June 16, 2017

State of The Nation’s Housing 2017 Report Highlights Continued Affordability Challenges, Increased Segregation by Income

Share Posted By:

Today, the Joint Center for Housing Studies (JCHS) of Harvard University released the State of the Nation’s Housing 2017, its annual assessment of the housing market, demographic trends and the housing challenges faced by U.S. households. In their annual report, JCHS finds that:

  • Despite slight improvements in the share of cost-burdened households, housing affordability remains a challenge, particularly for renters.
  • Neighborhoods are becoming more economically segregated.
  • Housing cost burden has a significant impact on other aspects of life.
  • Future rental demand will be shaped by household formation by the millennial generation.
  • Despite the recent growth of rental multi-family construction, additions to the supply remain concentrated at the upper end of the market.
  • Federal housing assistance to low-income households continue to fall short of demand.

This blog post will take a deeper look at the issues most affecting lower-income renter households and highlight the report’s key findings on the rental market and affordability challenges.

Despite slight improvements in the share of cost-burdened households, housing affordability remains a challenge, particularly for renters.

Between 2014 and 2015, the number of cost-burdened households (those spending more than 30 percent of their income on housing) declined by 2.2 percent to 38.9 million, marking the fifth consecutive year of declines. Despite a slight improvement from 2014, one-third of U.S. households and nearly half of all renters remain cost-burdened. In addition, a higher share of the improvement in cost-burden was on homeowners’ side, as renter households continue to face significant cost burdens. 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 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. Among renter households earning $15,000-$29,999, 77 percent are cost-burdened.

JCHS_IMAGE1.JPG

According to JCHS, the share of cost-burdened renters dropped slightly by 1 percent to 48 percent over the past year. However, the decline reflects an increase in the number of higher-income renters rather than improved affordability among low- and moderate-income households. The report finds that the share of higher-income renter households (those earning between $50,000-$99,999) and the share of high-income renter households (those earning at least $100,000) have increased by 6 percent, respectively, over the past decade, accounting for nearly half of the growth in renter households between 2013 and 2016. Despite the influx of higher-income households into the housing market, the typical renter household earned $37,900 in 2015, and 16 million renter households earned less than $25,000.   

Neighborhoods are becoming more economically segregated.

One driver of cost burden among renters is that renter household incomes have not kept up with increases in rents. Between 2007 and 2015, the median gross rent for a rental home in the U.S. increased by 6 percent, after adjusting for overall inflation. However, the median income for renter households rose by only 1 percent during the same period. In addition, the report finds that neighborhoods are becoming more segregated economically. Between 2000 and 2015, the number of high-poverty neighborhoods (with poverty rates of 20 percent or more) increased by nearly 60 percent to 21,300, and the low-income population (earning incomes below the federal poverty line) living in these neighborhoods increased by 76 percent to 25.4 million. The majority of high-poverty neighborhoods are concentrated in high-density, urban cores. Nevertheless, the recent growth of high-poverty neighborhoods has peaked in low-density areas at the metropolitan fringe and in rural communities.

Housing cost burden has a significant impact on other aspects of life.

Households paying half their incomes or more on housing often face difficult choices, including cutting back spending on necessities like food and transportation, sacrificing housing quality for cost and/or living in overcrowded housing units. In 2015, severely-cost burdened households spent 53 percent less on food, healthcare and transportation combined compared to households without cost burdens. Furthermore, 11 percent of lower-income renter households, earning under $30,000 per year, live in housing units that have structural issues, system deficiencies, or are otherwise inadequate.

Future rental demand will be shaped by household formation by the millennial generation.

JCHS projects that there will be solid growth in renter households over the next 20 years, reflecting the aging of millennials into the phase of forming a household. In 2015, millennials headed only 16 million of the nation’s 124.5 million households. However, millennial households are projected to head 49.8 million households by 2035, and thus reshape housing demand, particularly demand for rental housing, in profound ways. On the other hand, the older population (aged 65 and over) is growing and is projected to increase by 31 million to 79 million in 2035. According to the report, one in three households will be headed by an older adult (over the age of 65) in 2035, driving up demand for a variety of housing options, including multigenerational and assisted living.

Despite the recent growth of rental multi-family construction, additions to the supply remain concentrated at the upper end of the market.

According to JCHS, completions of new multifamily units totaled 321,000 in 2016, slightly higher than the 2015 level and 5 percentage points above the annual averages in the 2000s. The report shows that more than 90 percent of multifamily units started or completed during the past year were intended for the rental market, and the number of renter-occupied multi-family units, mainly in large structures with 10 or more units, increased by 407,000. But even after seven consecutive years of growth, new residential construction in 2016 was significantly below the average annual rates of residential construction (1.4-1.5 million units) in the 1980s and 19990s. The combination of household formation and production trends has resulted in the national rental vacancy rate dropping to a 30-year low of 6.9 percent in 2016.

