We're Finally Building More Small Homes, but Construction Remains at Historically Low Levels

by Alexander Hermann
Research Assistant

Census data released last month show that after years of stagnation, construction of smaller homes grew appreciably in 2016. New completions for homes under 1,800 square feet increased nearly 20 percent in 2016 to 163,000 units, the first significant growth since 2004 and the largest rise since the data series began in 1999.

This growth is significant because many first-time and lower-income homebuyers hope to purchase smaller homes, which are generally less expensive than larger ones. Moreover, historically-low levels of home construction over the last decade have led to declining inventories, decreasing vacancy rates, and increasing prices, as discussed in our latest State of the Nation's Housing report (Figure 1).

Even with the uptick in 2016, though, small-home construction remains 65 percent below the 464,000 units completed annually between 1999 and 2006, and comprises a much smaller share of newly-built housing than in the past. In 2016, small homes were 22 percent of single-family completions, well below their 37 percent market-share in 1999. In contrast, the share of large homes built grew from 17 percent in 1999 to 30 percent in 2016, while moderately-sized homes, which have consistently been the largest share of the market, have annually been 43-to-48 percent of all new single-family homes.

Construction of condos and townhouses, possible alternatives to smaller single-family housing, also remains low. Builders of multifamily properties continue to focus on the rental market where demand remains strong. Consequently, only 28,000 condos were started in 2016, a modest increase from the 26,000 starts in 2015 but much lower than the 53,000 starts averaged annually in the 1990s (Figure 2). Similarly, townhouse starts grew from 86,000 units in 2015 to 98,000 units in 2016. While this is more than double the number of starts from 2009 and comparable to the 95,000 units started annually in the 1990s, it is less than half the number started in 2005.

The low levels of new construction have resulted in historically-low housing inventories, especially entry-level housing. According to data from CoreLogic, the supply of modestly-priced homes – those selling for 75-to-100 percent of the area's median list price – was below three months at the end of 2016, about half of the six months that generally represents a balanced market (Figure 3). Indeed, according to data compiled by Zillow, only a quarter of the homes for sale at the end of last year were in the bottom one-third of area homes by price, while half were in the top one-third.



Increased demand for entry-level housing and the corresponding uptick in smaller housing construction have already contributed to the growing number of first-time homebuyers in 2016. According to the National Association of Realtors, first-time homebuyers comprised 35 percent of home sales in 2016, up from 32 percent in 2015 but still below long-term historical rates, which are close to 40 percent of all buyers. Looking forward, increases in the supply of smaller homes, townhouses, and possibly condos could help address the growing demand for lower priced homes for first-time and low-income homebuyers.

The Rise of Poverty in Suburban and Outlying Areas

by Elizabeth La Jeunesse
Research Analyst

A key takeaway from our latest State of the Nation’s Housing report is that poverty is both increasing and becoming more concentrated across the country. Moreover, while a third of the poor live in high-density urban neighborhoods, the number of poor people and poor neighborhoods grew particularly rapidly in the “exurbs,” low-density neighborhoods on the fringe of the nation’s metro areas (Figures 1 and 2).

Figure 1. The Number of People Living in Poverty Has Increased Most in Suburban and Exurban Communities

Figure 2. Much of the Growth in High-Poverty Neighborhoods Has Been in Suburban and Outlying Areas

According to the report, from 2000 to 2015, the number of people living below the federal poverty line rose by 41 percent, from about 33.8 million to 47.7 million. Additionally, the number of high-poverty neighborhoods (census tracts where the poverty rate is 20 percent or more) rose by 59 percent, and the poor population living in these areas increased by 76 percent to 25.4 million. As a result, 54 percent of the nation’s poor now live in high-poverty neighborhoods, up from 43 percent in 2000.

The growth in high-poverty neighborhoods was widespread, occurring in all but three of the nation’s largest 100 metros (Honolulu, El Paso, and McAllen, TX). Moreover, the rise of poverty was particularly rapid in the exurbs, where the number of high-poverty neighborhoods more than doubled between 2000 and 2015, and the number of poor people living in these neighborhoods grew by 164 percent, rising from 1.5 million in 2000 to 3.9 million in 2015. Such growth presumably was due to the fact that housing generally is less expensive in these areas, but the savings in housing costs are often offset by higher transportation costs and more time spent travelling to work and other activities.

Our new interactive chart shows that these changes were not uniform in the nation’s 100 largest metropolitan areas. To begin with, two-thirds of these metros underwent a rise in concentrated exurban poverty from 2000-2015. Moreover, the magnitude of the increase varied. For example, the number of high-poverty, exurban tracts increased more than tenfold in the Detroit, Greensboro, and Cape Coral, FL metros, and increased by a factor of five or more in 11 other metros, including Atlanta, Denver, Charlotte, Cincinnati, Kansas City, Las Vegas, Nashville and Orlando. Other large metros where the number of high-poverty, exurban neighborhoods more than tripled included Baltimore, Philadelphia, Pittsburgh, Portland, St. Louis, and Tampa.

