Harvard Study:  Housing Outlook Mixed (Part 1)

Timothy L. Coyle
Consultant specializing in housing issues

When it comes to housing as a national matter, there’s good news and bad news.  At a minimum, it can be said that demographic changes – particularly the rise in household formation coming from expanding millennial populations – look like they’re going to save the day.  On the other hand, incomes don’t appear to be keeping up and their stagnation is eroding affordability gains.

This is all according to a recently released State of the Nation’s Housing by Harvard University’s Joint Center on Housing Studies.  Every year for the last 30, the Center has published this report, previewing the national housing picture.

As it does in this report, the Center looks at the nation’s housing condition, stem to stern.  But, unlike most of today’s housing studies, which seem to simply report on how miserable things are, the Center’s State on the Nation’s Housing is a forward-looking document, outlining what can be.  Indeed, it’s an optimistic review and the hopeful observations it makes always outweigh the more sobering ones.

Maybe that’s because about the challenges it outlines we’ve always managed to successfully overcome them.

Nevertheless, it is Harvard and it’s something they do every year.  Among the findings on growth:

  • More than 40 million housing units have been built over the past three decades, accommodating 27 million newly formed households.
  • 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 is even rarer now.
  • A hangover effect of high mortgage rates from the 80’s continued to be felt among would-be homebuyers, keeping them out of new homes.
  • Although the Joint Center had previously projected robust growth over the next decade – of 13.6 million households – more current estimates of the Census Bureau put expected growth at 12 million.

But, the study also said that because of their sheer numbers – and because millennials remain relatively young – the generation has helped to boost household growth and will continue to lift household growth for years to come.

The Center had a similar forecast for baby-boomers aged 65 to 74 – now the nation’s fastest-growing age group.  Due to its size, it will continue to grow at an unprecedented pace in the next decade.  This, the report says, means older households will remain part of the mix – both the homeowner and rental markets.   Given that, the report says, older folks will drive strong growth in spending on improvements and repairs – and, increasingly, home improvements – that ensure their ability to age safely in place and spend the rest of their days in their homes.  The report says this segment of the population will need sufficient transportation and support services, putting pressure on local governments to supply both.

If two worrisome issues stand out they are that 1) incomes remain relatively flat; and 2) an ever-tightening single-family inventory prevails nationwide.  With regards  to incomes, the report found the real median income of households in the bottom 25 percent increased only three percent between 1988 and 2016, while the median  income among young adults in the key 25-34 year-old age group was up just five  percent. Meanwhile, gross domestic product per capita, a measure of total economic gains, surged – increasing some 52 percent in 1988-2017.  The report says that if incomes had kept pace more broadly with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs.

Supplies of existing single-family homes for sale remain extremely tight, in California and nationwide.  Both key measures of inventories are at their lowest levels since the National Association of REALTORS® began tracking them in 1982.  In 2017, the supply of for-sale homes averaged less than four months – well below the six months considered a balanced market.

Also, the level of single-family construction is desperately low.  Despite six consecutive years of increases, single-family starts stood at just 849,000 units nationwide in 2017, well below the longstanding annual average of 1.1 million.  That means only 610,000 single-family homes were added to the national stock annually in 2008–2017.  In addition to reducing inventories, limited new construction could affect the entire homebuying cycle, says the report – reducing the trade-up options for current owners, deterring them from putting their own homes on the market.

The slow growth in single-family construction further reflects a variety of factors including homebuilder caution (following last decade’s housing bust), a dearth of buildable lots, surging lumber costs, chronic labor shortages and an increase in regulatory barriers to housing approvals.

Finally, another troubling finding:  Although the changes in homeownership by race and ethnicity were seen as mostly positive, black households are the one group that has made no appreciable progress, the report says.  Compared with 1994, black homeownership rates have increased just 0.3 percentage points while white rates have risen 2.2 percentage points, widening the black-white gap to 29.2 percentage points.  And, to be sure, soaring home prices aren’t helping.

(Because of its length – and thoroughness – this report summary has been divided into two parts.  Part 2 will appear in this space at a future date.)

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