What Would it Take to Overcome Exclusionary Barriers, and Promote More Affordable Options in All Neighborhoods?

by Katie Gourley, Graduate Research Assistant

What would it take to make new neighborhoods, and remake old ones, so that large, complex, metropolitan areas moved decisively toward racial and economic integration? What local and regional governance strategies could most effectively overcome barriers to these goals?

Today, we published four papers exploring these questions. The papers—an overview essay and case studies of Washington, DC, Houston, and Chicago—were presented at A Shared Future: Fostering Communities of Inclusion in an Era of Inequality, a symposium we hosted in April 2017. The four papers are:

Rolf Pendall,
Urban Institute

Pathways to Inclusion: Contexts for Neighborhood Integration in Chicago, Houston, and Washington, by Rolf Pendall, who moderated this panel at our symposium, offers an overview of the major demographic changes that are transforming US housing markets and describes two distinct patterns of political geography that will affect local and regional decisionmaking about neighborhood inclusion. He begins by reporting that the population of the United States – particularly its metropolitan areas – is both growing and becoming more diverse by age, race and ethnicity, household composition, and income. He then describes the two principal patterns of political geography that affect decisionmaking about neighborhood inclusion: fragmentation of local governments (particularly in the Northeast and Midwest where control of land use is in the hands of many local governments) and polycentricity (particularly in the South and the West, where larger county governments have much more control over land uses). Fostering inclusion in both types of places is challenging. In the former regions, he notes, it tends to require state-level action. In the latter, the efforts often focus on school districts as well as school assignment zones within particularly large school districts. He concludes by showing the interplay between the national demographic trends and political geographies of the three case study regions.

Willow Lung-Amam,
University of Maryland

An Equitable Future for the Washington, DC Region?: A "Regionalism Light" Approach to Building, by Willow Lung-Amam, begins by noting that while that DC region is racially and economically diverse, it also is highly segregated and has some of the nation's highest housing prices. Moreover, because it is politically fragmented, it has uneven patterns of development. Given this, Lung-Aman proposes a “regionalism-light” approach that focuses on the protection and production of affordable housing. In particular, she says four approaches should be the central part of any effort to break down barriers to housing inclusion in existing neighborhoods and build a strong platform for current and future residents to be a part of the region’s continued growth and prosperity: preserving existing affordable units through aggressive anti-displacement strategies; capturing land value to produce new affordable housing, especially near transit stations; increasing the density and diversity of suburban housing; and tackling the region’s stark east-west divide with fair-share policies.

William Fulton,
Rice University

Can a Market-Oriented City Also Be Inclusive?, by William Fulton, explains that while Houston has emerged in the last 30-plus years as one of the country's most ethnically diverse and affordable cities, these measures mask significant amounts of inequality and disparity that are at least as bad as, and perhaps worse than, those in other metro areas. At first glance, he notes, Houston seems unable to address these challenges, largely because it has a reputation for being one of the nation’s most market-oriented cities for real estate development. However, he contends, the city has a unique and important opportunity to address these issues because it also has abundant amounts of vacant land, limited zoning regulations that could block the development of affordable housing, regulatory tools that could encourage such development, and a potentially useful but currently uncoordinated set of financial incentives for economic development and real estate development. Accomplishing this task, he explains, would require both a comprehensive citywide approach and targeted efforts in underserved neighborhoods threatened by gentrification. In particular, the following strategies are especially promising: aligning both economic development incentives and regulations with inclusiveness goals; using government and institutional landholdings to strategically to pursue those goals; and creating a broad and comprehensive approach to inclusiveness that includes both underserved and high-opportunity areas. He notes that while Houston has taken some steps in this direction, it has fallen short in others, particularly in efforts to bring affordable housing to high-opportunity areas.

(Please note that Fulton's paper was completed before Hurricane Harvey caused extensive damage and displacement in Houston during August 2017.)

Marisa Novara &
Amy Khare,
Metropolitan Planning
Council

Two Extremes of Residential Segregation: Chicago's Separate Worlds & Policy Strategies for Integraion, by Marisa Novara and Amy Khare, argues that a movement is needed to rethink strategies for desgregation at the region's two poles: concentrated poverty and concentrated wealth. The Chicago region, they note, ranks in the top quarter of all metros with regard to economic segregation and is in danger of becoming even more segregated by race and class. In areas suffering from disinvestment, Novara and Khare argue that carefully revised lending criteria and improved appraisal processes, along with other complimentary policies, could lead to increased investment. This, in turn, might create more integrated communities. In contrast, they note that political realities make it unlikely that the state will step in to override local land-use restrictions that stymie the development of affordable housing (as Massachusetts has done via a law passed in 1969). Given this situation, they suggest that Illinois instead draw on a different Massachusetts law that offers incentives to more affluent communities that zone for dense, mixed-income residential developments, particularly in locations well-served by transit.

