June 19, 2018

JCHS’ State of the Nation’s Housing 2018 Report Highlights Continued Affordability Challenges in the Rental Market

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Today the Joint Center for Housing Studies (JCHS) at Harvard University released the State of the Nation’s Housing 2018, its annual assessment of the housing market, demographic trends and the housing challenges faced by U.S. households. In this year’s report, JCHS finds that: 
•    Renter households are still widely cost-burdened.
•    Housing cost burden creates tradeoffs between paying for housing and other necessities.
•    Cost burdens contribute to rising shares of homeless individuals, especially in high-cost metros.  
•    The nation’s multi-family housing inventory remains tight at the lower end of the market.
•    Conditions at the lower end of the rental market are expected to remain exceptionally tight.
•    Federal housing assistance for low-income households continues to fall short of need.

Renter households are still widely cost-burdened
In 2016, nearly one-third of all U.S. households were cost-burdened – that is, they paid more than 30 percent of their income on housing – and 47 percent of renter households were cost-burdened. While the share of cost-burdened renter households saw a modest drop from its 51 percent peak in 2011, it remains well above its 41 percent share in 2001. According to the report, 20.8 million renter households were cost-burdened and nearly 11 million renter households were severely cost-burdened, paying more than 50 percent of their income on housing. It also points out that the incidence of cost burden is especially prevalent among lower-income renter households. Eighty percent of renters earning less than $30,000 were cost-burdened in 2016, and of those, 42 percent were severely cost-burdened. In addition, the share of cost-burdened households is higher among black (45 percent) and Hispanic (43 percent) households than among Asian and other minority (36 percent) or white households (27 percent). 

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According to JCHS, the total number of cost-burdened households dropped by 4.6 million between 2010 and 2016. Much of this improvement come from a 3.8 million drop in the number of cost-burdened owner households earning above $45,000. The report explains that between 2010 and 2016, the share of cost-burdened owners declined 7 percentage points to 23 percent, but the share of cost-burdened renter households dropped only 4 percentage points to 47 percent. Last year renter-ship rates among households earning above $100,000 and those earning between $50,000 and $99,000 hit all-time highs of 19 and 33 percent, respectively. Despite the rise in the share of higher-income renter households, two-thirds of renter households earned less than $60,000 and nearly one-third earned less than $25,000 in real terms in 2017. 

Housing cost-burden creates tradeoffs between housing and other necessities
Households paying half their income or more on housing often face tradeoffs between spending on housing and other necessities. The report notes that for millions of cost-burdened households, today’s high housing costs means cutting back on necessities like food and healthcare. In 2016, severely cost-burdened households in the bottom expenditure quartile spent nearly $650 less each month on non-housing expenses than their counterparts without burdens. Severely cost-burdened households with children spent $190 less on food costs than households without burdens.  

Cost burdens contribute to rising numbers of homeless individuals, especially in high-cost metros  
Between 2010 and 2016, the number of individuals experiencing homelessness dropped by 14 percent, but the figure rose by 3,800 last year. HUD’s Annual Homeless Assessment report shows that nearly 554,000 people were living in shelters or on the streets on a given night in January 2017, and 1.4 million people used a shelter at some point over the course of 2016. The report points out that 56 percent of all homeless individuals live in the nation’s high-cost metros, such as New York, Los Angeles and Seattle, where the numbers of homelessness individuals are increasing. The report explains that for low-income households, especially those who are severely cost-burdened, losing a job or facing an unexpected expense can lead to eviction and risk of homelessness, noting that 83 percent of all individuals experiencing homelessness are not chronically homeless and many have moved from more stable housing situations to shelters due to unexpected expenses. 

Last year’s natural disasters created new challenges in the housing market 
JCHS notes that 16 major disasters in 2017 caused $306 billion in damages, the destruction of thousands of homes and widespread displacement of households across California, Florida, Puerto Rico and Texas. The report notes that much of the impacted housing stock was uninsured; for example, only 4 percent of homes in Puerto Rico and 20 percent in Texas had flood insurance. JCHS also points out that California, Florida and Texas have large populations of undocumented households who often avoid applying for federal assistance, and much of Puerto Rico’s housing stock was built without permits. 

