While the U.S. rental market has continued to expand, the markets for single-family houses and condominiums are still recovering. Affordability is an acute problem in both, according to the findings of the latest State of the Nation’s Housing report, issued by Harvard’s Joint Center for Housing Studies. Many renters and homeowners are burdened by excessive housing costs, resulting in evictions; millions remain underwater on their mortgages; and others are struggling to make downpayments and monthly payments. The need for more affordable rental housing is urgent.

Single-family home sales, prices, and new construction are on the rise, according to the report.  Even more important, income growth has picked up since the Great Recession ended, particularly among the huge population of millennials who are poised to form millions of new households over the coming decade.

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Click above for an interactive map.

At its release, the report was discussed by a panel of experts that included one of the lead authors, Chris Herbert, the Joint Center’s managing director.

The U.S. homeownership rate has been on a ten-year slide, down to 63.7 percent in 2015. Each 1 percent reduction represents 1.1 million families who rent instead of buy, said Stuart Miller, chief executive officer (CEO) of Lennar Corporation, a large homebuilder. “That’s the lowest level in over 50 years,” said Diana Olick, a CNBC reporter. The real rate of ownership is even lower, said Olick, since 4.5 million people underwater on their mortgages essentially do not own their own homes.

“Tight mortgage credit, the decade-long falloff in incomes that is only now ending, and a limited supply of homes for sale are all keeping households . . . on the sidelines,” said Herbert. “And even though a rebound in home prices has helped to reduce the number of underwater owners, the large backlog of foreclosures is still a serious drag on homeownership.”

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The report did not find that the housing crash has diminished the general appeal of homeownership. “Who’s missing from the homeownership picture?” Miller asked. “It’s the first-time buyers . . . [who] typically have led housing out of a downturn. [They’ve] really been disabled by a mortgage policy that has been . . . highly restrictive.

“If we want to bring back that lower end,” Miller added, “I daresay we have to start thinking about subprime lending—and nobody wants to say those words.”

“I think there [are] lots of people who have less-than-pristine credit scores who can be successful homeowners with the right mortgage product, with the right preparation,” said Herbert. “If you want a first-time-buyer program,” he added, “think about offering housing counseling and savings incentives. All this,” he concluded, “would permit expanding the credit market safely.”

Miller said that, for lenders, ability-to-pay rules and other regulatory pitfalls stand in the way of “rational lending in any kind of subprime way.” As currently configured, he said, the mortgage market is “treacherous ground for most lenders.”


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Olick reminded everyone that there has to be housing stock for lower-income borrowers to purchase. “Home construction is ramping up,” she observed, “but not on the low end.”

Mayor Setti Warren of Newton, Massachusetts, who chairs the community development and housing committee of the U.S. Conference of Mayors, called for allowing multifamily units in single-family homes in some neighborhoods to provide more rental and owner-occupied housing, which is starting to be implemented in some markets.

Seconding his suggestion, Diane Yentel, president and CEO of the National Low Income Housing Coalition, added that tenants need to be protected from eviction in the event a property owner is foreclosed upon. After the housing crash, she noted that this happened to many people who had paid their rent.

The report notes that the persistent weakness on the owner-occupied side is mirrored by the equally long surge in rental housing demand. Over 36 percent of all households opted to rent in 2015, the largest share since the late 1960s.

With vacancy rates down sharply and rents climbing, multifamily construction is booming across the country with increases across all age groups, income levels, and household types.

But with especially strong growth among high-income renters, so far most of this new housing is intended for the upper end of the market. Rents are well out of reach of the typical renter making $35,000 a year. The gap is widening between market-rate rents and what many households can afford based on the 30-percent-of-income standard. The number of cost-burdened renters hit 21.3 million in 2014. Even worse, 11.4 million of these households paid more than half their incomes for housing, a record high.

Adding to the problems of the poorest households, residential segregation by income has risen.  The report finds that between 2000 and 2014, the number of people living in neighborhoods of concentrated poverty more than doubled to 13.7 million.  

Burdensome rents are not just the lot of low-income people. They are rapidly spreading among moderate-income households as well, especially in the nation’s ten highest-cost housing markets. Half of renters earning $45,000 to $75,000 spent at least 30 percent of their incomes on housing in 2014.

Why have rents kept climbing despite a boom in rental construction, with 400,000 multifamily units built last year, the most since the late 1980s? Many single-family foreclosed homes were converted to rentals, but, said Herbert, demand has outpaced supply. More than a million new renter households entered the market last year. Furthermore, he said, the lack of affordability reflects stagnant incomes, particularly among low-income people.

And why has rental construction been more toward the high end? “It’s simply not financially feasible to build at the lower end,” Miller said. Zoning regulations, combined with impact fees and other costs of building housing, he explained, have made land and land development too expensive.

Pointing to federal programs like Home Investment Partnerships, Section 8, and Community Development Block Grants that create affordable housing for the poorest, Yentel said, “The problem is not that we don’t have solutions . . . it’s that we’re not funding the solutions at the scale necessary to meet the need.”

The report itself pointed to an inadequate federal response to the affordability problem.

What is missing, Yentel said, is political will. She sees a silver lining in the spread of the affordability crisis and the increasing ranks of cost-burdened people—namely, rising awareness of these problems. She also sees hope in a bipartisan congressional proposal to make Section 8 an entitlement and an administration $11 billion proposal to end family homelessness.

Other panelists, however, noted that housing has been all but unmentioned in the presidential campaign. On the other hand, Warren pointed out, income inequality has been at the forefront of the campaign.