JCHS Report Describes Serious Affordable Housing Challenges

Last week, Harvard University’s Joint Center for Housing Studies (JCHS) released its annual report, "The State of the Nation’s Housing 2018." The report examines the state of the housing market in 2018, finding that, while the housing market improved in many respects over the last year, an increasing number of low- and moderate-income families lack access to affordable housing options and homeownership is becoming less affordable.

JCHS also used the occasion of the report’s 30th anniversary to examine how the housing market has changed since the first report was published. JCHS found many of the same challenges that plagued the housing market in 1988 continue today, and have gotten worse in some cases.

JCHS released the report at an event held in Washington, DC, which NCSHA staff attended. The release was followed by a panel discussion featuring former HUD Secretary Shaun Donovan; Chris Herbert, Managing Director of JCHS; Eric Belsky, formerly of JCHS and now the Director of Consumer and Community Affairs with the Federal Reserve; and George McCarthy, President and CEO of the Lincoln Institute of Land Policy. Alana Semuels, a staff writer for The Atlantic, served as moderator. Watch the event in its entirety here.

Mixed Recovery in the Single-Family Market
JCHS’s report notes the national homeownership rate ticked up slightly in 2017 after declining for 13 straight years. In addition, relatively low mortgage interest rates have kept homes affordable despite strong growth in home prices, which increased 6.2 percent in 2017.

However, according to the report, credit standards remain tight by historical standards, and other strong market headwinds continue to make homeownership prohibitively costly for many working families, particularly younger households. Specifically, JCHS highlights that the inventory of single-family homes for sale is at its lowest level since 1982. In addition, while single-family home construction increased 8.6 percent in 2017, it remains at historically low levels.

Further, because of increased costs, builders are developing fewer low-cost starter homes. Homes of fewer than 1,800 square feet accounted for 20 percent of the market in 2017, compared to 50 percent in 1988. This makes it increasingly difficult for many families to purchase a first home. In 1988, the national home price-to-income ratio was 3.2, with just one metro posting a ratio above 6.0. In 2017, the national price-to-income ratio stood at 4.2, and 22 metros had ratios above 6.0. JCHS projects homes will become even less affordable as interest rates rise.

According to the report, the current homeownership rate is similar to what it was in the late 1980s, despite it having increased in the 1990s and mid-2000s. Many gains from those years were wiped out during the housing crisis. Drilling into the numbers, the report finds that, while the homeownership rate is up for borrowers of most races and ethnicities, the rate for African-Americans has increased only 0.3 percent since 1988. The homeownership rate disparity between white Americans and African-Americans is now 29.2 percent, compared to 23.5 percent in 1983.

JCHS also estimates the number of households with student loan debt has doubled since 1988, another possible hindrance to future growth in the home purchase market.

Rental Housing Affordability Challenges Continue
While the number of cost-burdened households (those paying more than 30 percent of their monthly incomes towards housing) continued to slowly decrease in 2016, many renters still struggle to find affordable housing. Forty-seven percent of renters were cost-burdened in 2016, including 11 million severely cost-burdened renters who paid more than half their monthly incomes towards rent, a significantly higher rate than in 1988. The problem is particularly acute for low-income renters: 80 percent of renters earning less than $30,000 were cost-burdened in 2016, including 55 percent with severe burdens.

JCHS argues rising economic inequality and stagnating wages have driven the increase in cost-burdened households over the last 30 years, as incomes for many working Americans have not kept up with rent increases. According to the report, the real median income of households in the bottom quartile increased only 3 percent between 1988 and 2016, while the median income for adults aged 25 to 34 rose by just 5 percent. Meanwhile, the median home price grew 41 percent faster than inflation between 1990 and 2016, and the median rent grew 20 percent faster.

Furthermore, while multifamily construction surged in recent years (dipping a little in 2017), most new construction is geared toward housing higher-income renters, particularly in those metro areas experiencing strong economic growth. At the same time, the market continues to lose many low-cost rental housing options due to market forces and/or the expiration of government subsidies.

Need for More Assistance
JCHS cites a decline in federal and state investments in affordable housing as another explanation for the increase in cost-burdened households. The report notes appropriations for HUD programs have shrunk in real terms over the last 30 years, with the number of occupied public housing units now under one million for the first time since 1972. JCHS credits the Housing Credit program with being the largest source of assisted rental housing but notes the affordability period is set to expire on 533,000 Housing Credit units within the next 10 years.

The report acknowledges that there are many state and local government programs providing housing assistance to low- and moderate-income individuals. According JCHS, 100 such programs offer affordable rental assistance through either tenant-based vouchers or capital development financing. The report also cites HFA down payment assistance programs as an effective tool for helping working families purchase a home.

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