Expanding Access to Homeownership

New homeowners Lateshia, Sylvia, and Tyrell Walton stand in front of their new home.  U.S. Navy photograph by Mass Communication Specialist Seaman Shamus O’Neill

Christopher Herbert et al. has posted Expanding Access to Homeownership as a Means of Fostering Residential Integration and Inclusion. It opens,

Efforts to enable greater integration of communities by socioeconomic status and race/ethnicity have to confront the issue of housing affordability. Cities, towns and neighborhoods that offer access to better public services, transportation networks, shopping, recreational opportunities, parks and other natural amenities have higher housing costs. Expanding access to these communities for those with lower incomes and wealth necessarily entails some means of bringing housing in these areas within their financial reach. While households’ financial means are central to this issue, affordability intersects with race/ethnicity in part because minorities are more likely to be financially constrained. But to the extent that these areas are also disproportionately home to majority-white populations, discrimination and other barriers to racial/ethnic integration must also be confronted along with affordability barriers.

Enabling greater integration also entails some means of fostering residential stability by maintaining affordability in the face of changing neighborhood conditions. This issue is perhaps most salient in the context of neighborhoods that are experiencing gentrification, where historically low-income communities are experiencing rising rents and house values, increasing the risk of displacement of existing residents and blocking access to newcomers with less means. More generally, increases in housing costs in middle- and upper-income communities may also contribute to increasing segregation by putting these areas further out of reach of households with more modest means.

It is common to think of subsidized rental housing as the principal means of using public resources to expand access to higher-cost neighborhoods and to maintain affordability in areas of increasing demand. But for a host of reasons, policies that help to make homeownership more affordable and accessible should be included as part of a portfolio of approaches designed to achieve these goals.

For example, survey research consistently finds that homeownership remains an important aspiration of most renters, including large majorities of low- and moderate-income households and racial/ethnic minorities. Moreover, because owner-occupied homes account for substantial majorities of the existing housing stock in low-poverty and majority-white neighborhoods, expanding access to homeownership offers the potential to foster integration and to increase access to opportunity for low- income households and households of color. There is also solid evidence that homeownership remains an important means of accruing wealth, which in turn can help expand access to higher-cost communities. Owning a home is associated with greater residential stability, in part because it provides protection from rent inflation, which can help maintain integration in the face of rising housing costs. Finally, in communities where owner-occupied housing predominates, there may be less opposition to expanding affordable housing options for homeowners.

The goal of this paper is to identify means of structuring subsidies and other public interventions intended to expand access to homeownership with an eye towards fostering greater socioeconomic and racial/ethnic integration. (1-2, footnotes omitted)

The paper gives an overview of the barriers to increasing the homeownership rate, including affordability, access to credit and information deficits and then outlines policy options to increase homeownership. The paper provides a good overview for those who want to know more about this topic.

 

Big Eviction Data

photo by Tim Patterson

The Eviction Lab, run by Princeton University Professor Matthew Desmond (of Evicted fame) has recently released its Methodology Report and related resources. The introduction to the report opens,

In recent years, renters’ housing costs have far outpaced their incomes, driving a nationwide affordability crisis. Current data from the American Housing Survey show that most poor renting families spend at least 50 percent of their income on housing costs. Under these conditions, 1 millions of Americans today are at risk of losing their homes through eviction.

An eviction occurs when a landlord forcibly expels a tenant from a residence. While the majority of evictions are attributed to nonpayment of rent, landlords may evict tenants for a variety of other reasons, including property damage, nuisance complaints, or lease violations. A formal eviction occurs when a landlord carries out an eviction through the court system. Conversely, an informal eviction occurs when a landlord executes an eviction without initiating a legal process. For example, a landlord may offer a buyout or perform an illegal lock-out. Until recently, little was known about the prevalence, causes, and consequences of eviction.

The Eviction Lab at Princeton University has collected, cleaned, geocoded, aggregated, and publicized all recorded court-ordered evictions that occurred between 2000 and 2016 in the United States. This data set consists of 82,935,981 million court records related to eviction cases in the United States between 2000 and 2016, gleaned from multiple sources. It is the most comprehensive data set of evictions in America to date.

These data allow us to estimate the national prevalence of court-ordered eviction, and to compare eviction rates among states, counties, cities, and neighborhoods. We can observe eviction trends over time and across geography, and researchers can link these data to other sources of information. (2)

In sum, the Eviction Lab has created “the most comprehensive data set of evictions in America.” (41) This data set is obviously of great importance and will lead to important research about what it means to be poor in the United States. The Eviction Lab website has a user-friendly mapping function among other resources for researchers and policymakers.