For example, in the Atlanta metro, the number of low-density, high-poverty, exurban tracts rose from only 11 in 2000 to 72 in 2015 (Figure 3). Meanwhile, in the St. Louis metro, there were 28 high-poverty, exurban neighborhoods in 2015, up from 8 such areas just 15 years earlier (Figure 4).

Figure 3. Atlanta

Figure 4. St. Louis

While poverty remains highly concentrated in dense urban areas, several large metros now have unusually large shares of high-poverty, exurban neighborhoods. In the Atlanta, Charlotte, and Nashville metro areas, for example, nearly a quarter or more of all high-poverty neighborhoods are located in low-density, exurban areas. Poverty’s shift to lower-density areas was especially pronounced in the Charlotte area, where 41 percent of high-poverty tracts are now situated in low-density, exurban areas, up from just 15 percent in 2000 (Figure 5).

Figure 5. Charlotte, NC

Moreover, in several smaller metros across the South – such as Columbia, SC; McAllen, TX; Greenville, SC; Jackson, MS, and Knoxville, TN – well over half of all high-poverty neighborhoods are located in low-density, outlying regions (Figure 6).

Figure 6. McAllen, TX 

Use our interactive tool to see the change in high-poverty neighborhoods in the nation’s 100 largest metro areas between 2000 and 2015.

Download Excel files for additional data on high-poverty neighborhoods. (W-1 and W-15)

Download Chapter 3 of our State of theNation’s Housing 2017 report, which contains additional discussions on the growth of poverty and the spread of high-poverty neighborhoods.

Are Home Prices Really Above Their Pre-Recession Peak?

by Alexander Hermann
Research Assistant

In 2016, national home prices not only rose for the fifth year in a row, they finally surpassed their pre-recession peak in nominal dollars, according to most national measures of home prices. However, as our new State of the Nation’s Housing report notes, when adjusted for inflation, home prices were still 9 to 16 percent below peak, depending on the measure used (Figure 1).



Figure 1. National Home Prices Now Exceed Their Previous Peak in Nominal Terms, But Not in Real Dollars

Note: Prices are adjusted for inflation using the CPI-U for All Items less shelter.

Source: JCHS tabulations of S&P CoreLogic Case-Shiller Home Price Index data.

Moreover, as our interactive maps show, changes in home price vary widely across the country and often exhibit strong regional patterns (Figure 2).

Figure 2. How Much Have Home Prices Changed?

Our interactive maps give users the ability to view price changes in 951 markets across the country over two time periods—since 2000 and since each area’s mid-2000 peak. Viewable markets include 371 Metropolitan Statistical Areas and 31 Metropolitan Divisions (derived from 11 additional metro areas), which together contain about 85 percent of that nation’s population, as well as 549 smaller Micropolitan Statistical Areas, which are home to another nine percent of the population.

The data indicate that nominal home prices were above their mid-2000s heights in 48 percent of all markets (454 total). These markets were largely concentrated in the middle of the country, the Pacific Northwest, and Texas.

However, in real dollars, prices reached their peaks in only 138 (15 percent) of all markets. Furthermore, while prices were above peak in only 10 percent of Metropolitan Statistical Areas and Metropolitan Divisions, they topped their peak in 17 percent of the smaller micro areas, which experienced less home price volatility over the last decade.

In contrast, real prices were still 20 percent below peak in about one-third of all markets, most located in areas hardest hit by the housing crisis, including Florida and large parts of the Southwest, Northeast, and parts of the Midwest.

There were notable differences in long-term patterns in areas where real prices remained well below their pre-recession peak. In many markets on both coasts—such as Miami, Washington, DC, and Sacramento—prices have risen significantly over the last several years and, in real terms, are now well above their levels in 2000. However, because prices in these areas rose significantly during the boom years and fell so sharply during the recession, the recent gains have left prices far below what they were in the mid-2000s.

In contrast, in some Midwestern and Southern markets—such as Detroit, Chicago, and Montgomery, Alabama—prices rose only modestly in the 2000s, dropped significantly during the recession, and have grown only slightly in recent years. Consequently, real prices in these areas were not only well below their peak levels from the mid-2000s, but remained below 2000 levels in many cases.

The uneven growth in home prices over the past two decades has led to increasing differences in housing costs. Illustratively, in 2000 the inflation-adjusted median home value in the 10 most expensive metros (of the country’s 100 largest metros) was about $350,000, about three times higher than the median value of homes in the 10 least expensive metros. But between January 2000 and December 2016, real home values in the ten highest-cost housing markets rose by 64 percent to about $574,000, more than five times the value of homes in the least expensive areas, which grew by only 3 percent, to $113,000.

A broader look at home prices further highlights these stark disparities. Nationally, real home prices rose 32 percent between 2000 and 2016. But home prices in 30 percent of markets (290 total) actually declined in real terms, including 28 percent of metro and 33 percent of micro areas, most of them in the Midwest and South. In the Detroit metro area, home prices declined 26 percent, the largest decrease among large metros. Prices also fell significantly in the Cleveland (22 percent decline), Memphis (15 percent decline), and Indianapolis (13 percent decline) markets.

