June 16, 2017
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Harvard University's Joint Center for Housing Studies (JCHS) released today its annual report, The State of the Nation’s Housing 2017. This year's report highlights an uneven housing recovery one decade after the onset of the Great Recession -- with prices, housing demand, and construction activity up, but tight supply and increasing costs adding to affordability pressures. The report also demonstrates that the extent of the recovery differs significantly by metropolitan area (see figure below) and by neighborhoods, which are becoming more economically segregated.

Homeownership Rates Stabilizing But Show Growing Racial Inequality
JCHS’s report finds that the decline in the national homeownership rate (now at 63.3 percent) may finally be stabilizing after falling for 12 years, but tightness in mortgage credit and the limited supply of lower-cost housing are still seriously constraining potential home buyers. The report also highlights the growing disparity of homeownership rates by race—while the white homeowner rate grew to 72 percent over the past 12 years, the black homeowner rate fell to just 42.2 percent. According to JCSHA, this is the largest disparity since World War II.

JCHS argues that the role and capabilities of the Federal Housing Administration (FHA) must be part of comprehensive housing policy discussions going forward, given the outsized role FHA plays in supporting home purchase loans for minority and lower-income households. The report adds that this will be especially important as growth in U.S. households will average 1.36 million annually in 2015-2025, with minorities driving almost three-quarters of this gain (see figure below).

Renters Continue to Experience Affordability Challenges
Despite slight improvements in the share of cost-burdened households (those spending more than 30 percent of their income on housing), housing affordability remains a challenge, particularly for renters. In 2015, 21 million renter households were cost-burdened and 11.1 million renter households were severely cost-burdened, paying more than 50 percent of their income on housing. The report shows that the incidence of cost-burden is especially prevalent among lower-income renter households. More than 70 percent of renters with incomes under $15,000 (roughly equivalent to the income of a full-time minimum wage worker) are severely cost-burdened.

Construction Can’t Keep Pace with Demand for Affordable Housing
Even after seven consecutive years of growth in construction activity, new residential construction activity in 2016 was still well below annual rates in the 1980s and 1990s. The report finds that housing completions over the past 10 years totaled just 9 million units, 4 million units less than any 10-year period going back to the 1970s. This low rate of construction activity, coupled with strong rental demand, has resulted in the nation’s rental vacancy rate dipping to 6.9 percent—its lowest level in more than three decades. According to JCHS, several factors are preventing more robust construction activity, including labor shortages, as well as strict regulatory and financing requirements for both single and multifamily housing construction. These factors raise development costs, making it difficult to build smaller homes for first-time home buyers and rental homes affordable to low-income households.

This year’s report finds that new construction of multifamily rental units remains concentrated at the upper end of the market. Meanwhile, a large share of the existing naturally occurring and subsidized affordable housing stock is at risk, due in part to physical upgrades, rent increases, and the expiration of subsidy compliance periods (see figure below). These trends could widen the already substantial gap between demand for and supply of affordable housing.

The report also comments on other threats to the supply of affordable housing, including shrinking appropriations for HUD programs and how proposed corporate tax rates could dampen investor demand for the Low Income Housing Tax Credit. JCHS expresses concern over these prospects and argues that while states and local governments “have a central role to play in defining specific community needs, crafting policies, and marshaling resources to support housing solutions… only the federal government can provide funding at the scale necessary to make meaningful progress toward the nation’s stated goal of a decent home in a suitable living environment for all.”

The report, supporting materials, and video from an event for the report's release are available on JCHS' website.