The nation’s multi-family housing inventory remains tight at the lower end of the market
According to JCHS, last year completions of new multifamily units increased by more than 11 percent to 375,600 units, the highest level since the 1980s. Furthermore, 604,000 multifamily units were under construction last year, which is slightly below the 2016 level but still the highest figure since early 1970s. However, last year multifamily housing starts declined 9.7 percent to 354,000 units, slightly above the 342,000 annual average between 1997 and 2006. 
JCHS notes that new multifamily units are increasingly likely to be in large buildings with multiple amenities. Nearly half of the rentals completed in 2016 were in buildings with 50 or more units, compared to 13 percent in 1990, and 86 and 89 percent of new apartments in 2016 were in buildings with swimming pools and in-unit laundry services, respectively. This report explains that rising construction costs and additional amenities have increased asking rents, with the nominal asking rent of new multifamily units rising 29 percent from $1,090 in 2012 to $1,408 in 2016, followed by a 10 percent increase to $1,550 in 2017.
JCHS also finds that the national vacancy rate for all rental units averaged 7.2 percent in the year ending in the first quarter of 2018, up 0.3 percentage points from a year earlier. In addition, the vacancy rate for rental units built since 2010 hit 21 percent in 2017, exceeding the 15 percent rate reported in 2016. However, the lower end of the market, which typically has older rental homes, remains tight. Housing Vacancy Survey data show that the vacancy rate of all multifamily and single-family rentals under $600 declined to 6.8 percent in 2017, while the vacancy rate for units priced above $1,000 increased slightly to 7.5 percent. 

Conditions at the lower end of the rental market are expected to remain exceptionally tight 
National Low Income Housing Coalition (NLIHC) has reported that for every 100 extremely low-income renters – those earning up to 30 percent of the area median income – only 35 rental units were affordable and available in 2016. NLIHC also points out that extremely low-income renters far outnumber the units they can afford in all of the nation’s 50 largest metros.
JCHS suggests that ongoing losses of affordable units have fueled this scarcity. Between 1990 and 2016, more than 2.5 million housing units priced below $800 – affordable to households earning up to $32,000 – were lost. This report also explains that conditions at the lower end of the rental market are expected to remain exceptionally tight due to strong demand and diminishing supply. 

Federal housing assistance to low-income households continues to fall short of demand
HUD’s Worst Case Housing Needs report shows that between 2005 and 2015, the number of very low-income households facing severe cost burdens or living in inadequate or overcrowded conditions rose by 2.3 million to 8.3 million. Over the same period, a $12 billion increase in HUD’s major rental assistance programs lifted the number of assisted households by only 150,000 to 4.7 million. JCHS’ report highlights that currently, three out of four low-income households in need of housing assistance do not receive federal assistance because there is such high demand for that help. It also notes that last year, half of all assisted households (2.2 million) received housing vouchers that can be used in the private market, which marks a decline of 86,000 from 2016. The report explains that households that qualify for federal assistance often face several challenges in finding affordable housing. Those challenges include: facing long wait times for HUD assistance, which range from about 18 months for public housing to 32 months for vouchers; finding eligible housing in the private market within 60-120 days to avoid the loss of housing vouchers; spending more than 30 percent of households’ income on housing. JCHS notes that 31 percent of housing voucher holders are cost-burdened. 

The 2018 omnibus spending package, which was passed by Congress last March, included a 12.5 percent increase in annual Low Income Housing Tax Credit (Housing Credit) allocations for the next four years, and boosted HUD’s budget by 10 percent. While a step in the right direction, more must be done to address the loss of Housing Credit production, an unintended consequence from reducing the corporate tax rate in last year’s Tax Cuts and Jobs Act.  An analysis by Novogradac and Company predicted that the estimated gain of 28,400 affordable rental units from the 12.5 boost in Housing Credit Allocations would only partially offset the loss of nearly 235,000 affordable rentals over 10 years resulting from last year’s tax reform legislation. According to the analysis, a 16 percent expansion of Housing Credit allocations is needed to sustain current production levels.  