At the opposite end of the spectrum, between 2000 and 2016 real median home prices rose by more than 40 percent in 153 markets (16 percent), most of them on the East and West Coasts. In fact, prices doubled in twelve markets, including the Honolulu metro areas, which saw 104 percent growth. Home prices also rose considerably in the Los Angeles (97 percent), San Francisco (84 percent), Miami (73 percent), and Washington, DC (62 percent) markets. While micro areas were more likely to be past their previous peak, the lower price volatility also meant they experienced less price growth since 2000, with only 12 percent of micros exceeding 40 percent growth.

Wait... What? Ten Surprising Findings from the 2017 State of the Nation’s Housing Report

by Daniel McCue
Senior Research Associate

Every year, when we release our State of the Nation’s Housing report, we’re asked some variation of the question: “What surprised you in this year’s report?” Given all the time and effort that goes analyzing the data and writing the report, we are so close to it that little surprises us by the time of publication. Nevertheless, here are 10 findings in this year’s report that were new and maybe even a bit surprising:

1. For-sale inventories dropped even lower over the past year.   

For the fourth year in a row, the inventory of homes for sale across the US not only failed to recover, but dropped yet again. At the end of 2016 there were an historically low 1.65 million homes for sale nationwide, which at the current sales rate was just 3.6 months of supply - almost half of the 6.0 months level that is considered a balanced market.

2. Fewer homes were built over the last 10 years than any 10-year period in recent history.

Even with the recent recovery in both single-family and multifamily construction, markets nationwide are still feeling the effects of the deep and extended decline in housing construction. Over the past 10 years, just 9 million new housing units were completed and added to the housing stock. This was the lowest 10-year period on records dating back to the 1970s, and far below the 14 and 15 million units averaged over the 1980s and 1990s.

3. Single-family construction grew at a faster pace than multifamily construction.

The slow recovery in single-family construction picked up its pace in 2016. For the first time since the Great Recession, the rate of growth in single-family construction outpaced multifamily construction.

4. Smaller homes may be coming back.
Behind the growth in single-family construction, and as a new development in 2016, construction of smaller homes is back on the rise. The median square footage of newly completed single-family homes declined slightly, due to increase in construction of smaller-sized homes (less than 1,800 sqft).
 
5. Rental markets are still strong.  

Although there are signs of moderation, the slowdown in multifamily rental markets appears to be limited, so far, to a small number of markets. Indeed, last year, multifamily construction levels were still on the rise in most of the country, rents declined in just 10 of the 100 markets, multifamily loan originations and lending volumes both hit new record highs, and rental vacancy rates were at a 30-year low.

6. Long-term, metro-area home price trends show surprisingly wide variations.

Home prices have rebounded widely across the nation. In 2016, prices were up in 97 of 100 metros, and 41 metros had regained their nominal peak price levels from the mid-2000s. Over the longer period of time, however, the combined impact of the boom and bust has resulted in significant differences in home price appreciation across the country. In some metros (particularly on the coasts) real home prices have grown by 50 percent or more since 2000, while prices in 16 of the top 100 metros (mainly in the Midwest and South) were below 2000 levels, after adjusting for inflation.

7. The 12-year decline in the US homeownership rate may be nearing an end.

Homeownership rates flattened last year and the number of homeowners increased for the first time since 2006, suggesting trends in homeownership may be strengthening. In addition, first-time homebuyers accounted for a higher share of sales in 2016 than the year before. Still, lending remained skewed to highest credit score borrowers.

8. The homeownership gap between whites and African-Americans widened to its largest disparity since WWII.

The post-2004 decline in homeownership has been especially severe for African-Americans and has pushed black homeownership rates to fully 29.7 percentage points lower than that for whites. Comparing census data going back to WWII, the white-black difference in homeownership rates has never been wider.

9. More than half of all poor now live in high-poverty neighborhoods.

Poverty is growing, concentrating, and suburbanizing all at the same time. Overall, the total number of people living in poverty in the US increased by nearly 14 million in 2000-2015. Moreover, 54 percent of the nation’s poor live in high-poverty neighborhoods (those with poverty rates over 20 percent).

10. Poverty is growing across metros and in rural areas.

Poverty has been on the rise throughout cities, suburbs, and rural areas. Indeed, while the number of poor living in high-poverty tracts in dense, urban areas grew by 46 percent between 2000 and 2015, the number of poor living in high-poverty tracts in moderate- and lower density suburban areas more than doubled.

Read the full State of the Nation’s Housing report on our website.

Growing Demand and Tight Supply are Lifting Home Prices and Rents, Fueling Concerns about Housing Affordability

A decade after the onset of the Great Recession, the national housing market has, by many measures, returned to normal, according to the 2017 State of the Nation’s Housing report, being released today by live webcast from the National League of Cities. Housing demand, home prices, and construction volumes are all on the rise, and the number of distressed homeowners has fallen sharply. However, along with strengthening demand, extremely tight supplies of both for-sale and for-rent homes are pushing up housing costs and adding to ongoing concerns about affordability (map + data tables). At last count in 2015, the report notes, nearly 19 million US households paid more than half of their incomes for housing (map + data tables).

