower than that of suburbs (10.5 percent), and a fraction of the growth rate of the exurban areas (28.3 percent).  In terms of magnitude, the number of households in the top 100 core urban cities grew by just 1.65 million in 2000-2010 while during the same period suburbs increased by 3.0 million households and exurbs grew by 3.2 million.

Source: JCHS Tabulations of U.S. Census Bureau data

Failure to grow as fast or as much as the suburbs and exurbs over the past decade caused the share of households living in the top 100 metropolitan areas’ core urban cities to drop.  Core urban cities were home to fully 39 percent of all households in 2000, but accounted for only 21 percent of all metropolitan area household growth.  Exurban areas, on the other hand, represented only 17 percent of all metropolitan households in 2000 but 41 percent of total metropolitan household growth in 2000-2010. As a result, the share of households living in urban cities dropped from 39 percent in 2000 to 37 percent in 2010, while the exurban share increased from 17 to 20 percent.  The suburban share remained stable at 43 percent of all households.

Looking individually at the distribution of growth within each of the top 100 metros, we found that even in metros where core urban city household growth rates were high, suburban and exurban growth rates were often higher (click here for Excel spreadsheet).  And in the five metros where core urban cities grew faster than the metropolitan areas as a whole, core city growth rates were only 0.5 percentage point higher than overall metropolitan growth rates.  In contrast, in the remaining majority of metros, core urban growth rates were fully 8.8 percentage points slower than the overall metropolitan growth rates.  As a result, many metros saw their share of households living in core urban cities drop significantly (See Figure 2).

Notes: Data include the 100 largest metro areas, ranked by population in 2010. Cores are cities with populations over 100,000. Suburbs are all urbanized areas outside of cores. Exurbs are the remainder of the metro area. Census data do not include post-enumeration adjustments.  Source: JCHS tabulations of US Census Bureau, Decennial Census.

To summarize our top-level findings, data from Census 2010 gives evidence of a ‘back to the cities’ movement in the form of household growth occurring in the majority of core urban cities of the top 100 metropolitan areas.  However, our analyses so far have also provided much more convincing evidence that suburbs and exurbs continued to drive metropolitan household growth over the past 10 years.  Indeed, even in the fastest growing cities, growth typically was neither as fast nor as large as that occurring in the surrounding suburbs and exurbs.

Mind the Gap: The Importance of Over and Under Counts in Interpreting Decennial Census Results

by George Masnick
Fellow

Every ten years the Decennial Census provides a definitive count of the country’s population and households, a critical benchmark of decadal growth trends in these key measures. However, often overlooked in assessments of these trends is that after each census, the Census Bureau conducts a post-enumeration evaluation that provides an estimate of the likely error rate in the Decennial Census counts. When calculating decadal population or household growth using decennial censuses, failure to adjust for differential undercount/overcount between censuses can lead to spurious results. This is especially true when calculating growth between 2000 and 2010 and comparing it to growth between 1990 and 2000, because the magnitude and direction of the estimated errors have varied substantially over these three counts. Taking undercount/overcount estimates into account, growth in both population and households over the last decade was slightly higher than during the 1990s, even though the unadjusted numbers suggest a fairly substantial slowdown in growth.

In the spring the Census Bureau released initial findings from the Post-Enumeration Survey indicating that the 2010 Decennial Census hit the center of the bull’s eye on a true population count.  The Bureau estimated that the 2010 Census overcounted total population by a mere 0.01 percent (1 one hundredth of one percent).  This amounts to only 35,000 people, which is not statistically significant from zero.  In contrast, the Bureau estimated that the 2000 Census overcounted population by 0.49 percent, or 1.37 million persons.  The difference in overcount between the two censuses means that population growth from 2000 to 2010 was actually 1.34 million larger than calculated by unadjusted population counts due to the difference in the estimated overcounts in each year. This estimate is for the overall population, so there are likely some groups (broken down by age or race/Hispanic origin, for example) with relatively greater growth adjustments necessary.

For 2010 the Bureau stated that there was also no significant overcount/undercount of occupied housing units (households). The initial (March 2001) post-enumeration evaluation following the 2000 Census had to be re-done and the final report (March 2003) did not include an estimate of the overcount/undercount for households. But if we assume that households suffered from the same 0.49 percent overcount as population in 2000, then we need to add an additional 500,000 households to the 11.2 million growth calculated for 2000 to 2010 from the unadjusted numbers. At 11.7 million, the 2000 to 2010 census-to-census household growth is actually fairly close to the decadal growth of 12.2 million from estimates derived from the Current Population Survey (based on a rolling 3-year average of households to dampen sampling variation in these estimates).

