Harvard University’s annual State of the Nation’s Housing report, sponsored by Habitat for Humanity, provides key insights into the U.S. housing market’s impact on renters and homebuyers. The 2022 edition yields four major takeaways for Habitat’s work and the communities we serve:
1. Soaring housing costs led to a substantial rise in housing cost burdens for the first time in 10 years.
In 2020, 30% of all households had “unaffordable” rent or mortgage payments, defined as exceeding 30% of monthly household income. This is up 1.5 percentage points from 2019. More than 1 in 7 households paid over half of their income on housing. Cost burdens rose most for those earning between US$30,000 and US$45,000, an increase of 4.2 percentage points, and for Black households, up 2.4 percentage points.
With home prices rising another 20.6% from March 2021 to March 2022 and rents jumping 12%, forthcoming data may show that unaffordability worsened even further in the past two years.
2. Record housing shortages are a fundamental driver of our affordability challenges.
Years of underbuilding have led to an all-time shortage of for-sale homes as well as too few affordable rentals. The undersupply of housing continued to worsen during the pandemic as more millennials than expected formed new households, and construction failed to keep up with new housing demand. The U.S. now has a deficit of 3.8 million homes, with the greatest supply shortages at low-income price points.
Although housing construction surged in 2021 and 2022, the backlog remains large enough that it could take a decade of record-level homebuilding to meaningfully increase affordability, even considering mitigating factors like rising interest rates. Part of the challenge is that most new homes are being priced at the upper end of the market.
Furthermore, investors are buying up a record share of homes – especially homes in the bottom third of the market – and flipping them for a significant profit or renting them. The overall share of investor purchases was 28% in early 2022 and highest in markets like Atlanta (41%), San Jose (38%), Phoenix (36%) and Los Angeles (34%). The overall housing shortage creates an urgent need for wider use of low-cost housing typologies and investment in affordable homebuilders like Habitat that can expand the supply of affordable homes for modest-income households.
3. Some progress was made on homeownership, but major challenges lie ahead.
The homeownership rate slightly increased between 2020 and 2022, as more younger households purchased homes. Though the Black homeownership rate rose 0.6 percentage points to reach 45.3%, the homeownership gap between Black and white households remains at 28.7 percentage points, the largest disparity for any racial or ethnic group. Rising interest rates will challenge future efforts to close the gap and will pose major affordability hurdles for low-income homebuyers more broadly. To help illustrate this, the 2 percentage point increase in mortgage interest rates between December 2021 and April 2022 had the same effect on mortgage costs as increasing home prices by 27% or increasing the monthly mortgage payment needed to buy a median-priced home by more than US$600. The report’s authors estimate that the combination of rising prices and spiking interest rates has effectively priced out 4 million renter households that previously could afford a home.
4. Zoning reforms and new housing investments will be important solutions.
Housing supply is severely constrained by land-use restrictions that too often increase the cost of home building and prevent needed homes from being built. To address our housing shortage, a critical effort should include improving local zoning codes to accommodate a greater diversity of housing types and enable supply to meet demand. Local and state innovations in “gentle density” that enable construction of small-scale housing types – like duplexes, triplexes and accessory dwelling units – may help point the way.
Harvard’s report also shows the need for investments to shore up the safety and resiliency of existing homes: fortifying them in the face of extreme weather, addressing unsafe conditions, increasing energy efficiency and adding basic accessibility features to enable our growing population of older adults to safely age in place.
Expanding financial support and incentives for builders of low-cost, affordable homes is another critical solution for addressing supply shortages where needs are greatest, as well as reducing homeownership barriers for lower-income households and especially Black homebuyers. More states and localities are establishing housing trust funds to help in this regard. Others should follow suit. At the federal level, the bipartisan proposal for a Neighborhood Homes tax credit is a promising example of legislation that would further expand affordable homeownership supply, particularly in disinvested communities.
Lastly, down payment assistance for “first generation homebuyers” is singled out by the report’s authors as offering great promise for further closing the gap in homeownership for households of color. A growing number of programs are providing down payment assistance to low-wealth homebuyers whose families have never owned a home. Proliferation of such programs at the local, state and federal levels would particularly help close the Black homeownership gap and enable many more renters to attain homeownership.
Many of these reforms align closely with those we are pursuing through Habitat’s Cost of Home campaign. This five-year campaign aims to improve affordability for 10 million people across the housing continuum through coordinated policy advocacy at all levels of government. Read more about our policy platform, and learn how you can get involved.