National home prices hit an important milestone in 2016, finally surpassing the pre-recession peak. Drawing on newly available metro-level data, the Harvard researchers found that nominal prices in real prices were up last year in 97 of the nation’s 100 largest metropolitan areas. At the same time, though, the longer-term gains varied widely across the country, with some markets experiencing home price appreciation of more than 50 percent since 2000, while others posted only modest gains or even declines. These differences have added to the already substantial gap between home prices in the nation’s most and least expensive housing markets (map).

“While the recovery in home prices reflects a welcome pickup in demand, it is also being driven by very tight supply,” says Chris Herbert, the Center’s managing director. Even after seven straight years of  construction growth, the US added less new housing over the last decade than in any other ten-year period going back to at least the 1970s. The rebound in single-family construction has been particularly weak. According to Herbert, “Any excess housing that may have been built during the boom years has been absorbed, and a stronger supply response is going to be needed to keep pace with demand—particularly for moderately priced homes.”

Meanwhile, the national homeownership rate appears to be leveling off. Last year’s growth in homeowners was the largest increase since 2006, and early indications are that homebuying activity continued to gain traction in 2017. “Although the homeownership rate did edge down again in 2016, the decline was the smallest in years. We may be finding the bottom,” says Daniel McCue, a senior research associate at the Center.

Affordability is, of course, key. The report finds that, on average, 45 percent of renters in the nation’s metro areas could afford the monthly payments on a median-priced home in their market area. But in several high-cost metros of the Pacific Coast, Florida, and the Northeast, that share is under 25 percent. Among other factors, the future of US homeownership depends on broadening the access to mortgage financing, which remains restricted primarily to those with pristine credit.

Despite a strong rebound in multifamily construction in recent years, the rental vacancy rate hit a 30-year low in 2016. As a result, rent increases continued to outpace inflation in most markets last year. Although rent growth did slow in a few large metros—notably San Francisco and New York—there is little evidence that additions to rental supply are outstripping demand. In contrast, with most new construction at the high end and ongoing losses at the low end (interactive chart), there is a growing mismatch between the rental stock and growing demand from low- and moderate-income households.

Income growth did, however, pick up last year, reducing the number of US households paying more than 30 percent of income for housing—the standard measure of affordability—for the fifth straight year. But coming on the heels of substantial increases during the housing boom and bust, the number of households with housing cost burdens remains much higher today than at the start of last decade. Moreover, almost all of the improvement has been on the owner side. “The problem is most acute for renters. More than 11 million renter households paid more than half their incomes for housing in 2015, leaving little room to pay for life’s other necessities,” says Herbert.

Looking at the decade ahead, the report notes that as the members of the millennial generation move into their late 20s and early 30s, the demand for both rental housing and entry-level homeownership is set to soar. The most racially and ethnically diverse generation in the nation’s history, these young households will propel demand for a broad range of housing in cities, suburbs, and beyond. The baby-boom generation will also continue to play a strong role in housing markets, driving up investment in both existing and new homes to meet their changing needs as they age. “Meeting this growing and diverse demand will require concerted efforts by the public, private, and nonprofit sectors to expand the range of housing options available,” says McCue.

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Live Webcast Today @ Noon ET

Tune into today's live webcast from the National League of Cities in Washington, DC, featuring:

Kriston Capps, Staff Writer, CityLab (panel moderator)
Chris Herbert, Managing Director, Joint Center for Housing Studies
Robert C. Kettler, Chairman & CEO, Kettler
Terri Ludwig, President & CEO, Enterprise Community Partners
Mayor Catherine E. Pugh, City of Baltimore, Maryland

Tweet questions & join the conversation on Twitter with #harvardhousingreport

State and Local Governments Take Action to Promote Affordable Housing

by Daniel McCue
Senior Research
Associate

Home prices are rising, rents are up, and units available for rent or sale are few and far between. Detailing these trends, our 2016 State of the Nation’s Housing report once again finds affordability concerns at the top of the list of US housing challenges, both in metropolitan areas and rural counties. But with assistance reaching just 26 percent of households that qualify for it, the federal response has not been able to keep up with the growth in low-income households in need of affordable housing. Faced with this challenge, states and municipalities are increasingly looking beyond federal programs to take whatever action they can to increase the supply of affordable housing.

So what are they doing? In a recent article posted on the Shelterforce Rooflines blog I look at how state and local governments—those who are most commonly tasked with implementing federally funded programs—are increasingly working independent of federal programs and using their own resources to increase the supply of affordable housing in their areas.

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.

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.

Where Are All the Homes? Demographic Underpinnings of the Lack of For-Sale Inventory

by Dan McCue
Senior Research Associate

One of the challenges faced by housing markets has been a persistent lack of inventory of homes for-sale. Indeed, the most recent data on existing home sales from the National Association of Realtors® show that for 37 months we’ve been in a seller’s market – traditionally defined as a market in which there is less than six months’ supply of homes listed for sale (Figure 1). And, according to Redfin, this year’s spring buying season saw inventory nationwide hit record lows (see June Housing Markets Sets All-Time Records for High Speed and Low Supply).  In the many markets with few homes available for sale, new listings are almost immediately snatched up, with the high competition among buyers pushing prices out of reach of a growing number of would-be homeowners.    

