According to the latest “State of the Nation” housing report, the capital “H”, capital “R” Housing Recovery is finally in full nationwide swing. So much so that the housing market is once again providing “an engine of growth” for the entire U.S. economy.
The main fuel for this growth continues to be high demand and higher pricing across the rental market. Other common indicators like home pricing and sales numbers and new construction of single family homes are also on the rise.
Perhaps the best news comes in the form of income growth, which has finally begun to trend upwards after a long slow decline. Even more promising, specifically among the millions of millennials who are next in line to form households and thus grow the housing market, income growth was actually up.
However, the national housing market overall is still being weighed down by several obstacles. Rising rents have a long term effect on the market. They force families to spend inordinate percentages of their income on renting properties, prolonging or even stopping entirely their chance at homeownership. To make matters worse, income inequality and poverty numbers continue to swell.
In 2015, national homeownership rates hit a dubious low point of just 63.7 percent, representing a full decade of downtrend. There isn’t a single indicator we can point to for this decline, but experts believe it is a result of tight mortgage credit, a limited supply of homes and falling or flat incomes.
Locally in Los Angeles and throughout most of California, you’d be remiss to not add record high home prices to that list. Nationally, despite rebounding home prices helping underwater owners, there is a still an additionally worrisome backlog of foreclosures.
Perhaps the most concerning numbers are revealed by looking deeper into where that positive “income growth” is concentrated. Households earning under $25,000 accounted for almost half (45 percent) of the net income growth in US households over the last decade. This raises the question of whether these below-the-poverty-line households will ever be able to afford a home anywhere, even in distressed markets.
On the opposite side of the housing economy, rental property owners and builders are experiencing unprecedented demand. The desire for rental properties is sharply up across all age groups, income levels, and household types. Meanwhile, vacancy rates are down, pricing is up and multifamily construction is booming.
So, isn’t that good news? Only if you’re on the commercial side. Due to lack of incentive, virtually all of these newly constructed rentals are being built for exclusively for the high end market. Rents on most properties, but especially newly constructed ones, are well out of reach of the typical renter making $35,000 a year. In fact two years ago, the number of cost-burdened renters hit 21.3 million in 2014. And we can only assume their numbers have increased since then.
The standard rate used to determine rental affordability is a rent-to-income ratio of thirty percent. But more than half of these cost-burdened renters, a whopping 11.4 million, are forced to pay more at least half of their incomes for housing. This is easily a record high. And this isn’t just a problem for poverty and average income families, moderate and middle-income households in the $45,000-$75,000 range are spending a minimum of 30 percent of their income on rent.
Unfortunately, federal programs designed to ease some of these housing burdens for low-income households just aren’t working. Federal assistance is only used by a quarter of those who qualify. That means nearly 14 million households are left to find housing on the private market where they are forced to settle for poor-quality housing. This settling and lack of federal assistance has long term effects beyond living conditions, as other needs fall to the wayside, like basic nutrition, health, and safety—to pay for housing.
The report takes a necessarily strong stance on the federal response to the current housing affordability crisis. This has left governments at the state and local level struggling to pick up the slack. Rental assistance programs and incentives to construct affordable housing are severely lacking in most local markets.
Let’s close with a call to arms quote taken from the report: “Policymakers at all levels of government need to take stock of what can and should be done to expand access to good-quality, affordable housing that is so central to the current well-being and potential contribution of each and every individual.”
If you’re interested in buying or selling a Luxury Home in Los Angeles, please contact us now at 323-829-8811 or email Susan Andrews at susan@luxurylahomes.com.
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