In a recently released comprehensive study by Harvard University’s “Joint Center for Housing Studies,” we’re finally able to grasp the overview and complexities of today’s housing challenges. The 44-page report was funded by virtually all the usual suspects including the Ford Foundation, The Federal Home Loan Banks, The National Association of Homebuilders and The National Association of Realtors. Two funders I didn’t know much about were the National Multi-Housing Council and the Research Institute for Housing America. The National Multi-Housing Council (NMHC) is “… a national association representing the interests of the larger and most prominent apartment firms in the U.S. NMHC’s members are the principal officers of firms engaged in all aspects of the apartment industry, including ownership, development, management, and financing.” The NMHC claim that nearly one-third of American households rent, and over 14 percent of households live in a rental apartment (buildings with five or more units). It would seem to me that this number might be on the low-side in reality.
The Research Institute for Housing America is part of the Mortgage Bankers Association and is a 501(c)(3) trust fund. “Its chief purpose is to encourage and aid – through grants and sponsored research to distinguished scholars, educational institutions, research facilities and government organizations – the pursuit of knowledge of mortgage markets and real estate finance.” It is up to the reader of this article to draw their own conclusions concerning how much (if any) objectivity is compromised by a study funded by those associations and organizations whose livelihoods are directly tied to the housing, mortgage and rental housing industries.
That said it is apparent that this report is jam-packed with relevant data and conclusions on all aspects of both the rental housing market and well as the national mortgage and homeowner’s markets. One telling section involves the number of households paying more than half their pre-tax income for housing (Figure 7). As of the end of 2010 it had risen to over 20 million households, split almost evenly between renters and homeowners. My sense from the report is that number has continued to grow to the present time. If that implied growth rate is true, it’s alarming to consider that somewhere between 25% and 30% of all households today are paying more than half of their pre-tax income for housing.
There is plenty of good news in this exhaustive report. Home sales have risen, home prices have fallen, and so far the number of vacant rental units (supply) has kept up with the demand. If you’re a rental property owner this report is sure to please in many ways. Rents have risen, and up to the current time it has been more cost effective for American’s to be renters than buyers. According to the report that trend has shifted. In many regions of the nation it is as cost-effective to own a house (if you have a job and can qualify for historically low interest rate mortgages) as it is to rent. The rising rent rates have created their own challenging dilemma as the report states. “Rising rents have already added to the affordability problems of lower-income families. In addition, even as the recovery takes hold in a broad range of markets across the country, the damage to foreclosure-ridden neighborhoods will take years to heal.”
The graphs, charts and thorough coverage of this multifaceted report are nothing short of impressive and well worth the time need to carefully read and study it. Section 5 on “Rental Housing” is especially relevant to property managers and rental income investors. They pull no punches and come to some conclusions that will most likely surprise many. Section 6, “Housing Challenges” is a powerful eye-opener and very sobering from this writer’s perspective. As one quote demonstrates, the challenges are close to overwhelming. “According to the latest American Community Survey, 42 million households (37 percent) pay more than 30 percent of income for housing (moderate burden), while 20.2 million (18 percent) pay more than half (severe burden). “Between 2001 and 2010, the number of severely cost-burdened households climbed by a staggering 6.4 million. The economic downturn has been especially hard on low-income households (Figure 31).”
We Americans have a long history of meeting great challenges with determination and solutions. As the Harvard study concludes, “The Outlook” (page 34) involves a number of difficult choices for both the federal and state governments. One of the challenging choices involves how to allocate limited funds to attempt to solve some unprecedented and potentially expensive housing dilemmas. Especially daunting is the growing number of low-income people needing affordable housing during a time when unemployment and under-employment appears to be on the rise.