Note: Data include existing single-family, condo, and co-op units for sale. Annual data are seasonally adjusted monthly averages. 2015 data are year-to-date through July. Source: National Association of Realtors®, Existing Home Sales via Moody’s Analytics.

There are several possible explanations commonly mentioned as to why for-sale inventories remain so tight, including the large number of owners stuck in homes because they are ‘underwater’ on their mortgages, the still-elevated volume of homes in the foreclosure process and held off the market, the lack of new construction in the years following the housing boom, and the many single-family units that have been taken out of the for-sale market to become rentals. But one additional reason not often discussed is demographics, which has also been playing a role in both the lack of inventory and in the slowness in new home sales over the past several years. Indeed, the ongoing generational shift among American households has slowed sales in the short run and is likely to continue to dampen sales over the next two decades.

Demographics and the Reduced Pool of Active Trade-up Homeowners

Over the past ten years, members of generation-X aged into the 30- and 40- year old age groups (Figure 2). As this relatively small generation, once called the baby-bust, replaced the large baby-boom generation now in their 50s and 60s, the population in their 30s and 40s declined. In some cases, the declines were stark. For instance, for the 35-39 year old age group, the population in 2013 was 9.3 percent smaller than it was 10 years earlier, with 10.4 percent fewer households.

Source: JCHS tabulations of US Census Bureau, Population Projections.

At the same time, as the 2015 State of the Nation’s Housing report mentions, the US homeownership rate took a significant dive, dropping to levels not seen in 20 years, with outsized declines among some age groups and the sharpest drop occurring among 35-44 year olds. Indeed, despite all the attention given millennials, homeownership rates among gen-Xers – particularly those currently age 35-44 – are actually furthest below 20-year historical rates of similarly aged adults (Figure 3).

Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys.

So in combination, the demographically-driven decline in population of 30- and 40 year-olds was magnified by a sharp drop in homeownership rates, resulting in a significant decline in the number of homeowner households at these ages. Among the 35-39 year old age group, for instance, the number of homeowner households dropped fully 23 percent between 2003 and 13, and among 40-44 year-olds the decline was a substantial 19 percent (Figure 4). 

Source: JCHS tabulations of US Census Bureau, Current Population Surveys.

Traditionally, the 30s and 40s are key ages for housing market activity – particularly for trade-up and new home purchases. Indeed, homeowners aged 35-44 historically make up the majority of trade-up buyers (Figure 5). Fewer current homeowners in this key age group has meant fewer potential trade-up buyers and sellers, meaning fewer people putting their homes on the market, adding to tight inventories of for-sale homes. 

Source: JCHS Tabulations of American Housing Survey data.

Source: JCHS Tabulations of American Housing Survey data. 

Additionally, one of the most common ownership opportunities desired by trade-up buyers is a new home. Indeed, 35-44 year olds are also typically responsible for a high share of new home sales (Figure 6). And the majority of new homes sales to this age group are to those who are currently homeowners, so fewer current owners in this age group has also meant fewer potential buyers of new homes, fewer new home sales, and therefore a sizeable headwind to single family homebuilding. And there are other implications as well, such as for home improvements spending, given that most movers do some kind of post-move improvements, even if it’s just painting the walls, so fewer sales among gen-X has also affected remodeling spending markets as well.

Source: JCHS Tabulations of American Housing Survey data. 

While the millennials and baby boomers attract most of the headlines about how demographic trends are influencing housing demand, gen-X ers may actually be more influential than they get credit for in contributing to the recent weakness in single-family construction, home re-sales activity, and the widespread lack of inventory in many markets. 

One final note, however, is that the aging of the baby boom generation may also be contributing to the low levels of inventory and slower home sales – and this contribution may be a longer-lasting trend than that of the gen-X discussed above. Since mobility rates decline with age, the aging of the baby-boom will mean increasingly higher shares of older households who move less frequently. While there are concerns, most notably expressed in Dowell Myers’ insightful book Immigrantsand Boomers, regarding the potential future problem of elderly baby-boomers unloading a glut of housing on the market as they sell off or otherwise cease to head their own households, the oldest boomers are still only in their late 60s and so mostly many years from exiting the housing scene. And if for-sale inventories continue to remain tight as they are today, we may need to worry about the opposite problem: not enough turnover in the housing market to meet the needs of younger households, at least until boomers do reach the ages when they begin to vacate their homes in significant numbers. At present, it’s still hard to tell how much of the currently tight inventory is due to lingering effects of the housing downturn from longer term demographic shifts. Time will tell.  

Housing Cost Burdens Reach Higher Up the Income Scale, But Remain Nearly Unavoidable at Lower Incomes

by Ellen Marya
Research Assistant

In conjunction with the release of our 2015 State of the Nation’s Housing Report, the Joint Center mapped the prevalence of housing cost burdens – a key measure of housing affordability – in the US’s 900 metropolitan and micropolitan areas. As the map series illustrates, the share of households living in unaffordable housing varies dramatically across the country and for both owners and renters. Housing cost burdens, defined as the expenditure of more than 30 percent of household income on housing costs, are less pervasive in the country’s interior, while higher burden rates are largely concentrated in coastal and more urban areas and among renter households in particular. But within these nationwide patterns, high burden rates reflect unique local dynamics of household incomes and housing costs.

