Wednesday, March 18, 2015

What Areas of the Country Do the Most Remodeling, and Who Spends the Most?

by Elizabeth La Jeunesse
Research Analyst
Every two years, the Joint Center releases a report about the national home improvement industry. This year’s report, Emerging Trends in the Remodeling Market, includes analysis of trends at the metro area level.  Metro area analysis is important since trends often vary in diverse areas of the country, especially along dimensions such as household income, home values, and age of the housing stock. 

Our 2015 report includes estimates of home improvement activity levels for the 50 largest markets in the U.S. We estimate that the median market size was around $1.4 billion in aggregate remodeling spending by homeowners in 2013. Not surprisingly, the New York metro area was the largest market at $12.2 billion. As expected given their size, other large markets included Washington, DC ($6.7B), Los Angeles ($6.5B) and Chicago ($4.5B).

On average, just under one in three homeowners undertook one or more projects in 2013, and the average amount spent per owner was around $2,500 (or just over 3 percent of homeowner incomes). Average homeowner spending in fact ranged widely from less than $2,000 in areas such as Detroit and Las Vegas to as high as $5,000 in Boston and Washington, DC. Our interactive map illustrates the range of spending among the nation’s largest markets. As the map shows, average remodeling expenditures per owner were highest on the coasts.

One finding that surprised us, however, was that the share of homeowners undertaking projects of any amount was actually higher in interior markets of the country. For example, more than a third of homeowners undertook projects in Louisville, Milwaukee, Buffalo, Denver, Phoenix, Indianapolis, Kansas City, Pittsburgh, Oklahoma City, and Rochester. The older age of the housing stock in many of these areas is likely driving some of this higher-than-average project activity. 

By comparison, coastal areas typically saw lower shares of project activity. For example, in Boston and Washington, DC, the share of owners undertaking projects was less than a third, and in New York and Los Angeles only around one in four homeowners undertook a project. Major coastal markets in Florida (Miami, Jacksonville, and Orlando) saw even lower shares at 23 percent or less. 

Although activity rates were lower, average per-owner-spending levels were higher on the coasts, owing mainly to higher property values and incomes, which allows some households to perform more high-end projects. For example, we looked at the share of homeowners spending at least $50,000—a considerable price tag for many households. The segment of households undertaking these high-cost projects is very small, not exceeding 2 percent of all homeowners. Yet this small group of power-spenders considerably boosts average market spending in many coastal metros.

This map shows those markets with the largest share of high-end spending, including Boston, Washington DC, and New York. 


Source: Table A-5, Improving America’s Housing—Emerging Trends in the Remodeling Market, The Joint Center for Housing Studies, 2015.

For more detailed information on remodeling activity in metro areas, see Chapter 4 of our recent report.

Monday, March 9, 2015

What Does the President’s Budget Mean for Affordable Housing?

By Irene Lew
Research Assistant
In his ambitious Fiscal Year 2016 budget submission to Congress last month, President Obama requested funding increases for nearly all of HUD’s programs, with significant boosts for rental assistance and homeless assistance programs. In total, the president’s budget has proposed $49.3 billion in gross discretionary funding for HUD programs, nearly $4 billion higher than the amount that Congress enacted in FY 2015 (Figure 1).
http://3.bp.blogspot.com/--g-b9AeTVg8/VP2vqTofR0I/AAAAAAAABnw/CqIQI5p2ep4/s1600/HUD_Funding.png

Source: White House Office of Management and Budget; HUD


Proposed Funding Increases Prioritize Housing Affordability and Supportive Services

As HUD’s budget documents indicate, nearly three quarters (72 percent) of the requested $4 billion funding increase is dedicated to two core assisted housing programs: project-based rental assistance and housing choice vouchers (Figure 2). Together, both programs currently serve 3.6 million low-income households, according to HUD administrative data.   

http://1.bp.blogspot.com/-qnu1yu0mFVk/VP2jFS4JnPI/AAAAAAAABm0/MFAhM5RrTDU/s1600/HUD_Funding_Figure2.png

Source: White House Office of Management and Budget; HUD 


The president’s request of $10.8 billion for the project-based rental assistance program is 11 percent higher than the FY 2015 appropriation and would fully fund 12-month renewals of all contracts and contract amendments. A complete calendar year of funding would eliminate the uncertainty of funding for owners with contracts that received less than 12 months of funding in FY 2015 due to the shift of the program from a fiscal year to a calendar year funding cycle.

The budget has also proposed a 9 percent increase for HUD’s largest rental subsidy program, housing choice vouchers, which had been hit hard by sequestration cuts in 2013. The increased funding request would renew all existing vouchers for 2.2 million of the country’s most vulnerable households and restore 67,000 vouchers that were lost to sequestration.  The voucher program assists households with the lowest incomes who would have difficulty paying for housing without a subsidy: 68 percent of voucher households have annual incomes of less than $15,000. If the president’s requested appropriation of $21.1 billion for the housing voucher program is enacted, the program would serve an additional 200,000 households (for a total of 2.4 million households).  However, as market rents rise and renter incomes continue to fall, the growth of the voucher program has not kept up with the growing unmet need for rental subsidies over the past decade. Between 2001 and 2013, the share of very low-income renter households without assistance who paid more than half of their income for rent, lived in severely inadequate housing or both (those with worst case needs) jumped by 53.9 percent, according to a preview of HUD’s 2015 Worst Case Needs Report cited in the agency’s budget documents. Yet, the voucher program expanded by just 11.6 percent over the same period, addressing only a fraction of the growth in very low-income renters with worst case needs.

