Each year, the Joint Center for Housing Studies at Harvard University produces a comprehensive overview of the state of the nation’s housing, including affordability and availability of homeowner and rental units. This year’s report is a sober read, particularly for minority and lower income households.
The homeownership rate of 64.5 percent is the lowest homeownership rate since 1993. Rates for minorities remain 25 percentage points lower than rates for whites. The Great Recession and financial crisis wiped out gains in homeownership due to high levels of foreclosures.
During the economic recovery, two factors impeding increases in the homeownership rate are stagnant incomes and restrictions in credit availability. In 2013, the median household income was $51,900, which was 8 percent below the 2007 level and equivalent to the 1995 level. At the same time, credit availability remains restricted. According to the Urban Institute, home purchase loans for borrowers with credit scores of 660 to 720 dropped 37 percent from 2001 through 2013 compared with a 9 percent decrease for borrowers with higher scores. While not pristine, credit scores in the range of 660 to 720 are usually associated with prime loans at market interest rates. In addition, the growth rate of home purchase loans in predominantly minority neighborhoods was half that in white neighborhoods from 2012 to 2013.
The decrease in homeownership has been accompanied by a boom in renters. The decade from 2004 through 2014 marks the fastest in the growth of renters since the 1980s. The national vacancy rate has dropped to 7.6 percent, the lowest level in 20 years. As a result of the surge in demand for rental housing, rents have increased and so have cost burdens (spending more than 30 percent of income on renting). Almost half of all renters in the nation have cost burdens! An incredible 80 percent of households with incomes at or below the federal minimum wage face housing cost burdens! Twenty six percent of African-American and 23 percent of Hispanic households have cost burdens compared with just 14 percent of white households.
Low income and minority communities remain hard hit. The Joint Center for Housing documents that in the communities where housing prices are 35 percent lower than before the Great Recession, minorities are the majority of households and the median poverty rate is 19 percent. In addition, negative equity (the outstanding mortgage amount exceeds equity gains) plagues minority and lower income neighborhoods. In the 10 percent of zip codes with the highest rates of negative equity, minorities made up 51 percent of the population and the income levels were low- and moderate-income.
What can be done to alleviate cost burdens and racial inequalities in homeownership and equity gains? The Joint Center for Housing does not provide a comprehensive menu of policy recommendations but does offer some hints. For very low-income and low-income renters, federal housing vouchers need to increase in availability. But despite higher federal budgets for vouchers between FY 2005 and FY 2015, the increased funding was offset by higher rents, meaning that the program did not serve more renters. In response, the District of Columbia has added more vouchers to its own local voucher program, though the same challenges exist in regards to higher rents.
At the same time, funding for the Federal HOME program that funds housing construction and rehabilitation of affordable housing (homeownership and rental) has been cut by an incredible 62 percent during FY 2005 and FY 2015. HOME funding is channeled to local agencies like the District’s Department of Housing and Community Development (DHCD) and is used to support housing developments by Manna and other nonprofits.
On the lending front, Freddie Mac and Fannie Mae (which buy loans from lenders and thus help lenders make more loans) created downpayment programs allowing for 3 percent downpayments. Likewise, the Federal Housing Administration (FHA) reduced upfront mortgage insurance on loans it insures, which should also increase the availability of low downpayment loans that clients of Manna use. Yet, it is still too early to determine the impact of these reforms.
As discussed in previous columns, community groups should use the Community Reinvestment Act (CRA) to work with and motivate lenders to make more loans and investments in affordable housing. The District of Columbia’s Responsible Banking Ordinance (RBO) can also motivate lenders to increase their financing of affordable housing once the RBO is implemented.
The state of the nation’s housing is indeed subpar for the populations that Manna serves. But we know what works: responsible lending combined with subsidies, some of which can be repaid and recycled. The Dodd Frank Wall Street Reform and Consumer Protection Act required the Consumer Financial Protection Bureau (CFPB) to promulgate anti-predatory and responsible lending standards. This step has been taken. Now we must pressure the federal government to reverse the decline in subsidies for housing. And we must work with lenders to increase their responsible lending.
Now some may complain that subsidies are not spent effectively and encourage dependence. We have enough experience to demonstrate that carefully administrated programs avoid the pitfalls that can be associated with subsidies. And the alternatives are worse: continued inequalities and stagnant economic recovery. We all sink or swim together. Continued economic depression in growing minority communities drags down the nation as a whole.
Josh Silver is the Development Manager at Manna, Inc. Prior to his time at Manna, Josh served as Vice President of Research & Policy at NCRC. Josh is an avid District sports fan and loves spending time with his daughter.