[User] CHANGES IN RESIDENTIAL MOBILITY Early in the lockdown, most households chose to stay put. Renewals of rental leases thus hit record highs in April 2020, while existing home sales were down 27 percent in May from a year earlier. As the months wore on, however, the pace of residential moves picked up. Historically low mortgage interest rates encouraged a spate of homebuying, lifting existing home sales by more than 20 percent year over year from September 2020 through January 2021. A growing num ber of urban renters—particularly those with higher incomes—also moved out of apartments where they were paying a premium for prox imity to job centers and other amenities. Many of these households either bought homes or relocated to rentals in the suburbs, but others simply moved to nearby apartments that were offering rent conces sions or at least lower costs. Indeed, RealPage data indicate that renter retention rates in urban areas fell much more than rental occupancy rates, implying that many households either traded up to higher-quali ty apartments or sought out lower-rent units within the city. With the reopening of businesses, restaurants, entertainment venues, demand for rental housing in prime urban areas started to revive in early 2021, giving another boost to residential mobility. As pandemic- related restrictions continue to ease and vaccination rates increase, more homeowners will become comfortable putting their homes on the market and more potential buyers will consider relocating. Many conditions that encourage homebuying are already in place, including low interest rates, a growing number of households at the prime ages for first-time homeownership, changing needs for living space, and increased ability to work from home. However, the persistent shortage of homes for sale is a significant constraint on purchases and there fore on overall residential mobility rates. At the same time, though, soaring job losses left millions of other households in dire straits. The US lost 22 million jobs between February and April 2020 when employment in food services and in the leisure and hospitality industries dropped by nearly half. The need for more space to work comfortably from home was yet another impetus to move. In 2019, the American Community Survey indicated that just 5.7 percent of the labor force worked from home full time. In May 2020, however, the Bureau of Labor Statistics reported that the share working from home because of the pan demic stood at 35.4 percent. Although the total share working from home receded to 18.3 percent by April 2021, large portions of certain groups continued to work remotely, including over a third of work ers with college degrees and nearly half of workers in business and financial operations. Even lowest-income households that own homes are vulnerable to job losses because much of their wealth is tied up in home equity— an asset that is difficult to access quickly and without cost. Indeed, while homeowners in the bottom income quartile had a median net wealth of their median cash savings amounted to just $1,500. One in three of these homeowners had less than $500 in cash. THE IMPENDING DRAG OF SLOWER POPULATION GROWTH New Census Bureau estimates indicate that US population growth slowed again last year, dipping to 0.35 percent from July 2019 to July 2020. The addition of just 1.15 million people was about half the 2.37 million originally projected. The unexpected weakness of population growth reflects a combination of factors, including higher-than-predicted death rates and lower-than-predicted birth rates among the resident population, as well as the more than 50 percent drop in international immigration from 2016 to 2020. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G THE OUTLOOK Despite the unprecedented economic and social disruption caused by the pandemic, the rebound in headship rates among the millennial generation should prop up household growth in the near term even as overall population growth slows.

[Assistant] The aging of this large generation into their 30s will likely increase demand for single-family homes in suburban and exurban areas. If working at home full time becomes common practice post-pandemic, this change could also reinforce the shift in housing demand away from expensive urban locations.


[User] to the count, with drug overdoses reaching a record high in May 2020. Meanwhile, the US fertility rate declined 4 percent last year, resulting in the fewest births since 1979. The Brookings Institution estimates that the number of births in 2021 will also be below normal due to the pandemic. Moreover, the CDC reduced the estimated life expectancy for those born between 2019 and the first half of 2020 by one full year. The halt in immigration in April 2020 also pulled down overall population growth, reducing the number of net new immigrants to for the year. The size of this decline is significant because immigrants account for such a large share of both popula tion growth and household growth. Indeed, foreign-born residents contributed about a third of the nation’s population growth in 2010–2019, along with 40 percent of household growth. Immigration is particularly critical to sustaining population growth in large cities and stabilizing the populations in rural areas. For example, the population of New York City would have declined by more than a quarter-million between 2010 and 2019, but instead grew by with the arrival of nearly international immigrants. Similarly, in rural counties with declining populations, gains from immigration over the decade have stemmed even greater losses.

[Assistant] If international immigration remains as constrained as it has been since 2017, population losses across the country will increase in scale and scope, not only dampening household growth but also destabilizing local economies.