Opportunities to the nation’s growing housing affordability challenges
Given the findings from the State of the Nation’s 2018 report, we expand on JCHS’ recommendations and offer a number of actions that can be taken to prevent the nation’s housing affordability challenges from worsening: 

  • Expand federal programs that preserve and expand the supply of affordable homes
    The report reinforces the need to support programs that preserve and expand the supply of affordable homes. It emphasizes the importance of enhancing and expanding the Housing Credit, describing it as one of the pillars of the federal housing subsidy system. Enterprise will continue to advocate for the Affordable Housing Credit Improvement Act (S. 548/H.R. 1661) to expand and strengthen the Housing Credit. We will also work with our partners to ensure that proven affordable housing and community development programs, such as the HOME Partnerships program and the Community Development Block Grants, receive the necessary funding to serve low-income households and communities. See the ACTION Campaign’s Advocacy Toolkit for resources to advocate for the Affordable Housing Credit Improvement Act, and visit the Enterprise blog for information on FY 2019 appropriations.   
     
  • Adopt state and local initiatives to provide more affordable housing
    JCHS points out that state and local jurisdictions also have opportunities to reduce housing costs through regulatory reform and the creation of efforts to provide more affordable housing. We encourage housing policy makers and stakeholders to read our reports on cost containment. 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. In addition, Enterprise’s recently released white paper on Proven Local Strategies for Expanding the Supply of Affordable Homes and Addressing Cost Challenges draws on the successes of some of the country’s most expensive areas to offer options to communities working to address the scarcity of affordable homes and the rising cost of development, focusing on four key strategies: leveraging existing assets, creating public funding opportunities, utilizing land use controls and improving the approval process.  
     
  • Implement innovative strategies to expand the supply of affordable homes
    Throughout 2017, Enterprise conducted research and released reports on promising strategies for expanding the supply of affordable homes. In March 2017, Enterprise and the USC Bedrosian Center on Governance released a report on Understanding the Small and Medium Multifamily Housing Stock, which shows the prevalence of properties that include between two and 49 units in the overall housing stock. This type of multifamily housing provides 54 percent of the nation’s rental housing stock, which means that its preservation and expansion are critical efforts. In addition, in June 2017, Enterprise released report on Public Benefits from Publicly Owned Parcels: Effective Practices in Affordable Housing Development, which shows that publicly owned parcels represent a promising opportunity to provide a range of benefits to both public entities and broader communities, including creating affordable and mixed-income housing developments. 
     
  • Prioritize mitigation and resiliency efforts 
    JCHS also points out that the rising frequency and intensity of natural disasters necessitate prioritizing mitigation and resiliency efforts that help communities better prepare for those challenges. Earlier this year 100 Resilient Cities, an initiative pioneered by the Rockefeller Foundation, released a report, Safer and Stronger Cities: Strategies for Advocating for Federal Resiliency Policy. This report, which was prepared by Enterprise Community Partners in collaboration with Climate Resilience Consulting, Georgetown Climate Center and HR&A Advisors, offers a menu of federal policy recommendations that can help cities become more resilient in the face of changing conditions, focusing on infrastructure, housing, flood insurance, economic development, and public safety. These policy recommendations have been endorsed by 22 mayors from across the country. In addition, Enterprise Community Partners and the Asociación de Constructores de Puerto Rico, in collaboration with University of Puerto Rico, Perkins+Will, and the MIT Urban Risk Lab, are developing Keep Safe: Strategies for Puerto Rico Housing Resilience, a manual for building to withstand future natural disasters. This effort aims to centralize best practices, techniques, strategies, and interventions to make houses more safe and resilient from climate impacts.