Nowhere to Live: Profits, Disinvestment, and the American Housing Crisis
For over 30 years, our Center has published its annual State of the Nation’s Housing report, which provides a comprehensive review of trends and drivers of housing market conditions. Yesterday, I was honored to share findings from this year’s report at a congressional Ways & Means Committee hearing, Nowhere to Live: Profits, Disinvestment, and the American Housing Crisis. In my testimony, I discussed today’s housing market conditions, how we got here, the consequences for the nation’s families and individuals, and what steps are needed to alleviate the country’s worsening housing affordability challenges.
The headline from this year’s report is that record-setting increases in home prices and rents have exacerbated longstanding housing affordability challenges. A major reason for this rapid rise in housing costs is a ongoing shortage of new housing supply—particularly modest-cost housing. Even before the pandemic, new supply was failing to keep pace with rising demand, but the pandemic boosted demand and also drove the inventory of homes for sale and rental vacancy rates to their lowest point in decades.
A number of things have contributed to the housing shortage. Regulatory barriers limit the opportunity to develop smaller, denser housing that is both lower cost to build and makes more efficient use of land. Recent supply chain disruptions extended construction timelines and raised the costs of materials, further constraining builders’ ability to provide modest-cost homes.
But swelling demand has been an important driver as well. Even before the pandemic, the large millennial generation had finally begun moving out on their own at rates similar to previous generations, pushing household growth to its highest level since the early 2000s. The shift to working and studying from home, and social distancing, spurred demand for single-family homes in particular. Homebuyers also had more purchasing power from curtailed spending during the pandemic, and because of historically low interest rates. When this demand came up against tight supply, the result was record-setting price gains. While the rental market softened somewhat in the first year of the pandemic, demand came roaring back this past year, fueled in part by frustrated homebuyers, creating record gains in rents as well.
The result has been worsening housing affordability for both buyers and renters. After reaching record levels a decade ago, the share of households spending an excessive amount of income on housing was inching down through 2019 but the pandemic abruptly reversed this trend, as both renters and homeowners experienced a sharp rise in cost burdens.
High home prices and skyrocketing interest rates also pushed homeownership out of reach for millions of renters. From April 2021 to April 2022, the monthly cost of a median priced home increased by 34 percent, raising the income needed to buy it from $79,000 to $108,000 and leaving 4 million renters, with incomes below this, on the sidelines of the homebuying market.
The consequences of housing cost burdens for the lowest-income households are significant, reducing spending on food and healthcare and increasing housing instability. The growing obstacles to buying a home also lock out millions of renters from the benefits of homeownership, which can provide both protection from rising housing costs and the opportunity to build wealth.
These challenges also fall disproportionately on people of color, who experience both higher housing costs burdens and significantly lower homeownership rates relative to white households. Black and Hispanic households experience the largest shortfalls in homeownership compared to white households, with gaps of 29 and 24 percentage points, respectively. For Black households this gap is nearly as large as it was at the time the Fair Housing Act was passed in 1968.
These challenges point to two broad categories of solutions. First, there is clear need for efforts to expand the supply of modestly priced homes, both for sale and for rent, to alleviate the severe housing shortage. But additional supply by itself will not address affordability challenges for the lowest-income households or put homeownership within reach for many moderate-income households. Well-designed demand side programs are also needed to ensure access to the opportunities to rent and own good quality homes. Addressing these challenges will take a substantial commitment from the public, private, and non-profit sectors, but would pay dividends for American families and for society at large.