The U.S. housing industry saw some progress in 2013 due in part to increased housing construction as well as rising home prices and sales, according to the annual State of the Nation’s Housing report by the Joint Center for Housing Studies at Harvard University.
Despite areas of improvement, however, the report found that homeownership rates are still trending downward, low-income households face persistent challenges finding affordable housing and millions of Americans continue to grapple with high housing costs.
More than a third of U.S. families and individuals, or 40.9 million households, were cost-burdened in 2012, meaning they payed more than 30 percent of their income on housing. Though the number of cost-burdened U.S. households in 2012 fell by 1.7 million from 2011, the figure is still up by more than 9 million since 2002, according to the report.
And for the sixth consecutive year, the share of cost-burdened renters increased in 2012, reaching nearly 50 percent. That same year, more than one in four renters were "severely burdened," or spent more than half of their income on housing costs, compared with one in ten homeowners.
In the "Chicago-Naperville-Elgin, IL-IN-WI" metro area, 611,815 renters (51.1 percent) were cost-burdened in 2012, with 29.8 percent of them paying more than half of their income on housing. In the same geographic area, 742,153 homeowners, (33.3 percent) spent more than 30 percent of their earnings on housing, and 14 percent were severely burdened by housing costs.
Of the 162,025 cost-burdened renters in the "St. Louis, MO-IL" metro area, 26.4 percent experienced severe housing cost burdens. On the other hand, just 7.8 percent of the 174,651 cost-burdened homeowners in the area spent more than 50 percent of their income on housing in 2012.
Click through for a full interactive map of renter and homeowner cost burdens by metro area.
Notably, more than four out of five U.S. households making less than $15,000 annually in 2012 spent at least 30 percent of their income on housing, while two-thirds paid more than 50 percent, the report reads.
"If you have an extremely low income, you're very likely to be paying more than 50 percent of your income on housing, which means if you're to lose your job or have some other temporary crisis, there's a very good chance you're going to wind up homeless," said Bob Palmer, policy director with Housing Action Illinois, which was not involved with the report. "If you can maintain your housing, you're really going to be struggling to pay your other bills. You're not going to be able to save much of anything."
State and federal policies to boost the minimum wage and increase spending on affordable housing programs would be a step in the right direction to address the housing cost burdens, Palmer said. At the national level, Palmer said reforms to the home mortgage interest deduction could also be one way to free up funds for the building of more rental housing for people with extremely low incomes.
"We have some really misplaced priorities, [with] the mortgage interest deduction being the one that's the most pronounced. We're basically helping higher-income people buy bigger homes," Palmer stressed. "People might make the case that's necessary, because in the aftermath of the foreclosure crisis we need the housing market to bounce back, and increasing home values is good overall for the economy. But we [at Housing Action Illinois] think that's counteracted by the drain on the economy when so many people are struggling just to pay for rental housing that they don't have money to spend elsewhere in the economy on food, clothing, education, health care and things that are going to have more of an impact on alleviating poverty."
In 2012, the 11.5 million "extremely low-income" households in 2012 had to compete for only 3.3 million rental units that were affordable and available. That works out to be 29 affordable and available rentals for every 100 lowest-income households, down from a supply-demand ratio of 37-to-100 in 2000, the report reads.
“When available, federal rental subsidies make a significant difference in the quality of life for those struggling the most,” said Chris Herbert, research director at Harvard's Joint Center for Housing Studies. “Between 2007 and 2011, the number of Americans eligible for assistance rose by 3.3 million, while the number of assisted housing units was essentially unchanged. Sequestration forced further cuts in housing assistance, which have yet to be reversed.”
This summer, the Obama administration announced that it will strengthen a loan program for affordable rental housing construction. Under the plan, the Treasury Department's Federal Financing Bank will pump some funds into the program, which will allow for $500 million to $1 billion to be used for affordable rental housing construction projects, compared with about $363 million in 2013.
Meanwhile, U.S. homelessness is on a downward trend, according to the report. The 2013 homeless population was 610,042, which is down 4 percent from 2012. Between 2007 to 2013, homelessness rates declined 11 percent among individuals in families, 12 percent among the chronically homeless and 6 percent among veterans.
Palmer said some the decline is likely credited to efforts by the federal government over recent years to focus resources on veterans who are experiencing homelessness as well as the overall issue of chronic homelessness.
However, the aforementioned numbers, Palmer said, do not factor in the "significant increase in the number of families that are doubling up ... and having two families in an apartment meant for one family, so not in a really sustainable situation."
Meanwhile, single-family and multifamily home construction was up by 15 percent and 25 percent, respectively, last year. Some 310,000 rental units were built in 2013, representing a third of total residential construction that year, which is the highest level since 1974.
Home sales last year were also up 17 percent for new homes and 9.2 percent for existing homes. Also, home prices rose in 97 of the 100 largest metro areas, which is up from the 73 metro areas that posted increases in 2012.
From the perspective of an outside investor, "you would say that things are getting much better" in the housing market, Palmer said.
"But if you're a homeowner in a community ... that was really impacted by the foreclosure crisis, you might have a difficult time saying things are getting better, definitely if you're a renter," he stressed. "Particularly someone who is extremely low-income and you're looking for housing, the impact of what's happening in the market right now would not be very good for you because, as the report points out, rental markets are tightening, rents are going up and there continues to be an increased demand."
Last year, rents were up 2.8 percent. And among professionally managed properties with five or more units, rents rose by 3 percent. Both increases outpaced overall inflation of 1.5 percent, the report reads.
Renter growth, meanwhile, was "well above the 400,000 annual average of the last few decades" in 2013. And last year's rental vacancy rate was 8.3 percent, the lowest point since 2000.
With the growing number of overall households looking to rent comes a continued dip in homeownership.
The 2012-2013 U.S. homeownership rate from fell to 65.1 percent, which marks the ninth straight year of decline.
Rising interest rates, tight credit, stagnant incomes and soaring student loan debt are among factors cited in the report preventing would-be homebuyers from entering the market. The drop in 2012-2013 homeownership rates was most significant among younger adults and minorities.
Millennials, the report concludes, are the key to a stronger housing recovery. Over the coming decade, the number of households in their 30s is projected to increase by 2.7 million.
“Ultimately, the large millennial generation will make their presence felt in the owner-occupied market just as they already have in the rental market, where demand is strong, rents are rising, construction is robust and property values increased by double digits for the fourth consecutive year in 2013,” said Daniel McCue, research manager of the Joint Center for Housing Studies.
While there are "few signs of an immediate turnaround," the report noted that "the strengthening economy will eventually lift household income — a key driver of housing demand." It also also states that "despite recent increases, house prices and interest rates still favor the homebuyer."
"Nevertheless, many younger adults find themselves with lower incomes and in family and household circumstances that are less conducive to homeownership," the report continues. "Furthermore, minorities who historically have much lower homeownership rates will account for an increasing share of first-time homebuyers. If mortgage markets cannot accommodate the limited financial resources of this new generation of households, there is a real possibility that fewer Americans will be able to enjoy the benefits of homeownership in the future."
But Palmer said declining homeownership rates are not necessarily all bad.
"Particularly for low-income communities, owning a home, in terms of wealth accumulation, has never been as good a deal as a lot of people made it out to be," he noted. "If you can rent for less money, that means that you have more flexibility if your situation changes or it means you have more money to put elsewhere in the economy, or spend it on other parts of your life that might be a better deal for you."