By adjusting for overcount/undercount, not only was population (and probably household) growth over the past decade greater than results from unadjusted raw census numbers, but also the slowdown in growth from the previous decade’s level was non-existent.  This is because actual growth between 1990 and 2000, adjusting for overcount/undercount, is significantly reduced.  Unadjusted population growth between 1990 and 2000 was 32.2 million, while adjusted growth was substantially less at 26.7 million.  Unadjusted population growth from 2000 to 2010 was 26.4 million, and the adjusted figure is 27.7 million.  So instead of a slowdown in total population growth in the 2000s compared to the 1990s, adjusted figures show a slight increase in population growth (Table 1).  And if household counts were off by the same percentage as the population estimates, household growth between 2000 and 2010 also exceeded growth in the previous decade.

Source: JCHS tabulations of US Census Bureau data

The 11.7 million adjusted household growth estimate for 2000 to 2010 is larger than the 11.5 million adjusted growth number for 1990 to 2000.  Still, growth in the 2000s is well short of the expected household growth due to the impacts of the Great Recession.  Household growth fell off sharply after 2007 because of the huge upheaval in both housing markets and the broader economy, with its attendant hit to household formation rates of those under the age of 35 and a dramatic slowdown in immigration. Together, these forces more than offset the expected increase of household formation by echo boomers who began to turn age 20 in 2005.

Most of the postponed echo boom household formation will be realized in the near-term future as these young adults inevitably form households and so is not permanently lost.  But overall household growth also depends on future levels of immigration, which remains the biggest wildcard.  Immigration flows are very much dependent on future economic trends, both here and in sending countries, as well as on how much future immigration is enabled in a highly uncertain political climate.

The Resurrection of Household Growth: The Missing Link in the Housing Recovery

by Chris Herbert
Research Director

New survey data released by the Census Bureau last week provides more strong evidence that the nascent housing recovery is being built on a solid foundation.  The latest Housing Vacancy Survey (HVS) (which provides quarterly updates on the number of households as well as vacancy and homeownership rates) indicates that as of the third quarter of this year U.S. households were increasing at a rate of just over 900,000 per year, giving a strong boost to overall housing demand.  This represents a substantial increase from 2011 when the same survey found that the country only added about 635,000 households.  While still well below the rate of 1.18 million per year that the Joint Center estimates the U.S. is likely to average over the 2010-2020 decade, the upturn in 2012 indicates that the moderate but steady pace of economic growth is finally translating into increased demand for housing, which bodes well for a sustained recovery.

Much of the attention on housing market woes has focused on the supply side. Certainly, as the housing bubble was bursting at the end of 2006 the excess supply of housing was a significant contributor.  As of that time, the U.S. had added more new homes over the previous 10 year period than at any other point going back to the early 1970s when record keeping for housing completions and mobile home placements began. But after five straight years of housing starts below 1 million units a year—a level last seen in 1945 when World War II was ending—it is hard to argue that the housing market is still suffering the after effects of overbuilding. In fact, by the end of 2011 the total amount of new housing put in place over the previous 10 years was the lowest since record keeping began.

Note: Available data go back to 1974.  Source: JCHS calculations of US Census Bureau data

Instead, the lagging recovery in the housing market has been more attributable to anemic growth in the demand for housing as indicated by weak household growth.  According to the HVS, household growth fell sharply in 2007 as the housing bubble collapsed.  (See Figure 2.)  After averaging 1.35 million from 2000 through 2006, over the next 5 years annual household growth barely exceeded 600,000.  Given the trends of the last five years, the spurt in household growth to an annual rate of 900,000 through the first three quarters of this year is notable.  If the upward trend in household growth continues, housing should see a sustained recovery in 2013.

Note: 2012 is an estimate of annual average growth based on trends through the third quarter of 2012. JCHS low projection assumes that immigration in 2010-20 is half that in the US Census Bureau’s 2008 middle-series (preferred) population projection. Sources: US Census Bureau, Housing Vacancy Survey; JCHS 2010 household growth projections

Crafting a New Rental Policy: Lessons from US Housing Policy History

by Alexander
von Hoffman
Senior Research Fellow

As the United States continues to recover from the worst economic downturn since the Great Depression, it is worthwhile to consider the ways Americans responded to similar predicaments in the past.  Four times in recent American history, housing-related crises led the US government to initiate large-scale housing programs for low-and moderate-income Americans. In my recent working paper, I explored the political processes that led to the successful adoption of these programs and discovered lessons in strategy that could help advocates of policy change today, particularly those seeking to craft a new rental housing policy.

