High prices squeeze renters, buyers
High rents make it hard for buyers to save for home down payments.
A diminished supply of available homes is swelling prices in large U.S. metro areas from New York to Miami to Los Angeles, squeezing out would-be buyers and pushing up rents as more people are forced to remain tenants.
The trend is pressuring Americans’ budgets, with about onethird of households spending more than 30 percent of their gross income on housing as of 2015, according to a report by Harvard University’s Joint Center for Housing Studies.
Homeownership rates have stagnated in part because high rents have made it difficult for many prospective buyers to amass a down payment for a house.
At the same time, the sparse supply of available properties is benefiting existing homeowners, many of whose home values have recovered from the housing bust a decade ago.
The tight supply of homes and a shortage of affordable rental housing have improved little in recent years for a variety of reasons. Among the key factors is that construction has yet to regain the pace of homebuilding that predated the bust.
“As the economy continues to recover, as income picks up as household formations pick up, it’s not spurring a supply response,” said Chris Herbert, managing director of Harvard’s Joint Center for Housing Studies. “It’s a worsening of the situation that was evident last year.”
Here are some findings documented in the report:
Affordability: The government considers people who spend over 30 percent of their income on housing to be “cost-burdened.” Those who spend more than 50 percent are considered “severely” burdened.
About one-third of households — 38.9 million — were considered cost-burdened in 2015, down from 39.8 million a year earlier. This was the fifth straight annual decline.
Still, roughly 16 percent of households, or about 18.8 million, paid more than half their income on housing.
Supply: The availability of homes for sale has fallen short of demand. Last year, the typical new home for sale was on the market for just 3.3 months, according to the report — well below the average of 5.1 months dating to the 1980s.
All told, 1.65 million homes were on the market last year, the fewest in 16 years, the report said.
The supply is worse for lower-priced homes that would be affordable to typical first-time buyers. Builders have been constructing fewer homes for that segment of buyers.
Cost gap: One striking finding in the Harvard report is the gap in home values that’s widened since 2000, well before the market hit its boom-era highs. When adjusted for inflation, prices in markets along the East and West coasts have vaulted more than 40 percent since 2000. By contrast, values in the Midwest and South have declined.
Among the markets where prices remain well below their housing-boom peaks: Las Vegas, Chicago, Detroit and Tampa. By contrast, home values have risen far above their previous highs in Denver, San Francisco and Austin, among other markets.
Prices: Though apartment construction surged in the years after the housing bust, demand for rental housing has grown more. The rental vacancy rate fell last year to 6.9 percent, a three-decade low, according to the Harvard report. That’s the seventh straight annual decline.
Much of the apartment construction in recent years has been made up of luxury developments catering to affluent renters.
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 units for $2,000 or more climbed by 1.5 million in the same period.
Homeownership: The nation’s homeownership rate has been falling since peaking around 69 percent in 2004. Last year, it hit 63.4 percent, just above the low set in 1965. But the rate appears to be stabilizing, according to the report.
“Even if it is no longer falling, it’s settling in at a rate that’s low by historic standards,” Herbert said.