American Households Feel the Strain of Housing Cost Burdens 
(click map to launch)

The relationship between cost burdens, incomes, and housing costs within the 100 most populous metro areas is illustrated in Figure 1. As the figure shows, while housing costs and household incomes tend to rise together, the trend in cost burdens is somewhat less straightforward. Metro areas with lower cost burden rates (less than 30 percent of households with cost burdens, shown in yellow) are largely those with both low median housing costs and low to moderate median household incomes. Metros with moderate cost burden rates (between 30 and 35 percent of households with cost burdens, shown in orange) are more likely to have wider income distributions and slightly higher median housing costs, so that housing affordability becomes more difficult for those at the lower end of the income spectrum. This is even more striking in the group of metros with high cost burden rates (35 percent or more of households with cost burdens, shown in red), which includes several of the highest-income and highest cost metro areas; in these, affordability challenges move up the income scale.

Figure 1 (move cursor over figure to access additional information)

Notes: Housing cost burdens are defined as housing costs of more than 30% of household income. Households with zero or negative income are assumed to have burdens, while renters paying no cash rent are assumed to be without burdens. Source: JCHS tabulations of US Census Bureau, 2013 American Community Survey.

Indeed, cost burden rates among higher income groups rise dramatically as median housing costs rise (Figure 2). Among the large metro areas with the highest cost burden rates, the share of cost-burdened middle income households (with incomes between $30,000 and $45,000 annually) rises from just over one third in relatively low cost Tucson, to more than three quarters in high cost San Jose. A similar pattern holds among upper-middle and high income households, with cost burden rates topping 15 percent of high income households (earning more than $75,000 per year) in eight high cost metros.

Figure 2 (click on legend entry to display each income band)

Notes: Housing cost burdens are defined as housing costs of more than 30% of household income. Households with zero or negative income are assumed to have burdens, while renters paying no cash rent are assumed to be without burdens. High cost burden metro areas have a metro-wide cost burden rate of 35 percent or more. Metro areas are ordered from lowest to highest median monthly housing costs. Source: JCHS tabulations of US Census Bureau, 2013 American Community Survey. 

The persistence of housing cost burdens among higher income groups illustrates the lack of affordable housing options for even those with considerable means in some of the country’s most vibrant metro areas. Even more troubling, however, is the near ubiquity of housing cost burdens among lower income households. As Figure 2 shows, cost burden rates top 80 percent among households earning less than $15,000 per year – about equivalent to full-time work at the federal minimum wage – in all higher burden metros, even those with lower median housing costs. Additionally, the national maps show that no less than half of all households earning under $15,000 per year are housing cost burdened in every metro and micro area in the country, regardless of how low median housing costs fall.

The immense challenge faced by low-income households in finding affordable housing has been intensively detailed in a number of other analyses. In its annual Out of Reach report, the National Low Income Housing Coalition concludes that a full-time minimum wage worker cannot afford to rent a one- or two-bedroom apartment at Fair Market Rent in any state in the country, while the Urban Institute has mapped the growing shortage of units adequate, affordable, and available to lowest income renters in counties nationwide. As each of these inquiries shows, housing affordability remains a compelling need for the nation’s lowest income households.

New Multifamily Construction is Out of Reach for Most Renters

by Elizabeth La Jeunesse
Research Analyst

A major theme of the Joint Center’s 2015 State of the Nation’s Housing Report is the record growth in demand for rental units in recent years.  From 2010-14, the pace of renter household growth accelerated to 900,000 per year on average.  This puts the 2010s on track to be the strongest decade for renter growth in history (Figure 1).

Relative to this surge in demand for rental housing, both the quantity and the pricing of new rental construction has been inadequate.  Annual rental unit completions have ramped up over the past four years, but as of 2014 totaled only 280,000 new units—falling far short of annual growth in renters.  In addition, the rising costs of development pushed the median asking rent for newly constructed multifamily units up to approximately $1,290 per month as of 2013, an increase of $180 in real terms compared to 2012 according to data from the US Census Bureau’s Survey of Market Absorption of New Multifamily Units.


Source: JCHS tabulations of US Census Bureau, Decennial Censuses and Housing Vacancy Surveys.

Meanwhile, typical renter incomes increased by less than half as much, or $60 a month, from $32,000 in 2012 to $32,700 in 2013 according to data from the American Community Survey.  According to the standard definition of housing affordability, where rent should be equal to no more than 30 percent of income, the median or typical renter household could afford a maximum rent of just $820 per month in 2013.  In other words, newly constructed units are truly out of reach for the typical renter household, with the cost of a typical new multifamily unit eating up 47 percent, or almost half, of its total income.

To afford a typical new multifamily unit, a household would need to earn at least $51,440, but less than a third of renters earn this much.  In 2013, the gap between the price of a typical new multifamily unit and what a typical renter could afford was large across all regions of the US, ranging from a difference of around $390 in in the Midwest and South to as much as $475 in the Northeast (Figure 2).  The Northeast and West saw the highest typical asking rents, of $1,350 or more per month.

