Above-Average Gains in Home Renovation and Repair Spending Expected to Continue

Abbe Will
Research Analyst

Over the coming year, homeowner remodeling activity is projected to accelerate, keeping the rate of growth above its long-term trend, according to our latest Leading Indicator of Remodeling Activity. The LIRA anticipates growth in home improvement and repair expenditures will reach 8.0 percent by the start of 2017, well in excess of its 4.9 percent historical average.

A healthier housing market, with rising house prices and increased sales activity, should translate into bigger gains for remodeling this year and next. As more homeowners are enticed to list their properties, we can expect increased remodeling and repair in preparation for sales, coupled with spending by the new owners who are looking to customize their homes to fit their needs.

By the middle of next year, the national remodeling market should be very close to a full recovery from its worst downturn on record. Annual spending is set to reach $321 billion by then, which after adjusting for inflation is just shy of the previous peak set in 2006 before the housing crash.

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

NOTE ON LIRA MODEL: As of April 21, 2016, the LIRA has undergone a major re-benchmarking and recalculation in order to better forecast a broader segment of the national residential remodeling market. For more information on this, see our earlier blog post, and read the research note: Re-Benchmarking the Leading Indicator of Remodeling Activity.

Addressing the Housing Insecurity of Low-Income Renters

Irene Lew
Research Analyst

As our recently released 2016 State of the Nation’s Housing report highlights, rental housing affordability remains a pervasive—and growing—problem for millions of renter households in the US. The number of renter households devoting more than half of their income to housing costs (those considered severely burdened) climbed to a record high of 11.4 million in 2014. Among renter households earning under $15,000 a year, severe cost burdens are widespread, with 72 percent falling into this category. Severe cost burdens can adversely impact the housing security of very low-income households, leaving them little money left over to pay for necessities or to cover unexpected expenses. Indeed, compared to those with similar incomes who live in housing they can afford, very low-income renters paying more than half of their income on housing in 2013 were nearly two times more likely to fall behind on their rent, were at higher risk of having their utilities being shut off due to nonpayment, and were more likely to believe that they would be evicted within the next two months—all elements of housing insecurity (Figure 1).

Notes: Very low-income refers to households with incomes no higher than 50% of area medians. Severely cost burdened refers to households that pay more than 50% of income for housing. Households with zero or negative income are assumed to be severely burdened. Rent payment(s) were missed within the previous three months. Felt under threat of eviction refers to households who reported that they were likely to be evicted within the next two months. 
Source: JCHS tabulations of HUD, 2013 American Housing Survey. 

Furthermore, very low-income renter households with children are also more likely than those without children to be housing insecure and believe that they are at risk for eviction (Figure 2). Eviction is a leading cause of homelessness for families with children living in major cities like Washington, DC, Philadelphia and Baltimore, according to the most recent US Conference of Mayors Hunger and Homelessness Survey. As I point out in a previous blog post, homelessness among people in families with children persists in the highest-cost cities even as homelessness continues to decline steadily among veterans and those with chronic patterns of homelessness.

Notes: Very low-income refers to households with incomes no higher than 50% of area medians. Severely cost burdened refers to households that pay more than 50% of income for housing. Households with zero or negative income are assumed to be severely burdened. Rent payment(s) were missed within the previous three months. Felt under threat of eviction refers to households who reported that they were likely to be evicted within the next two months. Households with children refer to any households headed by an adult aged 18 and over with at least one child (related or unrelated). 
Source: JCHS tabulations of HUD, 2013 American Housing Survey.

Permanent federal housing subsidies that account for changes in tenant incomes, such as housing choice vouchers,  have proven to be the best option for improving housing stability, especially among homeless families exiting shelter. However, spending on federal housing assistance remains scarce, with direct housing subsidies representing just 4 percent of total discretionary funding approved by Congress in FY2015, a share that has barely budged over the past two decades.

Given the scarcity of federal funding, how can we address financial instability among low-income renters and reduce housing insecurity among this group? Enterprise recently proposed a promising master lease model program with built-in tenant savings accounts that could, without federal subsidies, improve the stability of low-income renters. Under this program, rents would remain affordable because a nonprofit or mission-driven organization would obtain long-term access to units in existing buildings through a multi-year master lease arrangement with fixed prices similar to the ones used for commercial leases. Unique to this model is a savings component in which a small amount of money from a tenant’s monthly lease payment would be allocated toward a custodial account in the tenant’s name. Tenants would not only have stable housing costs but would also be able to accumulate a savings cushion to pay for unanticipated expenses such as emergency room visits, and bounce back from income disruptions such as involuntary job loss or a significant reduction in income. In fact, a recent Urban Institute report analyzing data from the Census Bureau’s Survey of Income and Program Participation panel found that low-income families with savings of at least $2,000 to $4,999 are more financially resilient than middle-income families without any savings. Among low-income families with savings of $2,000–$4,999, just 20 percent experienced hardship after an income disruption, compared to about 30 percent among middle-income families without any savings.

However, financial issues are not the only contributor to housing insecurity among low-income households—some households may also struggle with additional challenges such as domestic violence, former incarceration, and mental health and substance abuse issues. As a result, improving housing insecurity may also require expanding access to supportive services that help address these underlying issues.