During the economic crisis of the Great Depression, Franklin Roosevelt’s New Deal produced the public housing program. In response to the acute housing shortage at the end of World War II, the government found a winning formula in the housing component of the G. I. bill. To help solve the urban crisis of the late-1960s, the Johnson administration set a high goal for national housing production and enacted two large low-income housing production programs based on subsidizing private industry. When these programs careened into crisis in the 1970s, Richard Nixon inaugurated a new approach of vouchers, although it would take almost a generation before that policy was fully accepted.

Photo: Atlanta Housing Authority, Clark Howell Homes (Public Housing), circa 1945, photographer unknown, courtesy of the Library of Congress

While these programs offer insight into the content of housing policy, they also provide valuable lessons about successful strategies for winning adoption of new policy today. First, history teaches that new housing policy is more likely to be passed and to succeed if it involves a decentralized program (such as the US public housing program) to help build local institutional infrastructure and political support and to respond to local conditions. A politically successful policy will also make extensive use of the private and nonprofit sectors, as did the Veterans Administration housing program, mortgage subsidies for low-income rental housing, rental vouchers, and low-income housing tax credit. Using private sector agents to carry out a new housing policy creates stakeholders, spreads political support, and helps avoid criticism for increasing government bureaucracy.

A second key ingredient in a successful drive for a new federal housing policy may seem obvious: the higher the rank of government official who favors a policy, the better are the chances it will be enacted. The president’s direct interest in the passage of a new program lends the greatest weight, but lack of support from the president need not be fatal (in the case of public housing, Franklin Roosevelt disliked the program but his wife, Eleanor, lobbied him to support it). History also shows repeatedly that strong political support is essential from non-governmental national organizations with local affiliates, coalitions of grass-roots groups, or—as in the classic case of public housing—powerful interest groups (labor, for example) whose main constituency is not related to the housing industry. Outside political force is most effective when it is felt from local jurisdictions where members of Congress go looking for votes.

A third lesson is that special commissions and White House conferences can potentially generate helpful ideas from experts in the field and build outside political support of important interest groups, but they must be carefully composed and organized lest they wander off track, producing impractical or impolitic ideas. Agency officials should think through a short- to medium-term strategy that would include identifying an ideal program or range of programs, a public relations effort to heighten awareness and build enthusiasm for the program goals, and lining up of political support from interest groups, other federal agencies, and elected officials.

Fourth, while Americans can be sympathetic towards the poor, history shows they are most enthusiastic about helping working people. For this reason, government aid to members of sympathetic middle-class groups (e.g. veterans or the elderly) has usually been more popular than aid targeted strictly to lower-income groups (e.g. welfare programs). Of course, so-called middle-class groups may contain or can be defined to include low-income people, and reformers can succeed in helping the poor by including them in programs that target so-called “worthy” groups.  The public housing crusade of the 1930s, the housing component of the G. I. bill and, more recently, the “workforce housing” campaigns in Illinois and elsewhere demonstrate the appeal and the potential of programs with an ambiguous constituency. Some policymakers may still prefer to propose programs explicitly targeted to very low-income people; in order for these to succeed, however, proponents may have to argue that the program will inculcate or reward self sufficiency—conditions aimed at imposing middle-class values.

Today, these lessons can be applied to strategies for the development and adoption of a new rental housing policy. Such a policy should be accompanied by an education campaign that presents renting as a positive act, not a failure to own a home, and as something that Americans of all income levels choose to do. This is no easy task. More than a century’s worth of discourse about the virtues of homeownership, the falling incomes and status of renters in recent decades, and the declarations of recent presidents about the importance of raising the homeownership rate have all helped equate the idea of the “American dream” with owning a house. Yet the current political and economic climate offers many reasons that renting can be the right housing choice for Americans: it offers choices in location and building type, frees individuals from the maintenance burdens of homeownership, and may offer opportunities to live debt-free. As more Americans face the reality that they can only afford to rent—or would be better off doing so—they are more likely to welcome a government policy that helps them do so.

