Build It and They Will Come – Or Will They?

by George Masnick
Fellow

In a previous post, I suggested that elderly baby boomers may be less likely, in the future, to move to newly built “senior” housing in the numbers that many housing analysts expect. Baby boomers might indeed be better off if they did move – to new housing that is smaller in size, on one level, handicapped accessible, easier to care for, convenient to public transportation and/or within walking distance to shopping and services, more energy efficient, and generally more affordable (lower taxes, utility costs, upkeep, etc.).  It would appear likely that there would be a strong demand for such housing, and public and private initiatives are underway to create such housing. But will aging boomers move to it?

Arguing against a high demand for senior housing among aging baby boomers is the fact that most now live in owner occupied housing with which they are quite happy. Almost three quarters of those over the age of 45 in a recent AARP poll strongly agreed with the statement: “What I’d really like to do is stay in my current residence for as long as possible.” Owners over the age of 65 have had very low mobility rates (about 2 percent per year) that have shown no signs of increasing in recent years.  Large cohorts of young adults who will come of age over the next two decades will compete for newly built housing.  This could very well maintain recent patterns of housing consumption where the young are over-represented in newly built units and the elderly are under-represented relative to their share of all households.

In addition, there are hosts of demographic, social, and economic trends affecting aging baby boomers that argue against any significant future increase in geographic mobility for persons over the age of 65.  I will address a few in some detail and mention others in passing.

Longer Working Life – Labor force participation rates for those over the age of 65 have increased steadily since 2000, growing by 38 percent for men and 66 percent for women. Increasing life expectancy, high middle-age divorce rates coupled with lower remarriage rates among older women, and employment in jobs increasingly less likely to carry retirement benefits are all trends that support both the overall upward trend and the gender differential in elderly labor force participation. For many elderly in the labor force, going to work is something they look forward to and are not eager to give up.  An Urban Institute analysis of the 2002 Health and Retirement Survey found that over 95 percent of employed persons over the age of 65 agreed or strongly agreed that they enjoyed going to work. Longer working life will help to postpone retirement migration (although some retirees who move to retirement destinations might seek new employment there), and the longer retirement is delayed the more difficult it might be for individuals to relocate once retirement finally happens.  

More Two-Earner Households – Today, about 70 percent of baby boom wives are in the labor force (Figure 1). Given the 84 percent labor force participation of baby boom husbands, a clear majority of married couples are dual-earner households. As boomers age, we expect this cohort to have higher labor force participation rates for both men and women over the age of 65 than the generation that came before them.  This trend is significant for future elderly mobility rates.  When one spouse is “ready” to retire and the other is not (either because of age difference or preference to keep working), retirement mobility is less likely.  If both spouses postpone retirement, mobility over the age of 65 is even less likely.  

Source: Statistical Abstract of the United States, 2010, Table 597

Age Differences Between Spouses – With delayed marriage and the high incidence of divorce and remarriage in the U.S., it becomes more likely that the next generation of elderly will have more marriages with large age differences between spouses. These trends further compound the effect of dual-earner couples on lowering residential mobility rates when the oldest spouse is ready to retire.

The Effects of the Great Recession – Just as one can argue that the Great Recession has given the elderly greater incentives to work later in life, the same factors have reduced housing turnover. Falling home values and loss of home equity, and a higher share with mortgages that are under water, have made selling one’s home and moving less attractive.  Even for those with low or zero outstanding mortgages, selling their home for significantly less than what it was worth before the Great Recession is a difficult pill to swallow.  There is always the hope that prices might soon rebound.  For many with mortgages that they have recently refinanced to take advantage of historically low interest rates, there might be a “lock in” effect that makes it more difficult to purchase a different house requiring a mortgage at higher rates.  These factors affect mobility rates of both the young and old. 

