Housing Supply Continues to Fall Short of Need

The number of renter households fell for the second consecutive year in 2018, but rents are rising at twice the rate of overall inflation.

There’s also a troubling supply issue at the lower end of the market, where the number of units renting for under $800 fell by 1 million in 2017, bringing the total loss from 2011 to 2017 to 4 million, according to The State of the Nation’s Housing report from the Harvard Joint Center for Housing Studies (JCHS).

On the homeownership side, new home construction remains depressed with additions to supply barely keeping pace with the number of new households in the country.

Much of the recent residential building has been high-end luxury apartments and large single-family homes.

“But, there’s also demand for moderate-cost apartments and there’s demand for moderate-cost single-family homes, and we're not building those,” said Chris Herbert, JCHS managing director.

Part of the reason for that is the cost of producing housing, with labor in short supply and material and land prices going up.

“All those things are adding to the cost of building housing and making it really difficult for builders to build housing in the middle of the market,” Herbert said, adding that localities need to use their land more efficiently, which means increasing density for single-family homes and apartments.

Family incomes have grown modestly, but the price of land has accelerated much faster, added Jonathan Reckford, CEO of Habitat for Humanity, during a panel discussion held in conjunction with the report’s release in Atlanta.

Middle- and upper middle-class families are seeing their children no longer able to afford housing, which is bringing increased visibility to the issue, he said.

For renters in low- and moderate-income categories who are already burdened, it’s very difficult to save money for a downpayment to buy a home.

Looking ahead, housing challenges and solutions have to be examined for local differences. “It’s really important that we diagnose the problem in each market,” said Raphael Bostic, president and CEO of the Federal Reserve Bank of Atlanta, explaining that priorities may differ in Orlando, Fla., and Chattanooga, Tenn.

In one locale, zoning may be constraining development, but in other places the larger issue may be incomes are not high enough to afford rents at the cost of construction.

“Those are two different problems that manifest itself the same way,” he said. “If we don’t do that diagnosis first, you could spin your wheels on a bunch of things that don’t actually get to the place that you’re trying to get to.”

Rental Housing

Overall rental construction remained strong last year. Even after a 5% dip last year, the number of completed rentals was close to a 30-year high at 360,000 units, including 316,000 in multifamily buildings with at least two units. Rental starts were up 5% from 2017 to 392,000 units, with nearly 90% in multifamily units.

Nationwide, 29% of newly completed apartments in early 2018 had asking rents at or above $2,050 while another 35% had rents between $1,450 and $2,049. Median asking rents for new units were highest in the Northeast at $2,260—a full $1,000 above the median in the Midwest. Nearly three-quarters of multifamily rental units completed in 2018 were in the South (43%) and West (29%), where median asking rents topped $1,500.

Affordable Housing

About a quarter of all renters—some 10.7 million households—faced severe housing cost burdens in 2017.

There’s also increasing concern as the supply of low-rent housing continues to decline. Just over three-quarters of all 383 metros with populations of at least 50,000 lost nearly 20% of their low-cost stock on average from 2011 to 2017.

In addition, JCHS tabulations of the National Housing Preservation database find that affordability restrictions could expire on about 1.2 million rental units by 2029. This includes 611,000 units added through the low-income housing tax credit program, 352,000 units of Sec. 8 project-based housing, and 221,000 units under other programs.

And while the overall homeless population has fallen for five years, unsheltered homelessness has ticked up.

Homeownership

At the same time, the U.S. homeownership rate inched up. After falling 5.6 percentage points between 2004 and 2016, the national rate increased 0.5 percentage point in 2017 and 2018, to 64.4%—roughly on par with the average rate from 1985 to 1995 before the latest housing boom and bust.

More than half (54%) of first-time buyers in 2017 were younger than 35.

When compared with repeat buyers, first-time buyers are more apt to choose smaller and less expensive homes. For example, 43% of first-time buyers in 2017 purchased homes with less than 1,500 square feet of living space compared with 27% of repeat buyers.

In the years ahead, demographic trends should support growing demand for homeownership as more members of the large millennial generation age into their 30s when home buying peaks. According to the latest JCHS projections, if age-specific homeownership rates remained at the same level as in 2018, household growth alone would add roughly 8 million homeowners between 2018 and 2028. And if, consistent with recent trends, the overall homeownership rate rises by 1.6 percentage points from the 2018 level, growth in the number of homeowners could reach 10.1 million for the decade.

Natural Disasters

Climate change is an urgent housing-related issue that’s second only to affordability, according to the JCHS.

“Natural disasters displace hundreds of thousands of people each year and inflict billions of dollars of damage on the housing stock. In addition to developing disaster response systems that provide timely and effective assistance to affected households, There must be a national commitment to making housing more resilient as well as more energy efficient and carbon neutral,” says the report.