As Baby Boomers Age in Place, They Will Increase Their Influence in the Home Improvement Market

by Kermit Baker
Director, Remodeling
Futures Program

Over the coming decade, the home improvement market will increasingly rely on older homeowners to generate growth. A previous post pointed out that baby boomers will continue to control a large segment of the housing stock nationally, that they have low mobility rates, and that they have continued to improve their homes as they prepare to age in place. Going forward, baby boomers have significant motivation to spend on home improvements.

They also have the financial resources to do so. By staying in the workforce longer, baby boomers often have sufficient incomes to undertake these improvements. Moreover, because older households were able to benefit from the run-up in stock prices and home values more than younger households, they typically have seen greater gains in wealth. The net result is that home improvement expenditures by older owners have grown faster than for younger ones.

As their longevity has increased, coupled with their uncertainty over future economic conditions, seniors have been more inclined than comparable groups in prior decades to remain in the labor force. The labor force participation rate (the share of the population that is working or actively looking for work) for the age 55 plus population increased from 30.1% in 1990 to 40.2% in 2010 according to the U.S. Department of Labor. They project that it will continue to inch up for this group in coming years.

While incomes for older workers have held up better than those of their younger counterparts, the biggest difference has been in the wealth positions of these households. Older families, who were able to benefit from both the run-up in stock prices and home values, are generally in a much better financial position now than their younger counterparts. Between 1995 – when both the stock market and housing market began to accelerate – and 2010, median family net worth increased by almost 34%. However, it increased significantly more for older households, with families age 75 and older having a net worth 133% greater than their counterparts in 1995.

Source: Federal Reserve Board, Survey of Consumer Finances

Not only was the upside greater for older families over this period, but the recent downturn has been significantly milder. While median family net worth declined over 35% from 2007 – when both stock prices and home values were near their market peak – to 2010, it declined less than 30% for those aged 55 to 64, and even increased modestly for families aged 75+.

Though families aged 55 to 64, the leading edge of the baby boom generation and therefore a key demographic to watch, haven’t done as well as older families in recent years in holding onto their net worth, their situation still looks promising. Typically more highly leveraged during the growth years, this leverage often worked against the leading edge baby boomers during the downturn. Still, by 2010, the median net worth of this group had increased more than 55% from 1995 levels, compared to 34% for all families. Coupled with incomes that have held up better than their younger counterparts since 1995, this leading edge of the baby boom generation is entering its retirement years in a generally comfortable financial position.

Greater longevity and lower mobility have given older households the incentive to improve and modify their homes so that they are able to comfortably and safely age in place. Higher incomes and greater wealth have given them the ability to do so. Average spending by homeowners on home improvement projects has increased about 30% over the past decade. However, while gains have been more modest for owners under age 55, they have increased by over 50% for those over age 55.

Source: JCHS Tabulations of the 2001 and 2011 American Housing Surveys

The combination of greater numbers of baby boomers aging in place and greater per owner spending on home improvement projects has dramatically shifted the composition of the home improvement market. In 2001, owners age 55 or older accounted for less than 32% of home improvement spending in the owner-occupied residential market. By 2011, this had grown to 45%. So, while the influence of baby boomers on the new residential construction market may be waning, they are a growing force in home improvement activity.

Home Remodeling Spending Set to Accelerate

by Abbe Will
Research Analyst

An improving housing market and record low interest rates are driving projections of strong gains in home improvement activity through the end of the year and into the first half of 2013, according to our latest Leading Indicator of Remodeling Activity (LIRA).  The LIRA suggests that the seeds for what appears to be a very robust remodeling recovery have been planted, with annual homeowner improvement spending expected to reach double-digit growth in the first half of 2013.

After a bump in home improvement activity during the mild winter, there was a bit of a pause this summer.  However, the LIRA is projecting an acceleration in market activity beginning this quarter, and strengthening as we move into the new year.  Strong growth in sales of existing homes and housing starts, coupled with historically low financing costs, have typically been associated with an upturn in home remodeling activity some months later.  While the housing market has faced some unique challenges in recent years, this combination is expected to produce a favorable outlook for home improvement spending over the coming months.  (Click chart to enlarge.)

For more information about the LIRA, including how it is calculated, visit the Joint Center website.

Strong Cities, Strong Communities

by Erika Poethig
Guest Blogger

From time to time, Housing Perspectives will feature posts by guest bloggers.  We are pleased that the first was written by Erika Poethig, Acting Assistant Secretary for Policy Development and Research at the U.S. Department of Housing and Urban Development.  Her post reflects thoughts she shared at a Brown Bag Lecture delivered at the Harvard Kennedy School on September 25, 2012.  Her talk was entitled "Putting the 'UD Back in HUD."

