State of the Nation’s Housing 2022 Report Highlights Housing Affordability Challenges

Last week, the Joint Center for Housing Studies of Harvard University (JCHS) released its annual report “The State of the Nation’s Housing 2022.” The report finds that, after record-breaking increases in home prices and rents in 2021, the housing market is likely to cool in 2022 as higher interest rates settle the home buyer market and the increase in construction of new apartments brings some relief to renters. However, the report indicates that the combination of higher interest rates, insufficient housing supply, and price surges for gas, food, and other necessities is expected to have a greater impact on lower-income households and households of color, especially as funding from emergency government support during the pandemic winds down.

JCHS released the report with a virtual panel discussion last Wednesday featuring Chris Herbert, managing director of JCHS; Alanna McCargo, president of Ginnie Mae; Ryan Marshall, president and CEO at PulteGroup; and Sarah Saadian, senior vice president of public policy at the National Low Income Housing Coalition. Watch the webcast here.

Soaring Housing Costs and Rising Demand

The JCHS report shows how the cost of housing has reached record heights. Home price appreciation crested at 20.6 percent in March 2022, topping the 20.0 percent high in August 2021, while rents for apartments in professionally managed properties were up 12 percent in the first quarter of 2022 as compared to the previous year. The existing supply of homes for sale hit a new low of 850,000 units in January 2022 before edging back up to one million units in April, a number still 10 percent below previous years. In addition, rental vacancy rates remain at an all-time low at just five percent in the first quarter of 2022, and the growth of apartment demand cannot be met by the current supply.

According to the report, housing demand continues to climb, despite the shock of the pandemic and limited supply. The number of U.S. households increased at an average annual rate of 1.6 million between the first quarter of 2020 and the first quarter of 2022. Millennials who delayed living on their own in their 20s and 30s are entering the housing market, and young adults have experienced sustained levels of low unemployment and income gains, even during the pandemic. Unemployment benefits, stimulus payments, and moratoriums on student loan repayments have further helped maintain a strong level of household growth.

The JCHS study says factors further driving high home prices include the rising cost of construction materials, global supply chain disruptions, and labor shortages. The price of inputs to new residential construction was up 20 percent year over year in February 2022.

The report also points to the aggressive movement of investors into the single-family market as further restricting the supply of moderately priced homes. Over the past year, the investor share of single-family homes hit 28 percent as compared to 19 percent the previous year and the 16 percent average from 2017–19. As investors buy up moderately priced homes either to upgrade for resale or to convert to rental homes, fewer affordable homes are available.

Although JCHS predicts a positive near-term outlook for housing demand due to favorable trends — demographic shifts, low unemployment, strong wage growth, diminishing supply chain delays, and record numbers of homes set for completion in the future — it will take time for the current housing supply to catch up with demand. JCHS highlights as possible solutions innovative construction methods and reforms to local land use regulations to allow for higher-density developments.

Persistent Affordability Challenges

In 2020, the nationwide share of households paying more than a third of their income for housing climbed 1.5 percentage points to 30 percent. Job and income losses early in the pandemic increased the affordability challenges for millions of households who were already struggling. Rental households reported serious challenges, with 46 percent at least moderately burdened and 24 percent severely burdened. Housing cost burdens continued to be most acute at lower incomes, with 51.7 percent of renter households with an annual income of $30,000 or less paying more than 50 percent of their income for housing. For home buyers, the median sales price for existing homes last year was 5.3 times the median household income, significantly above the median home price-to-income ratio of 4.6 in 2020.

While pandemic programs like emergency rental assistance were successful in keeping millions in their homes, the JCHS report points to the need for substantial, consistent investment in affordable housing. While eviction and foreclosure filings were down during the pandemic, numbers have jumped once more as government protections end. Foreclosure filings increased by 39 percent in the first quarter of 2022, and eviction filings are just 2.5 percent below the 2012–16 average as compared to the August 2021 level of 54 percent below that average.

The report says investments in affordable housing must also consider demographic shifts. The majority of the current housing supply cannot meet the accessibility needs of an aging population and cannot withstand the impacts of extreme weather events due to climate change. Investing in accessibility features and home modifications will require significant funds; not investing in these upgrades will pose health risks to households.

The report also highlights the need to preserve existing affordable housing and calls attention to the potential loss of affordability as Housing Credit property use restrictions expire and owners have the opportunity to convert affordable housing to less affordable market rents.

Further Action Required

Residential construction is beginning to pick up. Single-family starts reached 1.1 million in 2021, and multifamily starts were at a 30-year high. However, supply chain delays have impacted production, and some 1.64 million homes remain uncompleted as of April 2022. While the pickup in construction and the rise in interest rates should cool the housing market and meet demand, lower- and middle-income households will suffer from the lack of housing affordability, especially on top of their other expenses. A recent JCHS analysis found that, even among renters who were able to pay their rents in full, many had to use credit cards, savings, or money borrowed from friends and family. The immediate concern is that current monetary policies could trigger a recession, a downturn that could make it even harder for lower-income families facing high housing cost burdens to afford other living expenses.

JCHS cites the Biden Administration’s Housing Supply Action Plan as a starting point to address the shortage of affordable housing at the federal level. In addition, the report cites ways state and local policies could contribute to lowering housing costs, including restructuring land use regulations and zoning to spur housing development and fostering innovation in home building.