Population has Shifted to the South and West – Historically, retirement migration has favored Sunbelt states in the South and West.  But the majority of the population that will cross the 65+ age threshold over the next 20 years already live in the South and West (Figure 2a).  Shifting regional population concentration is a result of both historically higher birthrates in the South and West, and because these regions have been destinations for in-migrants, both domestic and foreign. A significantly higher share of the population age 45+ living in states the South and West were born in another state (Figure 2b).  In a very real sense, there is less of a need for Sunbelt retirement migration – yet another factor that could dampen aggregate baby boomer mobility rates in old age.

Source: 2012 American Community Survey from Census Bureau American Fact Finder – Table B06001

Movers vs. Stayers – Consistent with the very low mobility rates of elderly owners is the fact that a majority of owners age 65+ have been living in their current home for a long time.  According to the 2011 American Housing Survey, almost 60 percent of owners age 65+ have lived in their homes for over 20 years.  This share has been constant for the past decade.  The older the owner the higher the share, with 51 percent of owners age 65-74 being long-term residents, 64 percent who are age 75-84, and almost 75 percent of those age 85+ being 20+ year residents in their current home.  Those who are more prone to move are likely to do so when they are younger – leaving behind a residual group more likely to composed of stayers.   Many baby boomers with the highest propensities to move have already adjusted their housing before age 65 and may feel less of a need to do so in the future.

Later Age at Becoming Grandparents – More women are having their first child later in life.  Over the past four decades, the average age of first time mothers increased 4.2 years, from 21.4 years in 1970 to 25.6 years in 2011.  In many European countries, age at first birth is 3-4 years later, suggesting that there is still some room for upward movement in this trend in the U.S.  Birth rates for women over the age of 30 have increased steadily from the mid-1980s to the onset of the Great Recession (Figure 3).  Later age at childbearing has translated into later age at becoming a grandparent for the women’s parents. Today, many men and women in their 60s are becoming grandparents for the first time, and still more have a youngest grandchild who is still a toddler.  This would be particularly true for the more highly educated grandparents who were more likely to have had their own children at later ages.  While I can offer no hard data, I suspect that later age at becoming a grandparent should motivate older couples to hold onto their too-large houses to facilitate the regular (or occasional) visits from their children and young grandchildren.  Having young grandchildren would also perhaps make long-distance retirement migration less attractive.

Source: National Vital Statistics Reports, Table 4.

In addition to the factors just mentioned, the development of the internet and all that it implies for communication with relatives and friends, shopping, health care, working from home, and a host of other details of daily living, could help older folks stay in their homes, if that is what they want to do, a bit longer than they might have in the past. Still, it must be acknowledged that by virtue of their very large numbers, aging baby boomers could contribute to a growing numerical demand for senior housing even if their mobility rates are lower than the previous generation’s.  My argument is that the demand just might not be as large as some are predicting. What seems certain, however, is that more focus is needed on helping seniors who are aging in place.  This includes such things as help in retrofitting and maintaining their housing; help with transportation; and supporting senior centers that provide meals, social activities, and information/advocacy across a wide scope of services that senior’s need.  

Advancing Inclusive and Sustainable Urban Development

by Eric Belsky
Managing Director

Tackling urban poverty and attending to its spatial manifestations is vitally important. The speed with which many regions of the world are urbanizing, the haphazard spatial development of urban areas, and the deplorable living conditions of more than 800 million slum dwellers make the need to address urban poverty more urgent than ever. Climate change is only intensifying the necessity to act, as the urban poor tend to occupy land susceptible to physical risk, such as steep slopes, flood plains, or low-lying coastal areas made more vulnerable with extreme weather and climate variability. At the same time, however, government and business leaders are awakening to the potential to advance social and economic development by engaging the urban poor as consumers, producers, asset-builders, and entrepreneurs.