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Additional papers from the A Shared Future symposium are available on the JCHS website. The papers will also be collected into an edited volume to be published later this year.

Really?! Ten Surprising Findings from the America's Rental Housing Report

by Jonathan Spader
Senior Research Associate

Following the release of our America's Rental Housing report last month, one of the most common questions has been: "Which findings are new or surprising to you?" This is never an easy question to answer, and different readers are likely to find different aspects of the report surprising.

Nevertheless, the list below contains the 10 findings that were, in some way, new or surprising to me. Some reflect new trends, some are the result of new analyses and/or data sources, and some are longstanding findings that I continue to find astonishing.

1. The rental stock grew, and all growth has been among units renting for over $850/month. 

While the total number of rental units in the US increased by 7.2 million between 2006 and 2016, in constant dollars, there was nearly no increase in the number of units renting for less than $850 per month, and the number of units renting for less than $650 fell by 475,000 units. In contrast, units renting for $850 or more accounted for the entirety of the growth, with 53 percent coming from units renting for over $1,500 per month. As our interactive tool shows, the lack of growth in low-cost units occurred in a wide variety of metro areas.

2. New rental starts slowed in 2017. 

Construction starts of new multifamily units are down 9 percent year-over-year through October 2017 on a seasonally-adjusted basis. The slowdown was first evident in 2016 when permitting fell in nearly half of the nation’s 50 largest markets. While this slowdown suggests that the recent rental construction boom is softening, new rental starts nonetheless remain at a healthy level.

3. The rental market is softening, particularly for high-cost units. 

After declining for years, the national vacancy rate rose from 6.9 percent in the third quarter of 2016 to 7.2 percent in the third quarter of 2017. The softening is concentrated among high-cost units. RealPage data shows that the vacancy rate for Class A properties increased by 1.5 percentage points year over year through the third quarter of 2017, whereas the vacancy rate for Class C units ticked up only slightly and remains near its post-recession low.

4. Conversions of single-family homes to rentals have slowed. 

The number of single-family rental homes increased by 4 million between 2001 and 2016, driven by conversions of formerly owner-occupied properties during the foreclosure crisis. However, this trend moderated in recent years. According to the American Community Survey, 2015 was the first year since 2006 when the number of single-family rentals declined. While growth turned positive again in 2016, it remained well below levels of the prior decade.

5. The number of renter households jumped by nearly a third between 2004 and 2016. 

The number of renter households increased from 33 million in 2004 to 43 million in 2016—an increase of 10 million renter households in just over a decade! This isn’t a new finding, per se, but it amazes me every time I see it. And several aspects of this growth are new…

6. Renter households with incomes over $100,000 account for 30 percent of growth over the past decade. 

While renters with incomes of $100,000 or more made up just 9 percent of all renters in 2006, they accounted for 30 percent of renter household growth through 2016. As another one of our interactive tools shows, this trend is particularly pronounced in high-cost metros. Renters with incomes over $100,000 accounted for 93 percent of renter household growth in San Francisco and 65 percent in New York City during this period.

7. Households over 50 accounted for more than half of renter household growth over the past decade. 

While renters age 50 and over made up 30 percent of all renter households in 2006, they accounted for 52 percent of renter household growth through 2016. In contrast, households under age 35 made up 42 percent of renter households in 2006 but accounted for just 24 percent of renter household growth through 2016.

8. Older renters are almost twice as likely to live in large multi-family buildings than in single-family homes. 

Among renter households age 75 and over, 48 percent lived in large multi-family properties (those with 20+ units) and just 26 percent lived in single-family homes. For comparison, across all rental units, just 21 percent of units are in large multi-family properties and 39 percent are single-family homes. Older adults’ preference for large multi-family buildings may in part reflect the improved accessibility features in these buildings such as no-step entry, single-floor living, and extra wide hallways and doors to accommodate a wheelchair.

9. Almost 40 percent of rural renters are cost burdened. 

In rural areas—defined as areas with less than 10,000 in population that are outside the Census-defined metropolitan and micropolitan areas—39.5 percent of all renter households are cost burdened, paying more than 30 percent of their income for housing costs. While this figure is below the 51 percent cost burden share observed in the nation’s nine largest metropolitan areas, it is striking because rural areas are likely to have the fewest obstacles to adding new units that would tend to keep housing costs down. As our online map shows, rural areas with relatively high cost burdens can be found throughout much of the country.

