The State of the Nation’s Housing
Wednesday, August 22, 2018 by Floor Covering Weekly
–More than 40 million units have been built over the past three decades.
–The typical home today is larger and more likely to have air conditioning, multiple bathrooms and other amenities.
–Structurally inadequate housing was rare 30 years ago and even rarer now.
–Homeownership rates among young adults today are even lower than in 1988.
–The national median rent rose 20 percent faster than overall inflation in 1990-2016 and the median home price 41 percent faster.
–The real median income of households in the bottom quartile increased only 3 percent between 1988 and 2016, while the median income among the key 25–34-year-old age group was up just 5 percent.
Current conditions in the housing market point to continued recovery, but emerging challenges. The latest run-up in house prices has made homeownership more difficult to attain. In 1988, when the first State of the Nation’s Housing report reported historically high homeownership costs, the national home price-to-income ratio was 3.2, with just one metro posting a ratio above 6.0. In 2017, the national price-to-income ratio stood at 4.2, and 22 metros had ratios above 6.0. So far, however, low interest rates have kept the median monthly payments on a modest home relatively affordable. However, the ongoing rise in both interest rates and home prices may change this. In addition, higher prices mean higher down-payments and closing costs, an even more difficult hurdle for many first-time homebuyers than monthly payments.
A bigger factor, though, is likely the low level of single-family construction. Despite six consecutive years of increases, single-family starts stood at just 849,000 units in 2017, well below the long-run annual average of 1.1 million. Indeed, only 6.1 million single-family homes were added to the stock in 2008–2017, compared with a long-term 10-year average of 10.6 million. Limited new construction may hold back existing home sales by reducing the trade-up options for current owners, deterring them from putting their own homes on the market.
Unlike single-family homebuilding, multifamily construction ramped up quickly after the crash as rental demand surged. From a low of 109,000 units in 2009, construction of multifamily units peaked at 397,000 starts in 2015 and accounted more than half the gains in housing starts over that period. However, the recent strength of rental construction has done little to address the shortage of lowest-cost units. Between 2006 and 2016, the total number of occupied rentals was up by 21 percent, but the number renting for under $650 in real terms fell by 5 percent.
In the near term, a key question is whether rising incomes will encourage more Millennials to form independent households. Over the longer term, though, the pace of immigration will be key to household growth as the increases in the native-born population slow. An emerging issue is the sharp increases in housing production costs, caused by a range of forces including the increasing size and quality of homes, lack of productivity improvements in the residential construction sector, escalating costs of labor, building materials, and land, and regulatory barriers created by a complex and restrictive system. This complex mix of factors requires a multifaceted approach that fosters innovation in the design, construction, financing, and regulation of housing.
Copies of State of the Nation’s Housing 2018 are available at no cost from the Joint Center’s web site: www.jchs.harvard.edu.