Cities With the Worst Rent

photo by Alex Lozupone

Realtor.com quoted me in Cities With the Worst Rent: Is This How Much You’re Coughing Up? It opens,

Sure, rents are too dang high just about everywhere, but people living in Los Angeles really have a right to complain: New analysis by Forbes has found that this city tops its list of the Worst Cities for Renters in 2018.

To arrive at these depressing results, researchers delved into rental data and found that people in L.A. pay an average of $2,172 per month.

Granted, other cities have higher rents—like second and third on this list, San Francisco (at $3,288) and New York ($3,493)—but Los Angeles was still deemed the worst when you consider how this number fits into the bigger picture.

For one, Los Angeles households generally earn less compared with these other cities, pulling in a median $63,600 per year. So residents here end up funneling a full 41% of their income toward rent (versus San Franciscans’ 35%).

Manhattanites, meanwhile, fork over 52% of their income toward rent, but the saving grace here is that rents haven’t risen much—just 0.4% since last year. In Los Angeles, in that same time period, rent has shot up 5.7%.

So is this just a case of landlords greedily squeezing tenants just because they can? On the contrary, most experts say that these cities just aren’t building enough new housing to keep up with population growth.

“It is fundamentally a problem of supply and demand,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “Certain urban centers like Los Angeles, San Francisco, and New York are magnets for people and businesses. At the same time, restrictive local land use regulations keep new housing construction at very low levels. Unless those constraints are loosened, hot cities will face housing shortages and high rents no matter what affordable housing programs and rent regulation regimes are implemented to help ameliorate the situation.”

The Missing Piece in The Affordable Housing Puzzle

The National Low Income Housing Coalition has posted The Gap: A Shortage of Affordable Homes. The report opens,

One of the biggest barriers to economic stability for families in the United States struggling to make ends meet is the severe shortage of affordable rental homes. The housing crisis is most severe for extremely low income renters, whose household incomes are at or below the poverty level or 30% of their area median income (see Box 1). Facing a shortage of more than 7.2 million affordable and available rental homes, extremely low income households account for nearly 73% of the nation’s severely cost-burdened renters, who spend more than half of their income on housing.

Even with these housing challenges, three out of four low income households in need of housing assistance are denied federal help with their housing due to chronic underfunding. Over half a million people were homeless on a single night in 2017 and many more millions of families without assistance face difficult choices between spending their limited incomes on rent or taking care of other necessities like food and medical care. Despite the serious lack of affordable housing, President Trump proposes further reducing federal housing assistance for the lowest income households through budget cuts, increased rents and work requirements.

Based on the American Community Survey (ACS), this report presents data on the affordable housing supply, housing cost burdens, and the demographics of severely impacted renters. The data clearly illustrate a chronic and severe shortage of affordable homes for the lowest income renters who would be harmed even more by budget cuts  and other restrictions in federal housing programs. (2, citations omitted)

The report’s key findings include,

  • The nation’s 11.2 million extremely low income renter households account for 25.7% of all renter households and 9.5% of all households in the United States.
  • The U.S. has a shortage of more than 7.2 million rental homes affordable and available to extremely low income renter households. Only 35 affordable and available rental homes exist for every 100 extremely low income renter households.
  • Seventy-one percent of extremely low income renter households are severely cost-burdened, spending more than half of their incomes on rent and utilities. They account for 72.7% of all severely cost-burdened renter households in the United States.
  • Thirty-two percent of very low income, 8% of low income, and 2.3% of middle income renter households are severely cost-burdened.
  • Of the eight million severely cost-burdened extremely low income renter households, 84% are seniors, persons with disabilities, or are in the labor force. Many others are enrolled in school or are single adults caring for a young child or a person with a disability. (2, citations omitted)

While the report does show how wrongheaded the Trump Administration’s proposed cuts to housing subsidies are, I was surprised that it did not address at all the impact of local zoning policies on housing affordability. There is no way that we are going to address the chronic shortage in affordable housing by subsidies alone.

The federal government will need to disincentivize local governments from implementing land use policies that keep affordable housing from being built in communities that have too little housing. These rules make single family homes too expensive by requiring large lots and make it too difficult to build multifamily housing. We cannot seriously tackle the affordability problem without addressing restrictive local land use policies.

Housing Problems and Federal Assistance

Family living in a one-room tenement. New York, NY, USA (1890) by Jacob Riis. This version was colorized by Kelly Short.

