As the Housing Recovery Strengthens, Affordability and Other Challenges Remain

The national housing market has now regained enough momentum to provide an engine of growth for the US economy, according to the latest The State of the Nation’s Housing report released today, June 22, by the Joint Center (live webcast today @ 12:30 ET). Robust rental demand continues to drive the housing expansion, and sales, prices, and new construction of single-family homes are on the rise. Even more important, income growth has picked up, particularly among the huge millennial population that is poised to form millions of new households over the coming decade. At the same time, however, several obstacles continue to hamper the housing recovery—in particular, the lingering pressures on homeownership, the eroding affordability of rental housing, and the growing concentration of poverty.

The national homeownership rate has been on an unprecedented 10-year downtrend, sliding to just 63.7 percent in 2015. Tight mortgage credit, the decade-long falloff in incomes that is only now ending, and a limited supply of homes for sale are all keeping households—especially first-time buyers—on the sidelines. And even though a rebound in home prices has helped to reduce the number of underwater owners, the large backlog of foreclosures is still a serious drag on homeownership.

As these lingering effects of the housing crash fade, homeownership may regain some lost ground, but how soon and how much are open to question. Moreover, the report finds that income inequality increased over the past decade, with households earning under $25,000 accounting for nearly 45 percent of the net growth in US households in 2005–2015. The question is not so much whether families will want to buy homes in the future, but whether they will be able to do so.

Mirroring the persistent weakness on the owner-occupied side is the equally long surge in rental housing demand, with increases across all age groups, income levels, and household types. With vacancy rates down sharply and rents climbing, multifamily construction is booming across the country. But with strong growth among high-income renters, so far most of this new housing is intended for the upper end of the market, with rents well out of reach of the typical renter making $35,000 a year. Because of the widening gap between market-rate rents and the amounts many households can afford at the 30-percent-of-income standard, the number of cost-burdened renters hit 21.3 million in 2014. Even worse, 11.4 million of these households paid more than half their incomes for housing, a record high. The report finds that rent burdens are increasingly common among moderate-income households, especially in the nation’s 10 highest-cost housing markets, where three-quarters of renters earning $30,000–45,000 and half of those earning $45,000–75,000 paid at least 30 percent of their incomes for housing in 2014.

Cost burdens are nearly universal among the nation’s lowest-income households. (View our interactive maps.) Federal assistance reaches only a quarter of those who qualify, leaving nearly 14 million households to find housing in the private market where low-cost units are increasingly scarce. Low-income households with cost burdens face higher rates of housing instability, more often settle for poor-quality housing, and have to sacrifice other needs—including basic nutrition, health, and safety—to pay for their housing. These conditions have serious long-term consequences, particularly for children’s future achievement. And compounding these challenges, residential segregation by income has increased. Between 2000 and 2014, the number of people living in neighborhoods of concentrated poverty more than doubled to 13.7 million.

The report notes that a lack of a strong federal response to the affordability crisis has left state and local governments struggling to expand rental assistance and promote construction of affordable housing in areas with access to better educational and employment opportunities through inclusionary zoning and other local resources. Our researchers noted that these efforts are falling far short of need. Policymakers at all levels of government need to take stock of what can and should be done to expand access to good-quality, affordable housing that is so central to the current well-being and potential contribution of each and every individual.

Increased Living with Parents among 18-34 Year Olds and the Implications for Future Housing Demand

by Daniel McCue
Senior Research Associate

The rise in the number and share of adults living with their parents is a well-documented trend that became increasingly apparent after the Great Recession.  It is also increasingly meaningful to housing markets as household growth slowed markedly in this period, largely as a result of fewer young adults forming households. And it is a trend that is ongoing. A report issued by the Pew Research Center found that for the first time in the modern era a higher share of adults age 18-34 are living with parents than living with partners or spouses.