JCHS finds that new rental, multi-family units remain concentrated at the upper-end of the market. It is not surprising that newly constructed market-rate housing would rent at relatively higher price points. However, lower production levels in prior years mean that there are fewer units to “filter” down to lower price points as they age and more renter households are competing for those units. The result is a mismatch between housing demand and supply. According to the report, the number of apartments renting for $2,000 or more per month increased by 97 percent over the past decade. However, the number of apartments renting for less than $800 declined by 2 percent over the same period. Meanwhile, a large share of the existing naturally occurring and subsidized affordable housing stock is at risk, due in large part to physical upgrades, rent increases, and the expiration of subsidy compliance periods. The shortage of affordable rental housing has been particularly problematic for extremely and very low-income households. According to the National Low Income Housing Coalition (NLIHC), there are only 35 affordable and available rental units for every 100 extremely low-income renter households, and 55 units for every 100 very low-income households.

JCHS blog post image2.JPG

Federal housing assistance to low-income households continue to fall short of demand.

Federal support has not been sufficient to compensate for these trends. According to HUD’s 2015 Worst Case Housing Needs report, the number of very low-income renters increased by 3.7 percent to 19.2 million between 2013 and 2015. However, the share of very low-income renters, those earning incomes below 50 percent of the area median income, receiving rental assistance declined by 0.8 percent to 24.9 percent. As a result, three-quarters of renter households eligible for rental assistance on the basis of their income did not receive it in 2015. The shortage of federal rental assistance is particularly relevant in high-cost metros, such as Los Angeles, New York, Seattle and Washington, D.C., where homelessness continues to rise despite the continuous decline in the national number of homeless individuals. The report shows that the homeless population declined by 14 percent to 549,928 between 2010 and 2015. However, the share of homeless individuals rose by 20 percent or more in San Francisco, Seattle and Washington, D.C., among other metros.

Opportunities to address the nation’s growing housing affordability challenges.

Given the findings from the State of the Nation’s Housing 2017, there are a number of actions that need to be taken to prevent the nation’s housing affordability challenges from worsening:

  • The findings of the State of the Nation’s Housing 2017 reinforce the importance of supporting programs that are essential for preserving and expanding the supply of affordable housing. However, the President’s budget request for fiscal year 2018 proposes extreme cuts to HUD programs, including cutting funding for Housing Choice Vouchers by nearly $1 billion and Project-Based Rental Assistance by $465 million, at a time three-quarters of renter households eligible for rental assistance on the basis of their income do not receive it. Read more about the budget request and how to support affordable housing programs on the Enterprise blog.
     
  • Regulations that affect housing construction and financing define what types of housing can be built and where. Therefore, state and local governments should carefully balance the legitimate public benefits of regulations against their costs, in order to reduce barriers to housing development and improve the ability of housing markets to respond to growing demand. The 2014 Enterprise-ULI Terwilliger Center for Housing Bending the Cost Curve research offers recommendations for addressing the regulatory restrictions that both decrease the supply of housing and increase the cost of housing development.
     
  • Recent Enterprise research demonstrates several opportunities to make an impact on increasing the stock of affordable rental homes. Enterprise’s and the USC Bedrosian Center on Governance’s recently published Understanding the Small and Medium Multifamily Housing Stock report shows the prevalence of the small and medium multifamily housing (properties with between two and 49 units) in the overall housing stock, as it provides 54 percent of the nation’s rental housing stock – which means that its preservation is a critical part to avoid falling further behind. In addition, an Enterprise report on Public Benefit from Publicly Owned Parcels: Effective Practices in Affordable Housing Development shows that publicly owned parcels represent a rare opportunity to provide a range of benefits to both public agencies and broader communities, including creating affordable rental and owner-occupied housing.
     
  • Strategic, scalable investments in the preservation and construction of affordable housing are essential to prevent renter cost-burdens from worsening and to increase access to affordable rental housing. The primary tool for doing so is the Low-Income Housing Tax Credit (Housing Credit), which has financed nearly 3 million apartments since 1986, providing roughly 6.7 million low-income families, seniors, veterans, and people with disabilities homes they can afford. The Housing Credit is a flexible tool, financing affordable homes in high-opportunity neighborhoods and helping revitalize distressed communities. It is critical that the Housing Credit is protected during any efforts to reform the federal tax code. In addition, legislation to expand and improve the program has been introduced in both chambers of Congress, which would address the critical housing affordability challenges identified by the Joint Center for Housing Studies. Learn more about the impact of the Housing Credit in every state and congressional district on the ACTION Campaign website.