The continuing economic recovery has improved housing affordability for low- and moderate-income working households, but housing costs are still a significant burden, especially to renters, according to a new report released today by the Center for Housing Policy, the research division of the National Housing Conference. Housing Landscape 2014 finds that after peaking at 23.7 percent in 2011, the share of working households with severe housing cost burdens fell in 2012 to 22.1 percent. Renters are much more likely to be severely cost burdened—25.4 percent of working renters spent more than half of household income on housing costs, compared to 18.6 percent of working homeowners.
Most of the affordability improvements between 2009 and 2012 were among homeowners who benefitted from falling housing costs, as many were able to modify or refinance their mortgages at lower interest rates or buy homes at low prices.
The widespread affordability challenges have implications for the country’s economy as well as for the welfare of individual households. “Working households who spend half or more of their income on housing costs have difficulty keeping up with other essential expenses, like food, healthcare, and transportation,” says Dr. Lisa Sturtevant, Director of the Center. “Spending on non-essentials will also go down when households spend a disproportionate share of their income on housing. Lower household spending is a drag on the slowly recovering economy.”
Working households are defined in the report as households whose members work a total of at least 20 hours per week on average, and where household income does not exceed 120 percent of the area median.
Widespread improvements mask regional challenges, struggle of lower income workers
Between 2009 and 2012, housing affordability improved in 13 states, mostly in the Midwest and West where in many regions, the for-sale market has not yet fully rebounded and owner costs continued to fall. However, in New York State, the share of working households with severe housing cost burdens actually increased between 2009 and 2012, and in 36 states (and the District of Columbia) there was no significant improvement, implying that there much of the nation is still recovering from the financial crisis.
While median renter incomes have increased faster than their median housing costs over the past three years, the share of severely cost burdened working renters was still higher in 2012 than at the end of the Great Recession in 2009. While between 2009 and 2012, median housing costs for working renters rose 3.9 percent and median incomes rose 5.1 percent, only in 2012 did the share of severely cost burdened working renters decline for the first time since the end of the recession, from 26.4 percent to 25.4 percent.
“The increase in renter incomes is certainly positive, but we don’t know what the future will bring,” says Janet Viveiros, Center for Housing Policy research associate and lead author on the report. “Without an increase in the number of available rental units over the next few years, particularly where demand for rental housing is high, rents will continue to increase. If incomes stagnate or don’t match the increase in rents, we could see even more working renters with severe housing challenges. It is important to remember that a quarter of all working renters are still severely cost burdened.”
Housing Landscape 2014 also finds that the lowest income households continue to experience the greatest housing cost burdens. Nearly eight in 10 extremely low-income working households—those earning 30 percent or less of the area median income—are severely cost burdened, and over a third of very low-income working households—those earning 31 to 50 percent of the area median income— face severe housing cost burden.
These figures likely underreport the cost burden experienced by low income households, as underemployed and non-working households, such as those including seniors and persons with disabilities, are not counted in this analysis.
“While the cost burden faced by many renters and homeowners are significant, America’s housing affordability obstacles are not insurmountable,” says Chris Estes, President and CEO of the National Housing Conference. “Preserving federal assistance for the lowest income renters, protecting and expanding housing production programs like the Low-Income Housing Tax Credit and the National Housing Trust Fund, and ensuring that low-and moderate-income first-time homebuyers have access to affordable, safe mortgages are clear ways to improve stability of families and our economy.”
View the report online here.