Louisiana releases fifteen thousand inmates annually. But lacking rehabilitative services and reentry supports, approximately half of these former inmates commit another crime and find themselves back behind bars within five years.  That’s why Mayor Landrieu and his team at New Orleans City Hall have made reentry a key component of their anti-crime strategy. However, the City will not have to go at it alone.

Through the Obama Administration’s Strong Cities, StrongCommunities (SC2) initiative, the U.S. Departments of Housing and Urban Development (HUD), Health and Human Services (HHS), and Justice (DOJ) have partnered with the City and State to create a permanent supportive housing voucher preference for people returning from substance abuse treatment and people with disabilities (including mental illness and substance abuse challenges) reentering from incarceration to ensure these individuals have the housing and support services they need to successfully reintegrate into their communities and reduce the likelihood of recidivism. This federal-local partnership exemplifies President Obama’s new, more collaborative approach to urban policy and development—the focus of my recent Brown Bag Lecture for the Harvard Joint Center for Housing Studies.

Back in 2009, shortly after the inauguration, Administration leaders launched an urban policy listening tour. Top officials visited cities across the country to take stock of how we could better engage with communities. The overall lesson: the federal government needs to be a better partner. Rather than the top-down heavy-handed approach of the past, we need to be a flexible, locally responsive federal partner with the willingness to listen. We need to abandon the one-size-fits-all, cookie-cutter approaches of the past in favor of flexible programs easily tailored to municipal challenges while also providing technical assistance to build local capacity so communities can implement their own visions. We need to ”bust our silos”  to better align Federal initiatives and improve efficiency. We need to ensure all hands are on deck to address urban challenges by leveraging private and nonprofit assets and encouraging regional collaboration. While working to be a better partner, however, the federal government also needs to hold our partners and grantees accountable for results to ensure that federal resources foster integrated, diverse communities with access to opportunity.

Our new partnership approach and the principles it embodies inform each of this Administration’s signature place-based programs in which HUD is a leading member. Take the Neighborhood Revitalization Initiative (NRI) for instance, which brings together five agencies (ED, HHS, HUD, Treasury, and Justice) to help communities develop and obtain the tools they need to transform high-poverty neighborhoods into sustainable, mixed-income communities. Each of the NRI programs require significant community involvement, partnership with the nonprofit and private sectors, and regular evaluation based on performance metrics aligned across programs. Extra points are awarded to applications that align federal resources by harnessing multiple NRI grants. And whatever the particular grant’s focus (housing redevelopment, community health, cradle-to-college education, etc.), plans must be embedded in broader community development efforts sufficient to improve resident outcomes.

Recognizing that communities have varying needs and capacities, this Administration has structured its urban development programs along a capacity continuum. The Building Neighborhood Capacity program provides historically disadvantaged communities with hands-on technical assistance to begin comprehensive planning, driven by local priorities and community input, and to set the stage for rebuilding and revitalization. Strong Cities, Strong Communities (SC2) deploys teams of government experts, early-to-mid career fellows, and a national resource network to assist struggling cities in achieving their economic development goals while deepening municipal “bench capacity.” The Partnership for Sustainable Communities enables cross-sector engagement and coordination of federal investment to support regions and communities nationwide in achieving multi-jurisdictional goals: improving access to affordable housing, increasing transportation options, and lowering transportation costs while protecting the environment.

Stay tuned as these initiatives continue. In collaboration with our local, state, and private partners, we can together achieve our shared goal of stronger local and regional economies that create access to opportunity for all Americans.

Bridge to Recovery: Senator Mel Martinez Frames a Vision for Housing

by Pamela Baldwin
Deputy Director

October in Cambridge means the Head of the Charles, fall foliage, students settling in, and the Joint Center’s annual John T. Dunlop Lecture.

Last week at the Harvard Graduate School of Design, former U.S. Senator and HUD Secretary Mel Martinez delivered an address entitled America’s Housing Policy: Charting a Course for Recovery.  In an auditorium filled with students and faculty, members of the Joint Center’s Policy Advisory Board, and the general public, Senator Martinez outlined why bipartisanship and bridging ideological differences will be the critical components of any policy agenda that seeks recovery, both for the U.S. economy in general and housing markets in particular.  Speaking from his current perspective as Co-Chair of the Bipartisan Policy Center Housing Commission and Chairman of the Southeast and Latin America at JPMorgan Chase, Senator Martinez called on federal policymakers to make housing and reform of the nation’s housing finance system a central priority, regardless of the outcome of the November election.  He set out a broad vision of housing at the center of national economic policy discussions and offered recommendations for addressing four of the deepest challenges affecting homeowners, renters, lenders, and communities: homeownership and access to credit, foreclosure mitigation, overhauling the housing finance system, and the future of multifamily and rental housing.