Notes: *Reported median asking rent was top-coded at $1,350, so the actual median asking rent in the Northeast and West was even higher.  Asking rent data are for privately financed, nonsubsidized units.  Affordable housing is defined as costing no more than 30 percent of gross household income. Source: JCHS tabulations of US Census Bureau, Survey of Market Absorption of New Multifamily Units, and 2013 American Community Survey.

Unfortunately, reported rent data from the Survey of Market of Absorption is top-coded at $1,350, meaning that the actual median asking rent for units completed in these regions was even higher.  For example, results from the American Community Survey suggest that among all units built in 2012-13 that rented at $1,350 or more, well over a third rented for at least $2,000 per month.  This rent would require an annual salary of at least $80,000, placing such units even further out of reach of the typical renter.  Fully 84 percent of new multifamily units in the Northeast and 67 percent of those in the West were priced at a monthly rate of $1,350 or above in 2013.  In the South and Midwest, by comparison, new units in the $1,350+ rent range made up only about a third of growth, suggesting a more even regional supply of new units by price. 

If renters were simply upgrading from lower- to higher-cost housing, the concentration of growth in multifamily construction at the high end would not be a problem.  But available evidence suggests that this is not the case.  According to Joint Center analysis of Housing Vacancy Survey data, more than 90 percent of the decline in rental vacancies over 2013-14 was driven by the 12 percent decrease in the number of vacant, low-rent (i.e., less than $800 per month) units.  And among professionally managed properties, higher occupancy rates were typically found among older units with lower rent levels.  Data from MPF Research also suggest that as of Q4 2014, rents were increasing fastest among older, lower-rent units, further signaling rising demand for a shrinking pool of affordable units.

Other analysis supplied by MPF Research indicates lease renewal rates have been rising over the past five years, as renters increasingly delayed the move to homeownership, leaving even fewer units to filter down to incoming renter households.  Renters’ declining mobility is likely due to a mixture of several factors, including increased difficulty of qualifying for a mortgage, uncertainty about wage growth, debt burdens, and possibly even the difficulty of affording search costs (realtor fees, moving costs, etc.) for an increasingly small number of low-rent units.  As of 2013, nearly half of renters were paying more than 30 percent of their income on housing, indicating that a significant share of renters have already hit a budget ceiling and are likely strapped in their efforts to find other affordable housing options.

The result is that while new multifamily construction is easing some of the demand for new units, it is currently not sufficient to ease the broader affordability problems facing renters. Closing the gap between what it costs to produce this housing, and what economically disadvantaged households can afford to pay, requires the persistent efforts of both the public and private sectors.  For more information on residential construction trends and the affordability challenges renters face, see our full report.

Homeownership Rates Drop to Historic Lows; Middle Class Feels the Strain of Rising Rents

The fledgling U.S. housing recovery lost momentum last year as homeownership rates continued to fall, single-family construction remained near historic lows, and existing home sales cooled, concludes The State of the Nation’s Housing report released today by the Joint Center (live webcast today @ Noon ET). In contrast, rental markets continued to grow, fueled by another large increase in the number of renter households. However, with rents rising and incomes well below pre-recession levels, the U.S. is also seeing record numbers of cost-burdened renters (view our interactive maps), including more renter households higher up the income scale.

Perhaps the most telling indicator of the state of the nation’s housing is the drop in the homeownership rate to just 64.5 percent last year. This erases nearly all of the increase from the previous two decades. In fact, the number of homeowners fell for the eighth straight year, and the trend does not appear to be abating.

The flip side of falling homeownership rates has been exceptionally strong demand for rental housing, with the 2010s on pace to be the strongest decade for renter growth in history. While soaring demand is often attributed to the millennials’ preference to rent, households aged 45–64 in fact accounted for about twice the share of renter growth as households under the age of 35. Similarly, households in the top half of the income distribution, although generally more likely to own, contributed 43 percent of the growth in renters.

The other byproduct of this surge in rental demand is that the national vacancy rate fell to its lowest point in nearly 20 years. Given the limited supply of rental units, rents rose at a 3.2 percent rate last year—twice the pace of overall inflation. To meet this demand, construction started on more multifamily units in 2014 than in any year since 1989, and if job growth continues to pick up, we could see even more demand, as young adults increasingly move out of their parents’ homes and into their own apartments.

Even before the Great Recession, the number of cost-burdened households (those paying more than 30 percent of income for housing) was on the rise. But while the cost-burdened share of homeowners began to recede in 2010 (because some homes were lost to foreclosure, and low interest rates helped other homeowners reduce their monthly costs), the cost-burdened share of renters has held near record highs. In 2013, almost half of all renters had housing cost burdens, including more than a quarter with severe burdens (paying more than 50 percent of income for housing).

But perhaps most troubling, cost burdens are climbing the income ladder, affecting growing shares of not just low-income renters but moderate- and middle-income renters as well. The cost-burdened share of renters with incomes in the $30,000–45,000 range rose to 45 percent between 2003 and 2013, while one in five renters earning $45,000–75,000 are now cost-burdened as well. While affordability for moderate income renters is hitting some cities and regions harder than others, an acute shortage of affordable housing for lowest-income renters is being felt everywhere. Between the record level of rent burdens and the plunging homeownership rate, there is a pressing need to prioritize the nation’s housing challenges in policy debates over the coming year if the country is to make progress toward the national goal of secure, decent, and affordable housing for all.