The Joint Center’s recent report, Advancing Inclusive and Sustainable Urban Development: Correcting Planning Failures and Connecting Communities to Capital, highlights the challenges of tackling urban poverty as well as promising strategies to do so. Obstacles to addressing slums and realizing the potential of slum residents include weak, non-participatory, and uncoordinated urban planning. National governments often establish regional authorities or public-private partnerships to plan major investments in urban infrastructure that fail to consider broader regional land use planning goals, community input, or the needs of poor communities. Local land use regulations and plans, to the extent that they exist at all, are not widely followed. Plans for slums seldom situate them in the context of broader plans for the urban region. And the non-governmental organizations that do much of the work to improve slums rarely coordinate their efforts. In addition, community-based organizations often are weak and not incorporated into the government’s urban planning process.  Finally, these governments, authorities, and partnerships generally fail to formulate specific strategies to improve or redevelop slums in ways that leave the poor better off.

Yet many examples of better planning practices exist around the world: efforts to develop national strategies for urban development and poverty alleviation, metropolitan regional planning and governance, anticipatory planning for urban growth and climate change, spatial planning and coordination of land uses and investments, participatory planning and community engagement, asset building for the poor, and institutional transparency and accountability through initiatives such as participatory municipal budgeting.

Drawing on these positive examples, several strategies emerge to improve urban planning and investment in order to spur inclusive and sustainable urban development. Most important, spatial planning must be fully integrated with investments in infrastructure, and the development of regional plans must involve participation by all stakeholders. A variety of practices can support inclusive, integrated planning such as funding for multi-stakeholder planning at the regional level and investment in community-based organizations and their intermediary supports. Government capacity can be built through national urban development commissions—spurred by intergovernmental, international bodies—charged with developing plans for inclusive and sustainable urban development. Technical assistance and capacity building can help national, regional, state, or local governments form and manage public-private partnerships, optimizing the use of scarce public resources while also introducing stronger and more rational spatial and participatory planning techniques into the process. A host of other tools described in the report can support more coordinated planning and investment as well as innovation in employment and small business, housing, and infrastructure programs in slums.

Taken together, these actions would greatly improve planning for inclusive and sustainable urban development and create an international movement to focus on these issues. With a growing list of examples of best practices to address urban poverty in effective ways (many summarized in the report), the Millennium Development Goals established by the United Nations still before us, and a chorus of globally-branded businesses (including McKinsey and JP Morgan Chase) calling for better urban planning and poverty amelioration strategies, there is a chance that these issues will gain the international attention they deserve and lead to concrete actions.

Read the new Joint Center report: Advancing Inclusive and Sustainable Urban Development: Correcting Planning Failures and Connecting Communities to Capital

The U.S. Rental Crisis: HUD Secretary Keynote & A New Tool from the Urban Institute

At a recent event in Washington, DC, the Joint Center released its biennial America's Rental Housing report. Shaun Donovan, U.S. Secretary of Housing and Urban Development, delivered a keynote about the issue of rental affordability in the U.S, which he called a "silent crisis" as America's lowest income renters have seen their incomes steadily go down while their rents steadily go up.  Watch Secretary Donovan’s keynote below.

Further illustrating the points made in our report, and by Secretary Donovan, the Urban Institute this week released an interactive map, showing the gap in affordable housing in the U.S. Nationally, for every 100 extremely low-income renter households, there are only 29 affordable and available units. Explore the Urban Institute's map to see the situation in your area.

Housing Finance and Tax Reform Can Expand Affordable Rental Options

by Bill Apgar
Senior Scholar

Today, when more than one in three American households live in rental housing, ongoing erosion in renter incomes combined with ever rising rents has pushed the number of renter households paying excessive shares of income for housing to record levels.  Unfortunately, efforts to expand the supply of affordable rental housing remain mired in congressional wrangling over budget deficits and failure to reach consensus over how best to reform the nation’s housing finance sector. Although proposed changes to the single-family mortgage sector have captured most of the headlines, equally important reforms are now being discussed that will fundamentally alter the regulation of multifamily housing finance, including the operations of the Federal Housing Administration (FHA) and the government-sponsored enterprises (GSEs), as well as tax and subsidy mechanisms to expand affordable rental housing options through the Low Income Housing Tax Credit (LIHTC), public housing, and rental assistance programs.