10. Low-income renters have seen their residual income decline by 18 percent since 2001. 

Renters with incomes in the bottom quartile of all U.S. incomes had, on average, just $600 left over per month in 2001 after paying for housing costs. By 2016, this figure fell to below $500, an 18 percent decline. In contrast, among renters with above-median incomes, income growth has outpaced the rising cost of rental housing, leaving them with more to spend after paying for housing than similar renters in 2001.

Remodeling Market to March Higher in 2018

by Abbe Will
Research Associate

The coming year is expected to be another robust one for residential renovations and repairs with growth accelerating as the year progresses, according to our latest Leading Indicator of Remodeling Activity (LIRA). The LIRA projects that homeowner spending on improvements and repairs will approach $340 billion in 2018, an increase of 7.5 percent from estimated 2017 spending.

Steady gains in the broader economy, and in home sales and prices, are supporting growing demand for home improvements. We expect the remodeling market will also get a boost this year from ongoing restoration efforts in many areas of the country impacted by last year’s record-setting natural disasters.

Despite continuing challenges of low for-sale housing inventories and contractor labor availability, 2018 could post the strongest gains for home remodeling in more than a decade. Annual growth rates have not exceeded 6.8 percent since early 2007, before the Great Recession hit.

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

How Housing Counseling Creates More Neighborhood Choice for Buyers

by Marietta Rodriguez
NeighborWorks

The US housing system simultaneously is one of the most efficient markets in the world and one of the most complex.

While the efficiency offers consumers many opportunities, the complexity makes it more likely that consumers will make housing and mortgage choices that are not in their best interests. However, our experience at NeighborWorks® shows that housing counseling programs can greatly increase buyers' ability to find and finance homes that are right for them.

With transparent pricing, multiple participants, and regulations that help ensure its stability and strength, the US housing system has many of the attributes of an efficient market. Moreover, as the papers in this panel describe, new technologies are making it even easier to access information about both homes for sale and ways of financing the purchases of those dwellings.

However, many consumers find the home buying process to be daunting. Illustratively, a recent household survey conducted for NeighborWorks® America found 74 percent of Americans (and more than 80 percent of millennials) think that the home buying process is complicated. The survey also found that while the overwhelming share of Americans (including millennials) consider homeownership a key component of the American dream—especially people of color and millennials—thousands of would-be buyers are shut out of the market because of confusion about down payment requirements, lack of information about credit standards, and the burden of student loan debt. Moreover, the complexity of the housing system creates the possibility that consumers who are in the market may make housing and mortgage choices that are not in their best interests, including limiting their home choices without looking at all of the available options and selecting mortgage products that are unsuitable or too expensive.

Part of the problem may be that when seeking information on buying a home, Americans are most likely to consult a real estate agent, search the web, or talk with friends or family who are homeowners. In contrast, only about 40 percent of adults (and half of millennials) are likely to seek counsel from a non-profit organization, such as the many NeighborWorks® member organizations that provide advice on buying a home (and only a fifth said they were very likely to do so).

This is unfortunate because our experience at NeighborWorks® strongly suggests that working with certified housing counselors (at a NeighborWorks® Homeownership Center or other HUD-approved housing counseling agencies) can help consumers make good choices about whether and what to buy, how to finance those purchases, and how to maintain their new homes. Housing counselors do so by working one-on-one with potential homebuyers, helping them develop a budget and to strengthen their credit so they can maximize their chance of getting the lowest possible mortgage rate. Moreover, because they are tightly connected to the communities they serve, housing counselors are aware of  trends practically on a block-by-block basis, knowledge that can help a homebuyer sift through the mountains of data on everything from traffic patterns, crime statistics, and school ratings to which community is closest to the best green space and other amenities.

Housing counselors also can help consumers gain access to a myriad of down payment assistance programs and mortgage products that can make it possible to either spend less than they had planned on mortgage payments or to purchase higher priced homes in more desirable communities. The down payment assistance programs, for example, can not only reduce the time and amount of cash consumers must save on their own to buy a home, they can also reduce the amount they need to borrow, which can lover monthly mortgage payments. Knowing about these programs may be especially important for non-White consumers. According to the 2017 NeighborWorks® America Housing Survey, the average African-American and Hispanic consumer assumed that the minimum down payment generally was a little more than 20 percent, an amount substantially higher than the typical down payment made by first-time homebuyers or the 3.5 percent down payment requirement for an FHA loan.