In light of this information, one might conclude that as long as the rate of young adults living with their parents remains high, household growth will continue to be depressed. But even as the rate of adults living with parents continues to grow, the Census Bureau’s Housing Vacancy Survey also reported that household growth again increased in 2015 and has been accelerating since 2012.  If young adults―who are responsible for the majority of new household formation―are still living with parents at ever higher rates, how is it that household growth is picking up?  The answer lies in the shifting age distribution of millennials, who have now begun to exit the time of life where living with parents is most common and enter older ages where living with parents is less common.  With this shift, we can maintain today’s higher levels of living with parents among young adults and still have an acceleration of household growth.     

The 18-34 year old age group is also a very wide grouping for looking at living with parents, as the rate drops sharply across these ages.  Rates start at 50 percent among adults age 20-24 and drop down to 15 percent for adults age 30-34 (Figure 1).  This pattern basically mirrors the growth in headship rates (rates of being the head of an independent household) that rise most steeply for adults in their 20s. 

Source: JCHS tabulations of US Census Bureau, 2014 American Community Survey 1-Year Estimates.

In addition to being higher, rates of living with parents have also increased much more for the younger set of adults aged 18-34 (Figure 2).  According to tabs of the ACS, rates of living with parents in 2008-2014 grew most for 20-24 and 25-29 year olds, each up by roughly 6 percentage points.  Increases taper off with age from there, dropping to 4 percentage points for those age 30-34 and 2.5 percentage points for the age 35-39 year old age group.  Similarly, household headship rates dropped most for the younger age groups under age 30 and less for those older than age 30.

Source: JCHS tabulations of US Census Bureau, 2014 American Community Survey 1-Year Estimates.

Meanwhile, over the past decade the majority of population growth for young adults was skewed towards the younger side of this 18-34 year old group as the millennials replaced the smaller, generation-X population in the 20-24 and 25-29 year old age groups.  In addition to being the ages where rates of living with parents are highest, the sharp increases in living with parents that occurred among these age groups has meant that far fewer households were formed compared to what would have been expected given the magnitude of population growth.  Tabulations from the CPS show that declines in headship rates over 2005-2015 for the 15-19, 20-24, and 25-29 year old age groups reduced household growth by 1.7 million below what would have occurred under constant rates. 

Over the next 10 years, the aging of the millennial generation will shift the bulk of population growth from the 20-24 and 25-29 year old age groups to the 30-34, 35-39, and 40-44 year old age groups (Figure 3).  At these older age groups, changes in rates of living with parents and overall household headship have been much more moderate and remain closer to recent historical levels. 

Source: JCHS tabulations of US Census Bureau, United States Population Estimates and 2014 Population Projections.

This all suggests that future expected population growth in the 30-44 year old age groups will translate more directly into household growth over the next decade, even if living with parents continues to remain high for 20-somethings.  The pick-up in annual household growth levels since 2012 as reported by the Housing Vacancy Survey is a sign that this has begun.

Bipartisan Policy Center Task Force Recommends Integrating Health and Housing to Support Aging in Place

by Jennifer Molinsky
Senior Research Associate

The Bipartisan Policy Center’s Senior Health and Housing Task Force recently released Healthy Aging Begins at Home, a report and set of policy recommendations centered on integrating health care, supportive services, and housing to support the nation’s rapidly expanding older population. As the 65 and over population is projected to soar from 48 to 74 million over the next fifteen years, the report brings into focus some core challenges.

Surveys show that most older adults prefer to age in place; indeed, a 2014 AARP survey found that nearly 90 percent of those 65 and older agree or strongly agree that they would like to remain in their current homes for as long as possible. Yet as the incidence of mobility and other disabilities rises with age, only 1 percent of existing housing units have five key universal design features (no-step entry, single-floor living, lever-style handles on doors and faucets, wide halls and doorways, and accessible electrical controls) that can allow those with disabilities to live safely at home. Millions will also need support with homemaking and personal care, but costs of in-home assistance can be substantial. 

Indeed, the Joint Center’s Housing America’s Older Adults report has shown that the typical renter 65 and over can afford just 2 months of homemaker or home health aides before depleting all assets. And while the physical and financial barriers to aging in place are high, the nation will also have to contend with rising Medicare and Medicaid expenditures.