Building on successful federal efforts to reduce homelessness among veterans using housing vouchers, about 45 percent of the restored vouchers (30,000) will be targeted toward additional groups such as homeless families and Native American households, as well as survivors of domestic and dating violence, and youth aging out of foster care. Unlike previous years, there won’t be any new VASH vouchers for homeless veterans; vouchers for this group will be rolled into the total pool of new vouchers. The President’s budget also includes a 16 percent increase in homeless assistance grants from the FY 2015 enacted level, which would help fund more than 25,000 new units of permanent supportive housing for the chronically homeless. Since the 2010 release of the first federal strategic plan to end homelessness, appropriations for homeless assistance have increased by 14 percent.

In good news for many affordable housing advocates, the FY 2016 budget also estimates that $120 million in mandatory funding will finally be provided for the National Housing Trust Fund, the first new housing production program targeted to extremely low-income families since the launch of the Section 8 program in 1974. The Housing Trust Fund was signed into law in 2008 with the directive that it would be financed with contributions from the GSEs. However, before Fannie Mae and Freddie Mac could begin paying into the Trust Fund, they were hit hard by the financial crisis and were placed into conservatorship by FHFA in 2008; FHFA also suspended GSE contributions to the Trust Fund, stalling its implementation. In December 2014, after determining that the financial situation of the GSEs had stabilized, FHFA director Mel Watt finally lifted this suspension and directed Fannie Mae and Freddie Mac to set aside funds for the Trust Fund starting January 1, 2015.

Additional budget highlights for FY 2016 include the proposed expansion of existing HUD programs focused on improving the economic self-sufficiency of tenants with vouchers and those in public housing, including expansion of the Moving to Work demonstration program, an additional $10 million for the Family Self-Sufficiency program, and an $85-million increase in funding for Jobs-Plus. The proposed funding increase for Jobs-Plus will be used to extend the program to Native American households. This year’s budget also outlines several new pilots, including a $300 million mandatory appropriation for a new local housing policy grants program and a rental assistance demonstration program in consultation with the Department of Health and Human Services (HHS) that aims to help older tenants in Section 202 housing avoid institutional care by integrating health and wellness into a housing-and-supportive-services model. 

Proposed Increases for FY 2016 Do Not Reverse Substantial Cuts to Other HUD Programs Over Last Decade  

With a continued emphasis on demand-side subsidies such as housing vouchers, federal funding for necessary repairs to public housing—the nation’s oldest subsidized housing program—and other HUD programs such as Section 202, HOME, and the Community Development Block Grant (CDBG) is still well below typical levels a decade ago (Figure 3)

http://1.bp.blogspot.com/-fUyJnuAfTK8/VP2jKbrU8SI/AAAAAAAABnM/mgGvrkWE73w/s1600/HUD_Funding_Figure3.png

Source: White House Office of Management and Budget; HUD 

The $455 million request for the Section 202 program is up 8 percent from the FY 2015 enacted level but includes no new construction funds and does not reverse a $327 million reduction in appropriations over the past decade. Furthermore, the requested FY 2016 appropriation for HOME is 18 percent higher than the previous year’s appropriation, but does not restore the 53 percent decline in funding between FY 2005 and FY 2015. 

The CDBG program was the only HUD program that did not see any funding increases for FY 2016, with the president’s budget proposing a 7-percent reduction in funding for the CDBG program from $3 billion in FY 2015 to $2.8 billion in FY 2016. This proposed reduction comes on the heels of a 37-percent decline in appropriations for the CDBG program over the past decade. However, part of the proposed decrease for the CDBG program in FY 2016 also reflects federal efforts to overhaul and modernize the 40-year-old program, including improved targeting of grants to the neediest communities. The CDBG and HOME programs will be part of a new HUD and Department of Health and Human Services (HHS) initiative proposed in the FY 2016 budget that enables states and localities to streamline and combine their CDBG, HOME, and HHS block grants into one flexible fund.

Meanwhile, in spite of a proposed $95 million increase (5 percent) between FY 2015 and FY 2016 for the public housing capital program, the entire increase in funding would be used to expand the Jobs-Plus program and would not mitigate a 28-percent decline in federal appropriations for the public housing capital repairs fund over the past decade. However, the proposed expansion of the Rental Assistance Demonstration (RAD) in FY 2016 would continue to leverage private investment to help address the estimated $26 billion backlog in necessary repairs for public housing by converting public housing units to long-term project-based section 8 contracts. The budget has proposed eliminating the current RAD cap of 185,000 conversions and has requested $50 million to finance the conversion of another 25,000 public housing units.

