Examining the Current State of U.S. Housing

Examining the Current State of U.S. Housing

The success of pandemic housing policies in keeping both homeowners and renters in their homes demonstrated the potential for government protection to effectively promote housing stability.

On June 21, 2023, the Harvard Joint Center for Housing Studies (JCHS) released its annual State of the Nation’s Housing report. In a virtual event accompanying the report’s release, Daniel McCue, senior research associate at JCHS, shared the report’s major findings; Chris Herbert, managing director of JCHS, discussed policy implications with California state senator Scott Wiener. A panel discussion further unpacked the report’s implications and included Herbert; Adrianne Todman, HUD deputy secretary; Rachel Heller, chief executive officer of the Citizens’ Housing and Planning Association; Clark Ivory, chief executive officer of Ivory Homes; and moderator Samantha Fields, reporter for the nonprofit news organization Marketplace. Panelists discussed, among other things, how broad economic conditions in the United States are impacting housing costs and production, the effects of pandemic-era housing policies and the consequences of rolling back those initiatives, and the persistent problems of housing inequity and lack of access.

The State of the U.S. Housing Market

The housing market has cooled over the past year as elevated interest rates and inflation have raised rents, mortgage payments, and other household costs such as maintenance, affecting overall housing conditions in the United States, reported McCue. Sales declined from the highs reached during the low-interest environment that characterized the pandemic years, as did single-family home starts. Although housing costs remain higher than their prepandemic levels, growth in both rent and home prices did stabilize over the past year. Higher interest rates, however, have prevented 2 million renter households from being able to afford their first home. The 40 percent rise in average home value since the start of the pandemic has meant significant equity gains for existing homeowners, which, as McCue and Heller pointed out, further exacerbates the wealth gap between homeowners and renters, which itself has a significant and longstanding racial disparity.

Increased levels of household formation during the pandemic have increased demand for multifamily housing. Developers have responded to this change, and the number of multifamily housing units currently under construction is at its highest level in half a century. On the other hand, the increased demand created by the rise in households has put upward pressure on housing costs, and new rental construction tends to target households at the higher end of the income scale; only 5 percent of the multifamily units currently under construction are expected to be affordable to the median renter. At the lower end, the number of units renting for less than $600 per month (a cohort making up one-third of the rental market) has decreased by 1 million units since 2019 and by 4 million units over the past decade, said McCue. As a result, a record number of renter households are currently cost burdened, paying more than 30 percent of their income toward housing costs. Severely cost-burdened households (those spending more than half their household income on housing costs) are also at record levels. Although pandemic-era housing supports helped reduce evictions to one-tenth of their prepandemic levels, the report found that the expiration of those programs in the context of high rents has restored eviction rates to prepandemic norms, and rates of unsheltered homelessness have risen 35 percent since 2015.

Unpacking Implications for Policy

The removal of pandemic-era housing supports has revealed important lessons for housing policy, said the panelists. Todman underscored the success of pandemic housing policies in keeping both homeowners and renters in their homes, which the panelists agreed demonstrated the potential for government protection to effectively promote housing stability. These initiatives may include, for example, increased funding for voucher programs or subsidies for adaptive reuse projects to create more housing.

Heller praised the report's continued attention to racial disparities and segregation in housing, calling for policies that promote housing opportunity and greater investment in underresourced areas. Herbert and Heller expressed concern that high interest rates and persistently elevated home prices have significantly exacerbated wealth gaps, with homeownership increasingly likely to become an option available only to wealthier individuals and their children.

Describing federal-level efforts, Todman reported that in response to higher mortgage interest rates, HUD has reduced the mortgage insurance premium for Federal Housing Administration insurance, a key tool supporting first-time buyers and buyers of color. In addition, HUD is exploring whether using mortgage applicants' positive history of on-time rental payments in assessing creditworthiness can help close some of these gaps.

Ivory identified some headwinds facing developers working to meet the nation's housing needs. He predicted that rising construction costs, including regulatory fees and high interest rates, as well as time-intensive processes are threatening to curtail the current boom in multifamily construction over the next 18 months. In fact, Herbert pointed out, mortgage rate increases have meant that a monthly mortgage payment of less than $2,000 before recent rate increases would now cost a household more than $3,000 per month. Underlying these difficulties, Ivory said, is the continuing fallout from the Great Recession, which saw a huge reduction in the labor supply for the construction trades.

This year's housing report has both revealed what is new in the evolving state of the nation's housing and underscored longstanding trends. The most fundamental phenomenon, argued Weiner, is the undersupply of housing relative to need, which has broad implications for families, municipalities, and even the climate. Weiner stated that although housing inevitably has a local dimension, the widespread nature of the current housing crisis demands the attention of policymakers at the highest levels. To illustrate the point, Weiner stated that in the 1950s and 1960s, his home state of California had approximately 15 million residents and built 250,000 to 300,000 homes per year. Today, the state's population is approximately 40 million, yet only 80,000 to 100,000 new housing units are built annually, with well-documented impacts on homeownership access, wealth and racial equity, and environmental health.

Although the report and the panelists identified significant challenges that remain, increased awareness of housing issues, the importance of housing to addressing other policy priorities, regulatory reform efforts, pandemic-era lessons learned across all levels of government, and trends in industry innovation all point toward possible progress in improving housing nationwide at a time of significant and widespread housing needs.