Moreover, because the role of a housing counselor is to help a homebuyer make the right choice for themselves, a housing counselor is not limited to a small set of mortgage choices the way a mortgage officer at a particular lender would be. For example, the largest mortgage lenders originate very few loan products that are offered by state housing finance agencies (HFAs). These HFA mortgages often have strong, but more flexible underwriting criteria that can help overcome mortgage denial issues that may happen with standard mortgage products and underwriting policies.

Combined, all this assistance can help ensure that homebuyers are more likely to choose affordable homes and mortgages, according to a 2013 study done for NeighborWorks® by Neil Mayer and Associates. The study, which looked at 75,000 homeowners who received housing counseling from NeighborWorks® organizations, found that compared to similar homeowners who did not receive counseling, homeowners who received counseling were one-third less likely to fall seriously behind on their mortgages. Such data, and other findings from the study, confirm that housing counseling allows consumers—particularly low and moderate-income and minority consumers—to access and remain in affordable homes in a wider and more diverse array of neighborhoods and communities.

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Papers from the A Shared Future symposium are available on the JCHS website. 

Low-Cost Rental Housing Increasingly Difficult to Find

by Elizabeth La Jeunesse
Research Analyst

While rental markets are cooling nationally, market conditions remain extremely tight at the low end of the market, offering little relief to affordability pressures faced by renters with the lowest incomes, according to our new report, America’s Rental Housing 2017.

In fact, by several metrics, lower-priced housing is increasingly hard to find not only in high-cost coastal areas but also in many inland areas where rents are generally lower. Illustratively, vacancy rates for less expensive units – those with rents below the median for their metropolitan area – were below those for more expensive units in 42 of the nation’s 50 largest metros, including all but one of the nation’s largest 15 metros. Moreover, in 14 of the 50 largest metros, vacancy rates for less expensive units were less than or equal to 5 percent last year, compared to 2006, when just three metros had such tight conditions. The tightest markets were in San Francisco, Los Angeles, Seattle, and Portland, where vacancy rates for less expensive units were under 3 percent (Figure).

Notes: Less (more) expensive units are defined as those below (above) the area median contract rent in the same calendar year. Source: JCHS tabulations of US Census Bureau, 2016 American Community Survey.

Such ultra-low vacancy rates are unusual, at least compared to a decade ago. In San Francisco and Denver, for example, vacancy rates for units renting for less than the area median were closer to 8.5 percent in 2006 (a similar period of relative market strength), but by 2016, they had fallen to 2.0 and 3.4 percent, respectively. Similarly, in Seattle and Portland, vacancy rates for less-than-median-rent units were 5.8 and 5.6 percent respectively in 2006. However, in 2016, the vacancy rate for these units had fallen to just 2.9 percent. In fact, the only major metro to see consistently low vacancy rates in the lower-cost segment during both periods was Los Angeles, where the rate declined from 3.4 percent in 2006 to 2.9 percent in 2016.

Metro areas with the steepest drops in the vacancy rate for less expensive units from 2006 to 2016 generally had high vacancy rates to begin with. For example, in Cincinnati and Kansas City lower-rent vacancy rates declined from 16.7 and 14.2 percent, respectively, in 2006 to 7.5 and 6.7 percent in 2016. The Nashville and Detroit rental markets were also transformed over this period, with vacancy rates for low-rent units dropping from 10.0 and 10.9 percent, respectively, to 4.7 and 6.1 percent.

Data from RealPage, Inc., which classifies professionally managed apartment markets into three segments (according to quality and cost for the area) confirm these trends. Within the 100 markets they track, vacancy rates in the highest-priced Class A segment rose 1.5 percentage points over the past year to 6.0 percent while those in the mid-priced Class B segment rose 1.0 percent to 4.6 percent. In contrast, vacancy rates in the low-cost Class C segment remained relatively unchanged from the past year at 4.1 percent in the third quarter of 2017—their lowest level since the early 2000s. Moreover, in a handful of markets, including Miami, San Jose, Honolulu, San Diego, Sacramento, Minneapolis, Portland, and Orlando, vacancy rates in the Class C segment were below 1.5 percent.

The bottom line is that while rental markets are cooling nationally, households in need of modestly-priced rental housing still face challenging conditions in many areas. Many previously low-demand markets heated up over the past decade, while markets for less-expensive units tightened further in metros that were already expensive. With vacancy rates for less expensive units at rock-bottom levels, relief from market cooling is unlikely to be felt soon by low-income families.

Full data for all metro areas, including median rents, is available in Table W-19 of the report’s appendix tables.