The MacArthur Foundation’s annual How Housing Matters Survey released last month confirms that a majority of Americans have a grim outlook on housing affordability—81 percent of respondents stated that they believe housing affordability is a problem in America today. Nearly seven in ten adults responded that it is more challenging to secure stable, affordable housing today than it was for previous generations. Furthermore, a recent Gallup poll found that 63 percent of renters with annual household income of less than $30,000 were worried about being able to pay their rent or other housing costs. Existing proposals to increase the number of affordable rentals built or preserved through the Low Income Housing Tax Credit program, and to reform federal rental assistance programs in order to serve more low-income households, can help alleviate the rental affordability crisis. However, it is equally important to offer programs that can help low-income renters better weather income disruptions or unexpected financial emergencies and avoid missed rent payments that can lead to eviction.

What Can Measures of Residual Income Tell Us About Affordability?

Shannon Rieger

Research Assistant

JCHS analysis of American Community Survey data in our recent State of the Nation's Housing indicates that the share of households with housing cost burdens—those paying 30 percent or more of income toward housing—has increased since the turn of the 21st century (Figure 1). Rising cost burdens have hit low-income households especially hard: among households with annual incomes under $15,000, 83.4 percent had housing cost burdens in 2014, with 70 percent facing severe cost burdens—paying at least 50 percent of income toward housing.

This changing distribution of housing cost burdens clearly indicates that housing affordability has become more of a problem for a larger share of households in recent years. However, cost burden measures alone provide limited insight into the extent to which housing costs constrain a household’s resources, capacity to save, and overall financial wellbeing. To answer these questions, we need an additional way to measure housing affordability. This blog post therefore constructs measures of residual income after housing costs using data from the Consumer Expenditure Survey (CES) to examine the extent to which rising housing cost burdens have eroded households’ ability to afford other basic costs of living during the first years of the 21st century.

Source: JCHS tabulations of 2001 and 2014 1-Year American Community Survey data.

This discussion examines average residual income for consumer units that participated in the Consumer Expenditure Survey between years 2000 and 2013. For simplicity, we use the term “household” to refer to the CES-defined consumer units, which are occasionally smaller than households in cases where financially independent families or roommates live in the same housing unit. Dollars are adjusted for inflation using CPI-U All Items Less Shelter, a deflator neutral to housing cost increases. To account for the introduction of income imputation in 2004, we analyze reported (non-imputed) rather than imputed income data even in years where imputed data is available, and limit our sample to complete income reporters.

Analysis of CES data confirms that rising housing cost burdens are the result of countervailing trends in housing expenditures and incomes (Figure 2). Households in every income quartile spent more on housing in 2013 than in 2000, with households in the bottom income quartile experiencing the steepest increases. For the bottom income quartile, average housing expenditures climbed almost 20 percent over the period. The second quartile saw more moderate but still sizeable increases of just over 10 percent, and the two upper income quartiles each spent an average of 6 percent more on housing in 2013 than in 2000.

While housing expenditures were on the rise between 2000 and 2013 for all income quartiles, real income growth trended in opposite directions during the same period for households at the top and bottom of the income ladder. Analysis of CES data indicates that real average income fell by almost 4 percent for the lowest income quartile, while the highest income quartile saw average income grow by fully 10 percent—more than offsetting concurrent increases in housing expenditures.

Notes: Adjusted to 2013 Dollars using CPI-U All Items Less Shelter. Top and bottom 2.5% of incomes are excluded. Incomes are non-imputed annual incomes for complete reporter consumer units only.
Source: JCHS tabulations of Consumer Expenditure Survey data.

These divergent trends in housing expenditures and incomes have produced a widening residual income inequality gap. For all but the highest income quartile, the average amount of residual income remaining after paying for housing has declined, with households in the lowest income quartile seeing the sharpest declines (Figure 3). The lowest-income households already had very little monthly residual income in 2000 ($575 per month), yet by 2013, residual income had fallen even farther, to just $423 per month—a decline of over 26 percent in real terms. As these figures show, between 2000 and 2013 all but the highest income households became less able to afford basic costs of living after paying for housing.

Figure 3: Average Monthly Residual Income after Housing, 2013 Dollars

	2000	2013	Percent Change
Lowest Quartile	$575	$423	-26.4
Second Quartile	$1,879	$1,809	-3.7
Third Quartile	$3,980	$3,958	-0.6
Fourth Quartile	$8,017	$8,886	+10.8

Notes: Adjusted to 2013 Dollars using CPI-U All Items Less Shelter. Top and bottom 2.5% of incomes are excluded. Incomes are non-imputed annual incomes for complete reporter consumer units only.
Source: JCHS tabulations of Consumer Expenditure Survey data

The hardships associated with housing cost increases may be particularly severe for low-income seniors, single parents, individuals with disabilities, and other households with fixed incomes or necessary expenditures on healthcare, childcare, or other basic needs. For example, analysis of CES data indicates that in 2013, while a household in the first income quartile headed by an individual under the age of 65 paid an average of $166 per month in healthcare costs, a senior-headed household in the first quartile paid more than one and a half times that, averaging $275 per month. After accounting for housing costs, a senior household in the first income quartile had just $519 left to finance all other costs of living—meaning that in 2013, the average low-income senior household paid more than half their residual income toward healthcare. As these figures illustrate, rising housing costs do not carry similar consequences for all households. Instead, households with the least cushion in their budgets are the most vulnerable to increases in the cost of housing.

The use of residual income measures highlights the implications of rising housing costs for household budgets, shedding light on the extent to which rising housing costs have exacerbated the consequences of growing income inequality. As the figures above show, income growth stagnated or declined for all but the highest income households between 2000 and 2013. At the same time, households with the lowest incomes experienced the largest percentage change in their housing costs, compounding the effects of the income trends. The upshot is that lower-income households have become less able to afford not only housing, but also all other non-housing costs of living since the turn of the 21st century.