Much like the overall economy, the current, post recovery housing market looks much different than it has in the past. According to The State of the Nation’s Housing 2016, the blockbuster annual report from Harvard’s Joint Study for Housing Studies (JCHS), while the hangover from the recession has cleared up, the housing industry, which has the potential to become a massive economic engine, hasn’t yet reached full speed.
Numerous issues, both temporary hurdles and new structural challenges, stand in the way of the sector fully bouncing back. While the nation saw 1.1 million new units added last year, that significant number is still approaching record lows, highlighting factors that challenge future growth, including a shift towards renting over buying (36 percent of families now rent). A slowdown in new homes, and more rental families, suggests there may be significant room for expansion. Residential fixed investment (including homeowner improvements) accounted for just 2.8 percent of annual GDP so far this decade; in the ‘80s and ‘90s, it averaged 4.3 percent. The gradual reduction in household formation—half the average number of new households have formed over the last few years—shows the difficulties facing young adults and immigrants, and why more aren’t becoming new homeowners.
But within that challenge lies a potential opportunity. Despite the now-wavering recovery, the JCHS believes housing can become "an engine of growth," averaging 1.6 million units a year for the foreseeable future, as older units are replaced, millennials settle down, and the demand for vacation homes remains consistent.
Housing Starts Show Attempt to Catch Up With Demand
The housing market shows little sign of slowing down, but there are signals the construction and building industries are beginning to react to surging demand, especially in urban areas. Single-family housing starts jumped 10.5 percent over last year, with 715,000 new homes under construction last year, and especially strong gains in metro areas such as Dallas, Los Angeles, Miami, New York, San Diego, and San Francisco, which all posted 15 percent gains. These new additions to the housing stock also included more multifamily rental options; 370,000 new units in this category were started last year.
"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," according to Chris Herbert, managing director of the Joint Center for Housing Studies. " 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."
Homeownership’s Slow But Steady Recovery
Despite the headwinds of the last few years—a challenging mortgage market, rising student debt loads among potential young homebuyers, foreclosures, the recession—homeownership has begun to bounce back. Money, of course, is a prime driver for ownership, and considering sky-high prices in many markets, the real decline in income among young buyer underlies their inability to buy a starter home. Between 2000 and 2014, there has been an 18 percent drop in real incomes among 25–34 year olds, and a 9 percent decline among 35–44 year olds. In short, the demand is there, but for many, financing remains a challenge.
Rising Rents Creating Historic Cost Pressures, And Assistance is Lagging
While the trailing off of the foreclosure crisis means less owners are straining to pay their mortgages, the scene is very different in the rental market, which continues its explosive growth. Between 2008 to 2014, the number of cost-burdened households rose to 21.3 million, with 11.4 million—a record high—considered severely burdened, meaning they’re paying 50 percent or more of their income for rent. While rapidly rising prices shift the entire market, low-income renters have been under the worst pressure. Underlining the incredible constraints and stress pushing on the low-income market, the report found that, besides a few outliers, most markets are facing a situation where at least half of low-income renters face severe housing cost burdens.
What’s troubling is that the federal response has been waning, failing to grow to meet this massive challenge. Assistance from the Department of Housing and Urban Development (HUD) has actually shrunk overall; the number of families receiving aid has fallen by 159,000 from 2007 to 2013, with a loss of project-based housing units offsetting the increase in housing vouchers. The report noted that only one in four income-eligible renters receives assistance of any kind; the National Low Income Housing Coalition estimates that only 57 units were affordable and available for every 100 very low-income renters in 2014 (the disparity gets worse for extremely low-income renters, where only 31 of every 100 units within their reach).
We’re Facing an Affordable Housing Crisis: Time to Act
The report doesn’t shy away from saying we’re in the midst of an affordability crisis. Perhaps the most damning fact: the number of those living in concentrated poverty has doubled from 2000 to 2014, from 6.5 million to 13.7 million. While segregation and discrimination has disproportionately, the substantial impact has been felt across all racial and ethnic groups. Without intervention of change, this issue presents a host of long-term health, education, and economic problems.