The State of US Housing: A Roller Coaster Ride
Last week I was invited to testify by the Senate Banking, Housing, and Urban Affairs Committee in its first hearing of the new Congress on “The State of Housing 2023.” I provided an overview of key market conditions to frame their work over the next two years. As my testimony spelled out, perhaps the most apt description of housing market trends over the last few years is that of a roller coaster ride; first marked by home prices and rents increasing at a dizzying pace in response to pandemic-enhanced demand and against a backdrop of restricted supply, and now in the midst of a dramatic slide in response to the Federal Reserve’s efforts to bring inflation under control. But while the forces behind these trends are certainly out of the ordinary, they have illuminated and exacerbated housing challenges that are not new, but rather long in the making.
Arguably, the nation’s principal housing challenge is that of affordability. The share of renters facing housing cost burdens rose from the 2000s through the middle of last decade. While the years before the pandemic saw a modest recovery, the cost-burdened share of renters has now worsened substantially in the face of rising rents. While young adults and people of color were able to make up some lost ground in homeowning, following the Great Recession, the combination of very high home prices and now much higher interest rates has priced most would-be owners out of the market. Today’s worsening homebuyer affordability is particularly concerning given stubbornly high disparities in homeownership rates for Black and Hispanic households.
One notable feature of the trends in housing affordability over the last two decades has been the spread of these problems to those higher up the income ladder. The recent jump in renter cost burdens has in fact been most pronounced among middle-income renters.
One key factor driving this trend has been a constrained supply of new homes, particularly modestly-priced homes and apartments, which has put upward pressure on both home prices and rents. Climbing interest rates further limited the supply of new single-family homes, but over the last decade multiple factors have been behind this lack of supply, including regulatory barriers to new development, rising costs of materials, and a lack of labor. Efforts to address these barriers to expand the supply of homes are needed to help improve affordability.
But the most severe affordability challenges continue to be concentrated among the nation’s lowest-income households, who are outside of the reach of the private market under the best of circumstances and so in need of greater public subsidies to close the gap between what they can afford and the cost of decent housing.
However, housing affordability is not the only housing challenge we face as a country. Housing policy has an important role to play in responding to the economic trajectories of neighborhoods, including where residents are at risk of displacement and communities that are suffering from disinvestment, where housing investments can be an important part of a revitalization strategy.
Housing policies and supports also need to be attuned to our rapidly aging population, which presents a unique set of housing concerns. Finally, to maintain the quality of older, modest homes, to reduce energy consumption to meet our goals for carbon reduction, and to address the growing impact of severe weather events on homes, our nation’s aging housing stock itself needs investment.
These are a broad—and perhaps daunting—set of challenges for the Senate to consider as it sets its agenda. But having a good quality, affordable, and secure home in a thriving community is foundational for a healthy and productive life for every person in America. Addressing our housing challenges will take a substantial commitment from the public, private, and non-profit sectors. But doing so would pay dividends for all of us. The opening remarks by Chairman Sherrod Brown of Ohio and Ranking Member Tim Scott of South Carolina both reflected a spirit of being open to work together on the nation’s housing challenges. Given the importance of these issues I certainly hope they are able to find common ground in crafting solutions.