The crux of Healthy Aging Begins at Home is that the challenges of aging in place, as well as rising health care costs, can both be moderated by better integration of health care and housing. For example, relatively small investments in grab bars, lighting, and other modifications can help avert falls among older adults that can end or severely impair an individual’s independence, and that cost an estimated $34 billion in health care costs annually. Helping older adults modify their homes for safety and accessibility can help them remain independent in their own homes longer, precluding moves to more costly congregate care. Similarly, the task force's report finds Medicare, Medicaid, and hospitals should look to homes as a site for preventive health care as well as supports and services that help older adults age in place while also reducing costs. Among a number of examples, the report points to the Independence at Home Demonstration program, created under the Affordable Care Act, which uses home-based primary care for Medicare holders with multiple chronic conditions, saving over $25 million in the program’s first year.

While healthy aging indeed does begin at home, for a host of reasons the best home may not be the current home. As the BPC report notes, “[I]t may be the case that living alone, socially isolated, in a single-family home is not the most appropriate or healthiest living situation, particularly for a frail senior. America needs a broader perspective: the aspiration should be to help seniors not just to age in place but to age with options.” In a recent report from the Milken Institute on The Future of Aging, Joint Center Managing Director Chris Herbert echoes this point, noting the importance of aging “in the right place.” This may mean a home that is smaller, more physically accessible, more affordable, or less isolated. Since one size will not fit all, a range of housing choices is needed, including in older adults’ existing communities, which would allow for a move but help people retain social and family ties. With three-quarters of older adults residing outside of central cities, this means new options in suburbs, small towns, and rural areas.

We particularly need options for the millions who pay too much for inadequate, inaccessible, or otherwise unsuitable housing. Recent Joint Center analysis shows that older adults aged 75 and over have the highest incidence of all ages of severe cost burdens, paying more than 50 percent of their income for housing. While there’s a higher incidence of cost burdens among older renters, with the older population's high homeownership rate and low incomes, greater numbers of older owner households face severe burdens (Figure 1). Unfortunately, we expect cost burdens among older adults to worsen as the population grows: a recent report by the Joint Center and Enterprise Community Partners projects that severe burdens are expected to rise by 39 percent among those aged 75 and over and 42 percent among those aged 65-74 by 2025. 

Notes: Cost burdens are defined as housing costs more than 50% of household income. 

JCHS tabulations of US Census Bureau, American Community Surveys. 

Indeed, while Healthy Aging Begins at Home calls for integrating health care, supportive services, and housing, it makes the compelling argument that this is not possible without housing that is affordable: 

One thing is clear: all bets are off in bridging the health-housing divide if seniors lack access to affordable housing. Affordable housing is the glue that holds everything together: without access to such housing and the stability it provides, it becomes increasingly difficult, if not impossible, to introduce a system of home- and community-based supports that can enable successful aging.

Toward this end, Healthy Aging Begins at Home calls for the expansion of the Low Income Housing Tax Credit program to finance and preserve affordable rental housing, including units for low-income older adults. In close alignment with this recommendation, on May 19, Senator Maria Cantwell and Chairman Orrin Hatch of the Senate Finance Committee introduced a bill, the Affordable Housing Credit Improvement Act (S 2962), to increase support for LIHTC by 50 percent. The report also recommends a host of other policy changes including support for senior supportive housing through the US Department of Housing and Urban Development's Section 202 and new programming, coordination of federal resources for home modifications, expansion and creation of new state and local efforts to support the financing of home modifications, integration of health care and long term services and supports for Medicare beneficiaries who live in publicly-assisted housing, a focus on fall prevention within Medicare and other federal programs, and greater reimbursement of telehealth and other technologies that make it easier to monitor and coordinate care for people living independently. Some of these policies require additional investments but have longer-term payoffs in terms of reduced health care costs.

