Over the course of the past 30 years, Americans’ earnings and the economy have been on parallel paths, but at mismatched strides. Now, homebuyers are paying for it.
Affordability continues to be a headwind for housing, according to the Harvard University Joint Center for Housing Studies, which recently released The State of the Nation’s Housing, an annual barometer of the housing market in the U.S.
“By many metrics, the U.S. housing market in 2018 is on sound footing, but a number of challenges highlighted in the first State of the Nation’s Housing report 30 years ago persist today, and, in many respects, the situation has worsened for both the lowest-income Americans and those higher up the income ladder,” says Chris Herbert, managing director of the Joint Center for Housing Studies.
A balanced housing market sees six-months’ supply; the average was 3.9 months in 2017, with an average 849,000 single-family starts—below the 1.1 million long-term trend, according to the report. Without construction, and with the 3.9 million rentals that were once single-family, but converted in the downturn—and a cohort of existing homeowners reluctant to sell, for fear of paying prices today—inventory remains stubbornly stuck.
From 2017 to 2027, 12 million more households will materialize, the Joint Center projects, driven by baby boomers, immigrants and millennials. With an aging-in-place preference, baby boomers are a considerable force—and, in fact, are at the core of the current homeownership rate, which is aligning with early-’90s levels. Boomers, immigrants and millennials, together, are dominating the housing landscape, and will continue to for at least the next 10 years.
By measure, the homeownership rate is solid, stabilized at 63.9 percent in 2017. There are imbalances, however. Although the aspiration for homeownership is universal, the Asian, black and Hispanic homeownership rates are struggling over that of whites, with black homeownership behind by 29.2 percent, the report shows.
Examining 1990-2016, inflation has lagged prices by a whopping 41 percent, according to the report. Why have home prices taken off? Building labor and material prices have risen sharply, and land is limited, making what is available costly to develop—and, compliance costs have grown heavier.
In 2016, the amount of households allocating at least 30 percent of their earnings to housing was 38.1 million—6.5 million more than in 2001. Additionally, between 1988 and 2016, earnings for households in the lowest pay-tier tracked up only 3 percent, despite GDP per capita up 52 percent.
Had GDP and incomes increased in tandem, the gap would be nonexistent, according to the report.
“If incomes had kept pace with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs,” says Daniel McCue, an author of the report, and a senior research associate at the Joint Center for Housing Studies. “That hasn’t happened.”