As I discussed in my recent research brief, The Changing Landscape for Multifamily Finance, tax reform can play an important role in balancing the national budget and reducing the national debt. But in seeking to create a path forward, Congress should be careful not to short circuit tax expenditures that reduce the cost of capital for multifamily rental production and that enable developers to offer units at rents affordable to lower-income households. As one of the nation’s largest corporate tax expenditures, however, LIHTC is vulnerable to elimination or substantial cuts to help pay for lower corporate tax rates or any one of several deficit-reduction proposals now under consideration.

Supporters argue that LIHTC is a premier example of a successful public-private partnership. When combined with housing vouchers or other forms of rental assistance, the tax credit plays an important role in providing decent housing that is affordable to the nation’s poor. Opponents, however, counter that LIHTC’s complex rules scare away many financially-motivated private developers.  Moreover, critics contend that all too often LIHTC’s benefits go to moderate-income, as opposed to the nation’s lowest income, renters.

To improve the program’s ability to assist a broader range of renters, it is important to expand the ability of developers to combine LIHTC resources with housing vouchers or other tenant-based subsidies.  Currently, LIHTC requires developers to meet one of two standards: either 20 percent of units must be rent-restricted and occupied by tenants with incomes less than 50 percent of area median income (AMI).  Alternatively, at least 40 percent must be rent-restricted and occupied by tenants with incomes less than 60 percent of AMI. For this purpose, “rent-restricted” means that the tenant pays no more than 30 percent of their monthly income on rent. 

In practice, these criteria have led to multifamily housing developments that serve a very narrow band of tenants with incomes falling between 40 and 60 percent of AMI.  One proposal to extend the reach of the LIHTC program to serve more of the nation’s lowest income renters would require LIHTC developments to serve a larger share of households with incomes less than 40 percent of AMI while limiting the number of residents earning more than of 80 percent of AMI living in LITHC developments.  Another would award additional project-based housing vouchers to developments that have at least 30 percent of units occupied by tenants with incomes of less than 30 percent of AMI.  

Similarly, efforts to reform FHA and the housing GSEs must link access to government guarantees to requirements that a substantial portion (say, 60 percent) of the total rental housing units in developments are affordable to households earning 80 percent or less of AMI.   Such proposals would encourage developers to more aggressively search out available rental assistance options, and in doing so widen the income band of residents able to affordably live in LIHTC and other rental housing developments. Mixed-income buildings that offer rental housing options serving a broad range of incomes are especially important in low income communities that are being revitalized and/or are located in sparsely populated areas. These proposals could be structured to be revenue neutral, but would be enhanced by increasing the funding for housing vouchers and other rental assistance efforts

In another recent effort to harness private capital to expand the supply of affordable housing, HUD’s Rental Assistance Demonstration (RAD) program was designed to stem the loss of public housing and certain other at-risk, federally assisted properties. The program allows owners to pledge a portion of cash flow derived from existing long-term, project-based Section 8 contracts as collateral to support public and private lending to make much-needed improvements. At a time when the backlog of public housing repairs stands at $25.6 billion and other federally assisted properties have yet to recover fully from the Great Recession, RAD helps both public and private owners of multifamily housing address critical rehabilitation needs by borrowing against their future income streams on the private market. 

Market fundamentals suggest that the multifamily finance sector should remain strong in the near term. Coordination of rules governing utilization of existing long-term, project-based Section 8 contracts with ongoing GSE and tax policy reform efforts could unleash private sector expertise to serve broader segments of today’s renters. This would help turn the energy of the multifamily finance sector toward reducing the rental cost burdens that undermine the well-being of millions of US households. 