The Joint Center’s own Housing America’s Older Adults report concludes that though the challenges are vast, the largest impacts on healthcare and housing are still a decade away, giving the nation time to begin to make needed changes to our housing stock, communities, and health care systems. That too was the message at the release of Healthy Aging Begins at Home: with so much at stake, the time to act is now. 

Are Renter Worst Case Housing Needs Easing?

by Ellen Marya
Research Associate

Every two years, the Department of Housing and Urban Development (HUD) issues its Worst Case Housing Needs Report to Congress (WCN). This report highlights the challenges faced by low-income renter households in finding affordable, good-quality housing. In addition to data on characteristics of renter households and units, HUD’s report provides a count of renters facing worst case needs—defined as households who earn less than 50 percent of the area median income (AMI) who do not receive housing assistance from the government, who also are severely cost burdened (spending more than 50 percent on income on housing costs), and/or live in severely inadequate units. 

In its most recent WCN report released in May 2015, HUD noted a full 9 percent decline in the number of households with worst case needs, falling from 8.5 million in 2011 to 7.7 million in 2013. It was the first decline in that measure since a slight (1 percent) decrease in 2005-2007 and followed two periods of increases of about 20 percent. The change was surprising given that it coincided with a time of broadly stagnant incomes, rising rents, and a rapid increase in the number of renters. Do HUD’s numbers reflect genuine improvements in conditions for renters or are other factors at work?

A potential explanation for the decrease in worst case needs explored by HUD is a change in the income limits the agency uses to identify households earning less than 50 percent of AMI (very low-income households). Between 2011 and 2013, HUD reduced the maximum income for very low-income households by $516, decreasing the number of households in this group eligible to be counted among those with worst case needs by about 1 percent. When HUD compared the tallies of renters with worst case needs using the new and old cutoffs, however, it found that only 20,000 of the 750,000 total reduction 2011–2013 could be attributed to the new lower income limit.

Much of the decrease in worst case needs is due to a drop in households with severe cost burdens, which account for the vast majority of worse case needs. HUD reported that the total number of renter households with severe cost burdens fell from 10.4 million in 2011 to 9.7 million in 2013, a decline of over 6 percent. Counter to these findings, however, calculations from the Joint Center for Housing Studies (JCHS) using a different data source, the American Community Survey, found a negligible decline (just over 1 percent) in severely cost burdened renters, from 11.3 million in 2011 to 11.2 million in 2013.

Notes: Severe burdens are defined as housing costs of more than 50% of household income. In HUD tabulations, households with zero or negative income are excluded unless they pay Fair Market Rent or more for housing. For households paying no cash rent, utility costs are used to represent housing costs. In JCHS tabulations, households with zero or negative income are assumed to have severe burdens, while renters paying no cash rent are assumed to be without burdens.

Sources: HUD Worst Case Housing Needs: 2015 Report to Congress and JCHS tabulations of US Census Bureau, American Community Surveys.

Several unique methodological differences help contextualize why HUD and JCHS estimates vary (Figure 1). The first key distinction between the measures reported by HUD and JCHS is the source data. HUD estimates of cost burdens rely on the American Housing Survey (AHS), a biennial survey jointly administered by HUD and the Census Bureau assessing characteristics of the housing stock and its occupants. JCHS calculates cost burdens using the American Community Survey (ACS), an annual Census Bureau survey of households designed to supplement the short form decennial census. The surveys vary in size and scope. The AHS reaches 50,000-70,000 housing units in its national longitudinal sample, gathering detailed information on housing quality and cost, assisted status, and location. The ACS reaches 3.0-3.5 million households in the years since its full implementation and collects information on many demographic, economic, and employment characteristics, along with selected housing cost and unit information.