The Urban Institute’s G. Thomas Kingsley has posted a brief, Trends in Housing Problems and Federal Housing Assistance. It opens,

In the 1930s, many American families lived in seriously deficient housing. To address that challenge, the federal government began building subsidized housing, and in the decades that followed, a complex array of federal programs evolved to tackle the continuing housing problems of low-income renters. Almost 10 years ago, the Urban Institute prepared a “primer”to assess this evolution. This brief is an update of major sections of that report, focusing on trends in national housing problems and federal housing assistance over the past decade. It shows that renter housing needs have grown substantially—almost totally because of unaffordably high rents rather than physical deficiencies—and federal housing assistance is not keeping up. The number of low-income renters that actually receive federal housing assistance has dropped notably as a fraction of the low-income households that need it. Evidence indicates that this gap will worsen.

. . . this brief explains the basics of US housing assistance to those unfamiliar with the field. After a summary, it (1) reviews recent changes in the number of US households by tenure and the nature of the housing problems renters face, (2) identifies the nation’s major federal housing assistance programs and explains how they work, (3) examines changes in the scale and spatial patterns of federal housing assistance and the characteristics of assisted households, and (4) identifies recent policy shifts and issues affecting future directions for these programs and pointing out literature offering fuller explanations. (1)

Its main findings include,

  • Household formation has slowed, and the renter share has significantly increased (mostly among the lowest-income groups).
  • Physical housing problems decline as the affordability challenge increases.
  • There are many more households with housing needs.
  • Since 2007, the number of households receiving HUD project-based assistance (in public housing or in privately owned subsidized projects) remained stable, while the number receiving housing vouchers increased.
  • But the modest increase in HUD deep-subsidy assistance has been overshadowed by growth in the need; the housing assistance gap has widened significantly.
  • The beneficiaries served by HUD programs is shifting away from families with children and toward the elderly and disabled.
  • The Low-Income Housing Tax Credit has been the fastest-growing US housing program over the past two decades. It does not necessarily add to the number of households receiving assistance, but it allows deep-subsidy resources to be spread among more households than would be possible without it.
  • Given forces at play, the housing assistance gap will likely worsen. (2-3)

There’s a lot more in the brief for those who want an overview of where we are with housing in the early 21st century.

Rental Housing Landscape

A Row of Tenements, by Robert Spencer (1915)

NYU’s Furman Center released its 2017 National Rental Housing Landscape. My two takeaways are that, compared to the years before the financial crisis, (1) many tenants remain rent burdened and (2) higher income households are renting more. These takeaways have a lot of consequences for housing policymakers. We should keep these developments in mind as we debate tax reform proposals regarding the mortgage interest deduction and the deduction of property taxes. When it comes to housing, who should the tax code be helping more — homeowners or renters?

The Executive Summary of the report reads,

This study examines rental housing trends from 2006 to 2015 in the 53 metropolitan areas of the U.S. that had populations of over one million in 2015 (“metros”), with a particular focus on the economic recovery period beginning in 2012.

Median rents grew faster than inflation in virtually every metro between 2012 and 2015, especially in already high rent metros.

Despite rising rents, the share of renters spending more than 30 percent of their income on rent (defined as rent burdened households) fell slightly between 2012 and 2015, as did the share spending more than 50 percent (defined as severely rent burdened households). Still, these shares were higher in 2015 than in 2006, and far higher than in earlier decades.

The number and share of renters has increased considerably since 2006 and continued to rise in virtually every metro from 2012 to 2015. Within that period, the increase in renter share was relatively larger for high socioeconomic status households. That said, the typical renter household still has lower income and less educational attainment than the typical non-renter household.

Following years of decline during the Great Recession, the real median income of renters grew between 2012 and 2015, but this was primarily driven by the larger numbers of higher income households that are renting and the increasing incomes of renter households with at least one member holding a bachelor’s degree or higher. The real median income of renter households with members with just a high school degree or some college grew more modestly and remained below 2006 levels in 2015.

Thus, the recent decline in the share of rent burdened households should be cautiously interpreted. The income of the typical renter household increased as the economy recovered, but part of this increase came from a change in the composition of the renter population as more high socioeconomic status households chose to rent their homes.