Wednesday, March 4, 2015

What is Driving the Decline in Homownership Among Young Adults, and What Can be Done About it?

by Rachel Bogardus Drew
Post-Doctoral Fellow
The homeownership rate for young adults ages 25 to 34, which rose from 45 percent in the mid-1990s to a high of 50 percent in 2004, fell to 40 percent as of last year, representing the largest percentage decline in homeownership of any age group over the last ten years (Figure 1). A large part of the reason for this decline was the adverse effect of the recession on the accessibility and appeal of homeownership for young adults, who make up the majority of first-time homebuyers. Yet recent events in the economy and housing markets do not tell the whole story, as longer-term socio-demographic changes among the young adult population have had an impact on their propensities for homeownership. Higher shares of minorities, lower rates of marriage and family formation, and increased focus on education and career development in the early years of adulthood have all contributed to fewer people buying homes in their 20s and early 30s. What is unknown, however, is the effect these trends have had on the fall in young adult homeownership rates during a period of economic distress. My new research paper decomposes these secular changes in the composition of young adults from the cyclical forces of the macro economy, and finds that absent changes in micro and macro market trends, demographic shifts alone should have actually lowered the homeownership rates of young adults slightly below their observed 2014 level of 40 percent.

http://3.bp.blogspot.com/-z_rlSwx4JUU/VPcawc2nlII/AAAAAAAABmI/qwT3LkTEXxM/s1600/030415_Drew_Figure1.png

Source: Tabulations of the 1995-2014 Current Population Survey.

The largest contributors to the expected decline in homeownership among young adults over the last two decades are smaller shares of married couples, higher shares of minorities and immigrants, and higher shares of young adult households living in center cities versus suburbs. As my previous blog post noted, marriage rates for young adults have been on a steady decline since the 1960s, as the age at first marriage has increased from 20 to 26 for women and 23 to 29 for men. As a result, the share of young adults ages 25 to 34 that have never been married increased from under 25 percent in 1983 to 35 percent at the turn of the century, to almost 50 percent in 2014. Among this age group, the combination of both fewer married couples, as well as fewer previously married individuals living in homes that were purchased with a former spouse, lowered their expected homeownership rate by 2.6 percentage points between 1995 and 2014. At the same time, the minority share of householders among young adults increased from 28 to over 40 percent, and the share of foreign-born households by 12 to 19 percent (Figure 2). Given that minority and foreign born households generally have lower homeownership rates than whites and native-born householders, these demographic shifts served to depress overall homeownership rates for the age group by an additional 1.1 percentage points during this period.

http://3.bp.blogspot.com/-t0PiNh73vAU/VPccaOHZlII/AAAAAAAABmQ/eThTv-Xz3VY/s1600/030415_Drew_Figure2.png

Note: White young adult households are not shown in the chart and comprise the remainder of the distribution in each year. Whites, Blacks, and Others are non-Hispanic, while Hispanics may be of any race. Other includes Asians and multi-race categories.
Source: Tabulations of the 1995-2014 Current Population Survey.

Finally, the share of young adult householders living in central cities increased from 28 to 35 percent; given that homeownership rates are lower in cities versus suburbs and non-metro areas, where prices are generally lower and the availability of homes for purchase greater, this shift
lowered expected homeownership rates of young adults by an additional 0.7 percentage points. Indeed, of all the socio-demographic changes modeled in this research, only a slight increase in the income profile of young adults had any positive effect on their expected homeownership rates over the last two decades (Figure 3).

http://4.bp.blogspot.com/-ANy6c75eEzs/VPccbOsAA5I/AAAAAAAABmY/d1e6ogsPSKI/s1600/030415_Drew_Figure3.png

Source: Tabulations of the 1995-2014 Current Population Survey.

These results make clear several important facts about the role of socio-demographic factors in shaping recent homeownership rates among young adults. First, absent the dramatic swings in housing markets and macro-economic conditions, we would have expected young adult homeownership rates to be about 5.1 percentage points lower than in 1995, or at 39.6 percent, in 2014. This is only slightly below the actual rate of 40.1 percent. Second, much of that decline was driven by changes in the marital status and living arrangements of young adults, which was itself potentially influenced by the declining economy of that period. However, the model used to estimate the effect of demographic shifts on young adult homeownership rates only explains about 25 percent of the variation in tenure status across individual households. This suggests that these shifts play a minor role in determining homeownership rates, while factors not included in the analysis – namely macro-economic conditions and individual preferences for owning and renting housing – are have greater influence on the tenure outcomes of young adults.

Going forward, many of these long-term observed socio-demographic changes are likely to continue, and thus to have further depressing effects on homeownership rates among young adult households. It will therefore be up to the economy and housing markets to offer countervailing forces to encourage young adults to buy homes. Favorable mortgage terms, affordable housing costs, and increases in income can be stronger drivers of tenure outcomes than socio-demographic characteristics, as evidenced during the housing boom. When both personal characteristics and economic conditions are less favorable to home purchases, however, young adult homeownership rates can fall precipitously, as happened after the collapse of the housing market in 2005. The combination of these forces, therefore, will shape the homeownership rates of young adults in the future.