A reduced supply of available homes is swelling prices in major U.S. metropolitan areas from New York to Miami to Los Angeles, pinching from would-be buyers and to push up rents as more people are forced to remain tenants.
The trend is Americans ‘ budgets, with about a third of the households spending more than 30 percent of their gross income on housing, with effect from 2015, according to a report released Friday by Harvard University’s Joint Center for Housing Studies.
Homeownership rates have stagnated in part because the tenants heavier financial burden and increased obstacles to buy.
At the same time, the low inventory of properties will benefit existing homeowners, whose home values have recovered from the housing bust a decade ago.
The tight supply of housing and a shortage of affordable rental housing have little improved in recent years for a variety of reasons. One of the most important factors is that the construction yet to regain the pace of housing construction that dates back to before the bust.
“As the economy continues to recover, as the income picks up household formations, it is not spurring a supply response,” said Chris Herbert, director of the Harvard Joint Center for Housing Studies. “It is a worsening of the situation that clearly was last year.”
Here are some of the main findings described in the report:
The government is of the opinion people who are more than 30 percent of their income on housing to be “cost burdened.” Those who have more than 50 percent are considered to be “serious” to be taxed.
About a third of all households, or 38.9 million, were considered to be cost burdened in 2015, from 39.8 million households a year earlier. This was the fifth straight annual decline.
Still, about 16 percent of AMERICAN households, or about 18.8 million, paid more than half of their income on housing in 2015. The share of renters paying more than they can afford varies from city to city. In Miami, for example, the 35.4 percent. In El Paso, Texas, it is just 18.4 percent. Other cities where households were considered cost-burdened Daytona Beach, Florida; Riverside, California; and Honolulu.
Ryan Welch of Santa Monica, California, is among those feeling stuck between rising rents and house prices. Welch, 32, will pay approximately $1,500 per month for a rent-controlled one-bedroom apartment that he shares with his wife. That amounts to about a quarter of their monthly income, an affordable portion.
Welch, who works in advertising sales, would like a larger place with more amenities. But he is reluctant to leave their apartment.
“I’m nervous to move to a place that is not rent-controlled,” he said.
Saving for a home of their own, something he wants to do, has had to take a back seat to making payments on student loans and his car, among other expenses.
“I would much rather buy, but I can’t come up with the down payment,” Welch said.
HOME SUPPLY AND PRICES
The availability of homes for sale has fallen short of demand. Last year, the typical new home for sale on the market for just 3.3 months, according to the report — well below the average of 5.1 months out of the years 1980.
All told, 1.65 million houses were on the market last year, the least in 16 years, the report said.
The delivery is worse for the lower-priced homes that would be affordable to typical first-time buyers. Builders engaged in the construction of less housing for that segment of the buyers.
Between 2004 and 2015, the construction of single-family homes of less than 1,800 square feet fell 136,000 of nearly 500,000, according to the report.
The trends helped the national housing prices by 5.6 percent last year, above their housing boom peak. The prices remained almost 15% below their peak, adjusted for inflation.
“Builders are starting to turn more attention to the bottom of the market,” Herbert said. “I think we will see an increase in our supply of smaller, more moderate-cost new housing on the single-family side.”
WIDENING OF THE COST GAP
A notable finding in the Harvard report is the gap in home values, which has grown since 2000, well before the market hit in the boom-era peaks. When adjusted for inflation, housing prices in the markets along the East and west coast have vaulted more than 40 percent since 2000. By contrast, the values in the Midwest and the South decreased.
Among the markets where the prices remain far below their housing-boom peaks: Las Vegas, Chicago, Detroit, and Tampa, Florida. By contrast, home values have risen to well above their previous highs in Denver, San Francisco and Austin, among other markets.
“If you go back to say 1970 and you look at the differences in the house prices in the market areas, they were not as extreme as now,” Herbert said. “It is a function of income inequality and how much the differences in income have grown.”
In addition, the existing regulations and a lack of available land limit construction in many areas.
RENTAL PRICES AND DELIVERY
Although apartment construction has increased in the years after the housing bust, the demand for rental housing has grown even more. The rental vacancy rate decreased last year by 6.9 percent, the lowest level in three decades, according to the Harvard report. This is the seventh consecutive annual decrease.
Much of the apartment construction in recent years is made of luxurious developments catering to wealthy tenants, rather than to households of modest means.
The number of rental units available for under $800 fell by 261,000 between 2005 and 2015, according to the report. By comparison, the number of rental units priced at $2,000 or more-climbed by 1.5 million in the same period.
The nation’s homeownership rate has fallen since the peak around 69 percent in 2004. Last year, it hit 63.4 percent, just above the low set in 1965. But the speed seems to stabilize, the report said.
“Even if it is no longer fall, it is getting used at a rate that is low by historical standards,” Herbert said.
The rate has grown notably worse for African-Americans, the report found. Homeownership among African-Americans is now at its lowest point since the 1960s, and nearly 30 percentage points lower than the rate for whites, Herbert said.
HOUSING, BUT STILL LOW
The construction increased in 2016 for the seventh year in a row, adding 1.17 million homes, and apartments. But that was still the lowest growth rate since 2011, the report noted.
The construction of single-family dwellings is increasing at a faster rate to 9.4 percent last year to 781,600 units. Even so, housing construction still trails the 1.4-1.5 million annual rate that prevailed in the years 1980 and 1990, in the report.
“We are still not at 1.2 million starts,” Herbert said. “Back in the day, it would be a bad year during a recession, and we’re still trying to get back. We’re certainly not back to normal in terms of nutrition.”