That the path to recovery is truly a bridge is a welcome theme for a lecture that honors the life and work of the late Professor Dunlop.  His career as a labor economist, emeritus professor, dean, and advisor to every president from Franklin Delano Roosevelt to George W. Bush was characterized by his dedication to bridging the worlds of business and government, and leveraging academic research to provide knowledge that informs effective decision-making in both spheres.  As an embodiment of his legacy, the lecture delivered by Senator Martinez was a fitting tribute, evoking Professor Dunlop’s vision of bringing balance and civility to national policy discussions, and calling on both political parties to be mindful of the “shared destiny” implicit in repairing and recovering the American dream of safe and affordable housing for all. 

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We thank the National Housing Endowment for supporting the Dunlop Lecture.  Click the video below to watch Senator Martinez’s speech. We welcome your comments and responses.

Photo by Jared Charney

Over the Next Two Decades, Baby Boomers will Age in Place

by George Masnick
Fellow

Over the next two decades, the entire baby boom generation (age 45-64 in 2010) will cross the 65+ age threshold. Baby boom homeowners have dominated housing markets for so many decades that it is easy to imagine them exercising a large influence during the next two decades as they move into their senior years. A recent report from the Bipartisan Policy Commission makes just that case, arguing that the next twenty years should see significant additions to the housing stock released by aging baby boomers because of discontinued household headship and death.

But this report fails to underscore that the vast majority of baby boom household dissolution won’t occur until after 2030. Only about 15 percent of the 46+ million units baby boomers now occupy will be turned back to the market between now and 2030, assuming cohort household dissolution rates held constant at 2000-2010 levels. This works out to about 1 million total baby boomer housing units returned to the market between 2010 and 2020, and another 6.2 million between 2020 and 2030.  For owner-occupied housing, these numbers are 165,000 during 2010-2020 and 5.2 million between 2020 and 2030.  If baby boomers are healthier and live longer than their immediate predecessors, these numbers should be even lower.

Source: Joint Center calculations of household counts in 2000 and 2010 Decennial Censuses. Assumes cohort attrition rates held constant at 2000-2010 levels.

If more than 85 percent of baby boomers will continue to occupy housing as household heads for the next two decades, can we say anything with confidence about how they will affect housing markets?  Housing analysts have mostly focused on housing adjustments that aging boomers will likely make by moving – to smaller or one-story homes (perhaps in communities that are scaled to be less automobile dependent); to retirement destinations that are warmer, have lower taxes, or are “senior oriented” in terms of services and leisure opportunities; or to locations closer to kids and grandkids. Eventually, some will find themselves moving to assisted living. While during the next two decades many boomers will do all of these things, the majority of boomers will almost certainly not do any of them.  The majority of baby boom homeowners over the next two decades will simply age in place. 

By aging in place, boomers will likely follow existing trends among older homeowners. Elderly owners are the least mobile demographic group. Less than three percent of owners age 65-74 change residences in any given year, and this fraction has been declining, while for owners age 75+, the share that moves in a given year is now about 1.5 percent.  Such low mobility rates result in elderly homeowners having increasing durations of residency in their present homes: the older the owner, the higher the proportion with long-term residency. Indeed, according to the American Housing Survey, the majority of homeowners age 65+ have lived in their homes for 20 or more years (Figure B). These patterns have changed little over the past decade.

Source: Joint Center tabulations of 1999, 2003, 2005 and 2009 American Housing Surveys.  The 2004 data are averages of 2003 and 2005.

Aging in place does not necessarily mean that housing adjustments fail to take place.  Renovation and remodeling activity will allow those aging in place to repair, modernize, and reconfigure their homes.  Some of this remodeling activity will take place before age 65 to prepare the home for aging in place.  The 50s and early 60s are an ideal time to undertake major remodeling projects – the kids have fledged the nest and the still-employed parents have some additional disposable income.  Past trends suggest that while there is some fall-off in total remodeling spending after owners turn age 65, elderly owners will remain fairly active in spending on renovation and repair (Figure C).  More detail about aging in place and remodeling activity is the subject of a forthcoming Joint Center working paper.

Source: Joint Center tabulation of 2009 American Housing Survey.