Addressing the Silent Housing Crisis

by Chris Herbert
Managing Director

Yesterday the newly-launched J. Ronald Terwilliger Foundation for Housing America’s Families released The Silent Housing Crisis, a white paper documenting the significant housing challenges facing the country and making a call to action by the nation’s political leaders. The paper presents a succinct and compelling portrait of the doleful state of housing affordability in the country, the worrisome drop in opportunities for homeownership, and the demographic forces that are likely to exacerbate these problems absent efforts to reverse these trends.

The Foundation is right to label housing affordability a national crisis, particularly among renters. At last count, nearly half of all renters were cost-burdened, spending more than 30 percent of their income on housing, and more than one in four were severely burdened, devoting more than half of their income to rent. This translates into 21 million cost-burdened households, including 11 million with severe burdens. Low-income households in this situation are forced to make painful tradeoffs between housing and other fundamental necessities of life; among households in the bottom expenditure quartile, those with severe housing cost burdens spend 40 percent less on food, 70 percent less on healthcare, and 49 percent less on retirement savings each month (Figure 1).

Notes: Low-income households are in the bottom quartile of all households ranked by total spending. Moderate (severe) burdens are defined as housing costs of 30-50% (more than 50%) of household income. Households with zero or negative income are assumed to have severe burdens, while renters paying no cash rent are assumed to be without burdens.
Source: JCHS tabulations of US Bureau of Labor Statistics, 2013 Consumer Expenditure Survey.

Housing affordability has been steadily worsening for years, but the last decade saw the situation go from bad to worse, leading to today’s crisis situation (Figure 2).  In 1960 the share of renters with cost burdens was roughly half today’s levels. Amazingly, half of the increase over the past fifty years has occurred since 2000 as falling real incomes have combined with rising real housing costs to put housing out of reach for ever more families and individuals. And there’s no prospect of meaningful improvement ahead as incomes have yet to rebound from years of declines, and surging demand for rental housing is outpacing developers’ ability to build new homes.

Notes: Moderate (severe) burdens are defined as housing costs of 30-50% (more than 50%) of household income. Households with zero or negative income are assumed to be severely burdened, while renters not paying cash rent are assumed to be unburdened. 
Sources: JCHS tabulations of US Census Bureau, Decennial Census and American Community Surveys.

Notably, as our State of the Nation’s Housing report to be released next week documents, the largest deterioration in rental affordability has occurred among those making between $30,000 and $45,000, particularly in higher cost markets. But the problem is most extreme among the lowest-income households. Among those earning less than $15,000—which is equivalent to working year-round at the federal minimum wage—roughly three-quarters of households have severe cost burdens. Households at this income level households would have to find rentals going for $375 a month or less to stay within the standard affordability guideline, so it is not surprising that so many are cost-burdened. On its own, the private sector simply cannot provide housing at such low rents. As a result, there is much less variation in the extent of cost burdens among these lowest income families across markets—those in Detroit are as likely to be severely burdened as they are in San Francisco.

If the housing affordability crisis is silent, it’s not for lack of research that documents the extent of the issue. In just the last month, analysis by the Urban Institute, the National Low Income Housing Coalition (NLIHC), and NYU’s Furman Center have all documented the astounding extent of affordability challenges across the county.  The Urban Institute’s Housing Affordability Gap report finds that, nationwide, for every 100 extremely low-income renters there are only 28 units that are affordable, in adequate condition, and not occupied by higher income households. NLIHC’s Out of Reach report finds that there is not a single state in the country where someone working year-round at the federal minimum wage can afford a moderately priced two-bedroom rental. Focusing on 11 large cities, the Furman Center’s report drives home the point that these challenges are evident in a diverse range of cities, finding that even in the most affordable cities low-income renters could afford no more than 11 percent of recently available units.

Adding to these numerous efforts to quantify the extent of the problem, the Enterprise Foundation’s Make Room campaign brings this raw data to life by telling the compelling stories of families across the country who are struggling with severe rent burdens—and the very real consequences it has for their finances and their ability to get a foothold in the middle-class.  

While the absence of affordable housing has largely been a silent crisis, there does seem to be growing public awareness. The MacArthur Foundation’s latest How Housing Matters survey finds that a majority of the public (60 percent) identifies housing affordability as a very or fairly serious problem in America today. And three quarters agree that it is very challenging for a family of four with income under $24,000 to find affordable housing. But the survey also finds that only 39 percent of the public agree that the federal government should be involved in addressing housing affordability issues.

Given the magnitude and extent of the housing affordability crisis and the growing awareness of these issues, what seems to be missing is the political leadership needed to identify the lack of affordable housing as a national challenge and to make a case for action by the public sector.  The mission of the new Terwilliger Foundation is to foster engagement with this issue among political leaders from both sides of the aisle and to jump start the policy debate by identifying practical suggestions for how reform of federal efforts can better address the country’s housing needs. It is a laudable effort and, with growing evidence of the extent and persistence of the housing crisis, hopefully one that will gain traction in the upcoming Presidential election season.