In addition to their variations in design, the AHS and ACS use distinct methods for defining occupied units that result in different counts for the most basic variables of total households (equivalent to total occupied housing units) and households by tenure. While several reports have examined these differences in more depth, essentially the ACS uses a broader definition of occupancy and makes more attempts to contact sampled households. These features of the survey tend to increase the number of occupied units reported and can count households in a seasonal residence (often rented) rather than their usual residence (possibly owned), increasing the number of renter households over the AHS (Figure 2). While not unique to the 2011-2013 period to explain the divergent trends, this difference in methodology consistently results in about 2 million more renter households in the ACS over the AHS, likely contributing in part to a higher ACS count of burdened renters

Sources: HUD Worst Case Housing Needs: 2015 Report to Congress and JCHS tabulations of US Census Bureau, American Community Surveys.

There are also important distinctions in how cost burdens are measured and what adjustments are made to the data. According to its WCN report, HUD excludes households reporting zero or negative income when calculating cost burdens, unless these households report paying the local Fair Market Rent (FMR) or more for housing. In this case, HUD assumes the negative income reported to represent a temporary situation and imputes a higher income for the household. If these households pay more than FMR and live in adequate, uncrowded housing, an income slightly higher than the local area median is assigned, again assuming a temporary period of income loss. HUD also makes adjustments for households that report paying no cash rent. For these households, HUD relies on reported utility costs to represent housing costs and identify housing cost burdens.

In contrast, JCHS assumes all households reporting zero or negative income to be severely cost burdened and all those paying no cash rent to be unburdened (in the case of a household reporting both zero or negative income and no cash rent, the household is assumed to be unburdened). The difference in adjustments may have had an especially large impact in 2011-2013 as JCHS tabulations of the AHS find the number of renter households reporting zero or negative income rose by nearly 13 percent, about four times the rate of growth of renters reporting positive income. ACS numbers do not mirror this rise, as renters reporting zero or negative income increased by 3 percent 2011-2013. Excluding zero or negative income households may better isolate households with perennially low incomes from those potentially higher-wealth households reporting temporary annual business losses. However, excluding these households from ACS analysis finds that severe cost burdens still do not drop nearly as much in 2011-2013 as HUD methods shows. Subtracting all households with zero or negative incomes from the ACS burden count shifts the totals to 10.4 million severely burdened renters in 2011 and 10.3 million in 2013, a decline of just 1.4 percent—much smaller than that reported by HUD for the period. Conversely, if all zero or negative income households in the AHS were considered burdened regardless of rent level, the decline in renters with severe cost burdens 2011–2013 would be about 4.6 percent.

In addition to varying counts of zero and negative income households, a disparity in median renter income patterns between 2011 and 2013 may also explain part of the divergent cost burden trends in that period. HUD cites an increase in median renter income of 7.2 percent in 2011-2013 in real terms as a factor driving down the number of severely burdened renters. While JCHS estimates of ACS data also find an increase in real median renter income in that time—the first increase since 2006-2007—the gain is a distinctly smaller 5.2 percent. HUD notes in its WCN report that some of the observed increase in median income may be due to newly formed higher income renter households, but does not further explore this possibility. Analysis of ACS data indeed shows that an influx of higher income renters occurred over this time. Of the net 1.7 million increase in renter households measured in the ACS 2011-2013, fully 1 million or 60 percent had incomes of $75,000 or more, over twice the median renter income (Figure 3). With this group pulling up the median figure, aggregate income gains may not have impacted lower income households sufficiently to meaningfully decrease the number of severely burdened renters.

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

Indeed, analysis of the most recent 2014 ACS reveals the number of severely burdened renters is once again on the rise, climbing to 11.4 million—the highest number on record. Whether new AHS data expected in the upcoming months and the next WCN report due the following spring confirm this trend or show a further drop in severely burdened renters, the results of both surveys again underscore the acute unaffordability of housing for millions of renter households. Understanding whether affordability pressures are worsening or easing is therefore crucial to making informed decisions concerning rental assistance and other housing policy actions. Given additional data showing persistent rent growth and  tightness in the rental market, the larger sample size of the ACS, the benefit of an added year of ACS data showing rising burdens, and the unusually large recent shifts in renter incomes in the AHS, it seems likely that the enduringly high severe cost burden levels reported by the ACS are more accurate and affordability pressures for renter households continue to build.