For almost every metro, the median rent in 2015 for units that had been on the market within the previous year was higher than that for other units, suggesting that renters would likely face a rent hike if they moved. The share of recently available rental units that were affordable to households earning their metro’s median income fell between 2012 and 2015. And in 2015, only a small share of recently available rental units were affordable to households earning half of their metro’s median income. (3, footnote omitted)

State of the Nation’s Housing 2017

photo by woodleywonderworks

Harvard’s Joint Center for Housing Studies has released its excellent State of the Nation’s Housing for 2017, with many important insights. The executive summary reads, in part,

A decade after the onset of the Great Recession, the national housing market is finally returning to normal. With incomes rising and household growth strengthening, the housing sector is poised to become an important engine of economic growth. But not all households and not all markets are thriving, and affordability pressures remain near record levels. Addressing the scale and complexity of need requires a renewed national commitment to expand the range of housing options available for an increasingly diverse society.

National Home Prices Regain Previous Peak

US house prices rose 5.6 percent in 2016, finally surpassing the high reached nearly a decade earlier. Achieving this milestone reduced the number of homeowners underwater on their mortgages to 3.2 million by year’s end, a remarkable drop from the 12.1 million peak in 2011. In inflation-adjusted terms, however, national home prices remained nearly 15 percent below their previous high. As a result, the typical homeowner has yet to fully regain the housing wealth lost during the downturn.

*     *     *

Pickup In Household Growth

The sluggish rebound in construction also reflects the striking slowdown in household growth after the housing bust. Depending on the government survey, household formations averaged just 540,000 to 720,000 annually in 2007–2012 before reviving to 960,000 to 1.2 million in 2013–2015.

Much of the falloff in household growth can be explained by low household formation rates among the millennial generation (born between 1985 and 2004). Indeed, the share of adults aged 18–34 still living with parents or grandparents was at an all-time high of 35.6 percent in 2015. But through the simple fact of aging, the oldest members of this generation have now reached their early 30s, when most adults live independently. As a result, members of the millennial generation formed 7.6 million new households between 2010 and 2015.

*     *     *

Homeownership Declines Moderating, While Rental Demand Still Strong

After 12 years of decline, there are signs that the national homeownership rate may be nearing bottom. As of the first quarter of 2017, the homeownership rate stood at 63.6 percent—little changed from the first quarter two years earlier. In addition, the number of homeowner households grew by 280,000 in 2016, the strongest showing since 2006. Early indications in 2017 suggest that the upturn is continuing. Still, growth in renters continued to outpace that in owners, with their numbers up by 600,000 last year.

*     *     *

Affordability Pressures Remain Widespread

Based on the 30-percent-of-income affordability standard, the number of cost-burdened households fell from 39.8 million in 2014 to 38.9 million in 2015. As a result, the share of households with cost burdens fell 1.0 percentage point, to 32.9 percent. This was the fifth straight year of declines, led by a considerable drop in the owner share from 30.4 percent in 2010 to 23.9 percent in 2015. The renter share, however, only edged down from 50.2 percent to 48.3 percent over this period.

With such large shares of households exceeding the traditional affordability standard, policymakers have increasingly focused their attention on the severely burdened (paying more than 50 percent of their incomes for housing). Although the total number of households with severe burdens also fell somewhat from 19.3 million in 2014 to 18.8 million in 2015, the improvement was again on the owner side. Indeed, 11.1 million renter households were severely cost burdened in 2015, a 3.7 million increase from 2001. By comparison, 7.6 million owners were severely burdened in 2015, up 1.1 million from 2001.

*     *     *

Segregation By Income on The Rise

A growing body of social science research has documented the long-term damage to the health and well-being of individuals living in high-poverty neighborhoods. Recent increases in segregation by income in the United States are therefore highly troubling. Between 2000 and 2015, the share of the poor population living in high-poverty neighborhoods rose from 43 percent to 54 percent. Meanwhile, the number of high-poverty neighborhoods rose from 13,400 to more than 21,300. Although most high-poverty neighborhoods are still concentrated in high-density urban cores, their recent growth has been fastest in low-density areas at the metropolitan fringe and in rural communities.

At the same time, the growing demand for urban living has led to an influx of high-income households into city neighborhoods. While this revival of urban areas creates the opportunity for more economically and racially diverse communities, it also drives up housing costs for low-income and minority residents. (1-6, references omitted)

One comment, a repetition from my past discussions of Joint Center reports. The State of the Nation’s Housing acknowledges sources of funding for the report but does not directly identify the members of its Policy Advisory Board, which provides “principal funding” for it, along with the Ford Foundation. (front matter) The Board includes companies such as Fannie Mae, Freddie Mac and Zillow which are directly discussed in the report. In the spirit of transparency, the Joint Center should identify all of its funders in the State of the Nation’s Housing report itself. Other academic centers and think tanks would undoubtedly do this. The Joint Center for Housing Studies should follow suit.