A Disappointing Report on Recent Household Growth Leads to More Questions than Answers

by Dan McCue
Research Manager

Although household growth is the major driver of housing demand, getting an accurate picture of recent trends in this measure is difficult, especially when Census surveys show conflicting trends.   On January 31, the most recent Housing Vacancy Survey (HVS) was released with Q4 numbers and some annual data for 2013.  As one of the few surveys that provide timely measures of household growth, the release was much anticipated in hopes that it would shed more light on trends of a recovery seen elsewhere in the housing market, but the results were disappointing, if not somewhat confusing. 

In its recent release, the HVS reported annual household growth of just 448,800 in 2013.  This represents a 48 percent drop in household growth relative to that from 2012 and marked the lowest annual household growth measure since 2008, in the depths of the Great Recession (Figure 1).

Source: US Census Bureau, Housing Vacancy Survey

In September we noted that the HVS was showing a disconcerting slowdown in household growth after finally having picked up in 2012.  With the annual number now in, this low measure of household growth in the HVS is puzzling, at odds with an assortment of other housing market indicators that have been painting a more positive picture for housing overall.  In particular, the drop in household growth did not mesh with several other trends:

• The much higher 1.375 million annual growth reported in the 2013 Current Population Survey Annual Social and Economic Supplement (CPS/ASEC);
• The same, steady increase in jobs in 2013 as during the previous year; and
• Increased momentum in the housing market, including a further decline in vacancy rates, an increase in new home sales, and an increase in housing construction during the year.

The divergent measure of household growth from the HVS is also troubling because while the HVS is known to have a downward bias in its estimated count of households, it has been useful in tracking short-term trends in that it provides more timely estimates than other sources and has generally been subject to less sampling error.  Indeed, while the CPS/ASEC and HVS both originate from monthly CPS surveys, the HVS annual household growth number is a 12-month rolling average of year over year growth, whereas annual growth in the CPS/ASEC is year over year growth for the single March survey, making it more volatile and less reflective of trends throughout the entire year.

But this is not the only—or most important—source of difference between HVS and CPS/ASEC household counts.  These two surveys differ more fundamentally in that CPS/ASEC arrives at its estimate of households based on weights derived from estimates of the total population and the share who are heads of household, while the HVS estimates households using weights that add up to estimates of the total housing units in the country, with the household count derived as the number of housing units that are not vacant (see Note on Table 3).  During census years, the CPS/ASEC head-counting method has generally produced totals much closer to the decennial Census –the Census Bureau’s benchmark survey of people and housing--while the HVS stock-controlled method has generally produced estimates that are lower by around 3-4 million households. This suggests the HVS household estimates are generally biased lower to begin with.

With its household estimates pinned to estimates of the housing stock, the surprisingly low HVS household growth estimate may be at least in part due to overly low estimates of growth in the total housing stock.  As shown in Figure 2, over the past few years, the total housing stock estimate used by the HVS has been growing slowly and very steadily since 2011, gaining around 350,000 units a year.  At the same time the Census Bureau’s New Residential Construction surveys show a significant upturn in the number of new housing units completed in 2012 and 2013, reaching 762,000 units.  In order for the HVS estimates of changes in the housing stock to be accurate, this would suggest a surge in demolitions that roughly offset the recent surge in new construction, which seems unlikely. 

Source: JCHS tabulations of US Census Bureau, Housing Vacancy Survey and New Residential Construction data.

There is a third census survey from which household growth can be measured, the American Community Survey (ACS), that might shed more light on the recent trend. The ACS is not as timely, however, and the results for 2013 are not due to be released until late 2014.  Still, for 2012 the ACS reported household growth levels in between the HVS and CPS counts (978,000), suggesting it might prove a moderate and viable tie-breaker between the other two surveys on the direction of the recent trend. But since the ACS household estimates are linked to the same housing stock estimates as the HVS chances are the ACS, too, will be subject to a downward bias.

Overall, the discrepancies in these surveys are troubling given the importance of household growth as an indicator of the health of the economy and the housing market.  For the time being, housing analysts are flying in the dark on this key metric.