Key takeaways from the Harvard Joint Center for Housing Studies' annual report on housing (2022).
Cost of housing is at an all-time high and continues to rise
Home price appreciation rate nationwide recorded the highest jump in the last three decades, standing at 20.6 percent in March 2022. A 12% increase in rents was recorded nationally for professionally managed properties in the first quarter of 2022. Note that the median rate of rental housing in New York, for example, is up 11 percent on the net from the early 2020 level. Years of under-building have been identified as one of the top causes of this current housing price surge.
Single-family rents rose faster than apartments Rents for single-family housing nationwide rose 14% in March ‘22, continuing a trend of record growth for the 12th consecutive month.
Investors are moving aggressively into the single-family market The investor share of single-family homes hit 28% in the first quarter of 2022. Institutional investors with large portfolios (at least 100 properties) are largely driving this growth.
Low rental vacancy rates in professionally managed apartments An all-time low of 4.8% rental vacancy rates in professionally managed apartments has been noted in the third quarter of 2021, with only a negligible rise up to 5% in the first quarter of 2022.
Supply constraint is pushing up rents For-sale inventory of existing homes stood at an alarming low of 850,000 units in January ‘22, down 10% from the year-earlier level.
Homeownership rates are up but systemic inequality persists
Despite the rise in housing costs and the pandemic affecting people’s financial health, 2.2 million new homeowners were added to the net between 2020 and 2022! This was made possible by the historically low-interest rates, which helped offset price increases and held down monthly mortgage payments. Although homeownership rates have grown for communities of color, the effects of systemic inequalities continue to persist.
Younger buyers dominate the new homeowners’ demographic The 2020–21 time period witnessed a 1.5% jump in homeownership rates among households under the age of 35 and currently stands at 38.8%.
Growing homeownership rates among households of color Households of color accounted for 55% of the total growth in homeowners over the period of 2020-21. This number has grown from early 2016 to early 2022 when households of color accounted for half of the total growth in homeowners.
Legacy of housing discrimination continues to affect homeownership rates for communities of color In the report, homeownership rates recorded for Black, Hispanic, and White household are 45.3%, 49.1% and 74%.
Housing construction records a fifteen-year high!
For decades, residential construction has been unable to keep pace with demand and fortunately, it looks like residential construction is finally picking up pace. The report looked at new residential construction data released by the US Census Bureau and it seems like for the first time in a long time, new construction is aggressively underway.
Single-family starts exceed the million-unit mark Single-family starts exceeded the million-unit mark for the first time in 13 years by touching the 1.1 million mark in 2021.
Multifamily starts at a 30-year high Noting a record new construction of 470,000 units.
What’s ailing the construction industry?
Despite the recorded progress, the construction industry continues to face several challenges that are affecting its efficiency and capacity to produce new housing units.
Supply-chain delays increased the time to completion, leaving almost 1.64 million homes under construction in April ‘22.
Inflationary pressures have added to the run-up inthe cost of building materials. Price of inputs to new residential construction (excluding capital, labor, and imports) recorded a 20% year-over-year high in February 2022.
Chronic labor shortages and risinglabor costs, exacerbated by the pandemic, restrict developers' ability to build affordable housing.
Restrictive local land use regulations continue to pose a major challenge to high-density development. Places like Oregon and California are responding to this problem by changing zoning laws. They have opened up areas previously zoned for single-family housing development, to other forms of development.
Emerging trends in the construction industry
The report outlines certain measures that will be crucial to incorporate in the housing construction industry going ahead, particularly to mitigate the adverse effects of the climate crisis. The existing housing stock needs to be upgraded to adequately adapt to the accessibility needs of an aging population and to weather the adverse impacts of climate change.
Weatherization: Some 51.5 million households are located in areas facing a moderate threat of annual losses from natural disasters. 11.6 million of these are lower-income households lacking the resources to recover or relocate. Retrofitting these houses to improve their energy efficiency and climate resiliency is crucial.
The Department of Energy’s Weatherization Assistance Program, targeted at low-income households, will provide upgrade support to about 35,000 homes per year. The program recently received an allocation of $3.1 billion, to help cover retrofits for an additional 450,000 households.
Retrofitting the existing housing stock for the aging population would require the construction of rails, ramps, elevators, etc. It would require a joint effort in home modifications and care services.
HUD allocated $30 million to the Older Adults Home Modification Grant Program in 2021. The program will support lower-income homeowners to pay for small-scale modifications.
Conversions of vacant office buildings into residential buildings added a record 20,000 apartments in 2021 alone. Such adaptive reuse has the potential to add to the housing
Ongoing affordability crisis and rising housing insecurity
Nationwide, the share of cost-burdened households (>30% of income on housing) stood at 30% in 2020. Out of all households, 14% are severely cost-burdened (>50% of income on housing). Renters, low-income households, and households of color continue to disproportionately bear the brunt of cost-burden housing. For example, 23% of the city’s renter population in New York City is severely cost-burdened.
So, where is the affordability crisis being felt the most? By looking at the soaring home price rates in various states and regions, the report concludes that the steepest increases have been recorded in metro areas in the South and West such as Cape Coral (41.1%), Tampa (31.2%), and Phoenix (28.2%) among others. In large Western metros, median sales price outpaced median income by more than 10 points, notably in San Jose (12.6%), San Francisco (11.3%), and Los Angeles (10.3%).
According to Moody’s Analytics, the median sales price in 2021 for existing homes was 5.3 times the median household income. New housing construction primarily adds to the upper end of the market. In just the past two years, the share of new homes that sold for at least $400,000 increased from a third of all homes to more than half (56 percent), signaling the glaring lack of affordable housing stock for sale.
Evictions are back after Covid-era moratoriums end
During the pandemic, the federal government put in place various measures to strengthen housing security for the general population. These included moratoriums on evictions, mortgage servicing safeguards, emergency rental assistance, and more. With most of these measures now having run their course, housing insecurity is once again on the rise.
In August 2021, when the CDC moratorium on evictions was struck down, filings were 54% below the annual average (2012-16). In March 2022, this number rose to stand at just 2.5% below that average, indicating a nationwide trend of grave housing insecurity.
Once the Consumer Financial Protection Bureau’s mortgage servicing safeguards ended, foreclosure filings recorded a 39% jump in the first quarter of 2022, to 78,300.
The future of rental assistance programs
There’s a need for substantial, consistent investment in affordable rental housing. With affordability challenges facing the current project-based Section 8 units, alongside units built under Low-Income Housing Tax Credit (LIHTC) program, the future of affordable housing in the United States faces serious threats.
Maintenance of Section 8 public housing - The Rental Assistance Demonstration (RAD) program has converted public housing properties to section contracts, allowing public housing authorities to tap into additional sources of funding. Between 2012 and 2021, conversions of 160,000 public housing units increased the stock of project-based Section 8 housing to 1.3 million units.
Need to maintain the affordability of Section 8 and LIHTC programs - 130,700 project-based Section 8 and 138,300 LIHTC units could come to the end of their affordability periods by 2025. Since the units built under these programs can revert to the market rate once the affordability period expires, there is a need to maintain their affordability.
Alongside these challenges, the current shortages even in market-rate apartments, are expected to put additional pressure on the housing market.
Production of affordable housing continues to remain one of the major challenges of the housing market, especially given that housing supply is trailing behind demand by major points. Besides amping up the supply of new housing stock, upgrades to the existing stock through retrofitting are the need of the hour, given the imminent threat of the climate crisis. Federal support needs to be extended to low-income households and those most economically vulnerable, to ensure safe, decent housing access for the most marginalized sections of society.
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