Recession technically over, but challenges remain for housing market
Six years ago, the recession officially ended. However, 41 percent of Americans still think the housing crisis is happening, and a new study by the Joint Center for Housing Studies of Harvard University has detailed the challenges and market trends that contributed to that sentiment.
We broke down the study and listed those challenges below:
1. Household Cost Burden – A significant drain on the housing market is the amount of households that are cost burdened, or pay more than 30 percent of their income on housing. While the amount of homeowner households who were cost burdened declined for the third consecutive year, the amount of cost burdened renters rose to a new high at just under half of all renters being cost burdened.
2. Cost Burden vs Income – Income levels, the Joint Center reported, play a big role in cost burden. For households with incomes under $15,000, which is the equivalent of full-time pay at the federal minimum wage, more than 80 percent are cost burdened. Over half of homeowners and three-quarters of renters with incomes between $15,000 and $29,999 are cost burdened. Even at $30,000 to $44,999, 37 percent of owners and 45 percent of renters are cost burdened.
3. Cost Burden and Race – Cost burdens are an even bigger problem for specific demographics. Twenty-six percent of black households, 23 percent of Hispanic households and 20 percent of Asian households are severely cost burdened, meaning they pay more than 50 percent of their income towards housing. That compares to 14 percent of white households, and considering that four out of every 10 new households in the U.S. will be headed by someone of Hispanic descent by 2020, such a trend could pose problems.
4. Low-Income Affordability – There is a lack of affordable units to purchase for low-income households. For extremely low-income households, which earn up to 30 percent of the area’s median income, 11.2 million renters competed for 7.3 million affordable houses. The gap between the number of extremely low-income renters and the supply of units they can afford nearly doubled from 2003 to 2013. When you exclude units that are structurally inadequate, or are occupied by higher-income households, there are only 34 affordable units for every 100 extremely low-income renters, according to the Joint Center. Even for households earning up to 50 percent of the area median income, there are still only 58 affordable units per 100 renters.
5. No Room to Spend – When households are affected by cost burden, the Joint Center argued, it becomes difficult for renters to transition to homeownership. Severely cost-burdened low-income households, for instance, spend almost three times as much on housing than those with affordable housing. This drain prevents households from purchasing essentials, such as healthcare and food. Severely burdened low-income households spent 70 percent less on healthcare and 40 percent less on food than those with affordable housing.
Not only that, but despite the amount of money being paid in rent, renters are still three times more likely to encounter deficiencies relating to electrical, heating, plumbing and structure. While the number of owners who experience deficiencies has been declining over the past 20 years, the number for renters has stayed the same.
6. Affordability Programs Limited – Further complicating the problem of housing costs, the Joint Center explains, is the lack of affordable housing construction.
The U.S. Department of Housing and Urban Development’s (HUD) two largest programs – housing choice vouchers and project-based rental assistance – have expanded between FY2005 and FY2015, but unmet need has grown as well. Most of the increased funding was offset by the higher rent costs.
Programs subsidizing construction of affordable housing have dropped to levels below a decade ago. The U.S. Department of Agriculture’s Section 515 program added 535,500 affordable rental units between 1963 and 2011. Since 2011, however, it has supported no new construction. Similarly, HUD’s Section 202 program has supported funding of 400,000 housing units for older adults, but was cut by 55 percent from FY2005 and FY2015. No new funds were included for new construction for the program.
7. Dwindling existing stock – Finally, nearly 2.2 million assisted units are at risk of removal over the next 10 years. More than 1.2 million of those at-risk rental units are a part of Low Income Housing Tax Credit (LIHTC) developments whose compliance periods are set to end. Another 530,000 are in privately owned developments with rents subsidized under federal contracts. When the contracts expire, property owners can opt out and raise their rents. The remaining relate to mortgages coming to term.