[User] So far, though, household growth measures do not reflect the impacts of slowing population growth for several reasons. First of all, the overall aging of the population continues to have a large positive impact on household growth because the likelihood of heading a household increases with age. Rising headship rates among younger adults are also giving a large and growing boost to household growth. Moreover, much of the slowdown in resident population growth is due to lower birth rates and fewer children under age 18—cohorts that are too young to form households and therefore not affecting current growth rates. And finally, since the majority of immigrants do not immediately form their own house holds upon arriving in this country, the drag on household growth from lower immigration only becomes apparent over time. Given rapidly rising home prices and the economic challenges facing many low- and moderate-income households during the pandemic, the households able to buy homes last year generally had relatively high incomes. According to NAR’s Profile of Home Buyers and Sellers, the median income of households purchasing homes between April and June 2020 (was well above that of households pur chasing homes from July 2019 and March 2020 ($94,400). The homes themselves were also substantially more expensive, with a median price of compared with . Indeed, almost a quarter (23 percent) of the households that bought homes between April 2020 and June 2020 paid or more. Low-income homeowners were also more apt to be in arrears. In fact, the share of homeowners making less than $25,000 that were behind on their payments actually increased from 20 percent in August 2020 to 24 percent in the first quarter of 2021. Meanwhile, 15 percent of homeowners with incomes of $25,000–49,999 were also delinquent, along with 11 percent of homeowners with incomes in the $50,000–74,999 range. In contrast, just 5 percent of homeowners earning at least $75,000 were behind on their mortgages in early 2021. Age of the household head is also a factor, with owners under age 55 twice as likely to be in arrears (11 percent) than older own ers (5 percent). In combination with extremely limited supply, however, low interest rates have also helped to fuel the rapid climb in home prices. NAR reports that the median sales price of homes jumped 28 percent from in December 2016 to in December 2020. According to Black Knight, 7.1 million homeowners (14 percent of all mortgage holders) entered into forbearance during the pandemic. Along with favorable interest rates, rising home prices encouraged many owners to tap their growing equity. According to Freddie Mac, homeowners took the opportunity to cash out $48.0 billion in net home equity in the fourth quarter of 2020, a substantial increase from $34.3 billion a year earlier but still well short of the $108.1 bil lion peak in the second quarter of 2006. THE OUTLOOK Both the national homeownership rate and the number of home owner households continued to rise in early 2021, boosted by low interest rates and steady gains in savings among many younger renters. The aging of the population also helped by lifting the num ber of households in age groups with traditionally higher home ownership rates. Today’s strong demand for homeownership is thus J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y 25 Millions of renter households were still behind on their housing payments in the first quarter of 2021. Still, rental demand in prime urban areas was already recovering from a jump in vacancy rates earlier in the pandemic. Multifamily housing starts also bounced back from the second-quarter slowdown. But returns to rental property owners took a hit from increases in vacancy rates and operating costs, and mom-and-pop landlords were feeling the pinch of lower rent collections. Despite the recent growth in new multifamily construction, much of the nation’s rental stock is older and in need of maintenance and repairs.

[Assistant] The Household Pulse Surveys suggest that the shortfalls for own ers of smaller properties will continue, with 18 percent of renters of single-family homes and 17 percent of renters in buildings with 2–4 units reporting they were behind on their payments in the first quarter of 2021.


[User] T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G DIVERGING TRENDS IN RENTAL SUBMARKETS Much of the overall increase in vacancy rates reflects conditions in prime urban markets, particularly at the high end. Vacancy rates in other urban markets rose more modestly, from 6.0 percent in the first quarter of 2020 to 6.4 percent in the first quarter of 2021. Meanwhile, rental vacancies in suburban areas fell. Following four consecutive quarters of increases, the vacancy rate in prime sub urban submarkets declined from 7.2 percent in early 2020 to 6.0 percent in early 2021. Rates in suburban markets outside of prime areas dipped as well, from 6.8 percent to 6.3 percent. The tightening of suburban markets may reflect a move of some urban renters to less expensive locations after the pandemic forced many commut ers to work from home. Trends in rental demand also varied by quality segment. According to data, vacancy rates in higher-quality (4 & 5 star) apartments soared to 10.5 percent in the fourth quarter of 2020, before retreating to 9.9 percent in early 2021. In contrast, the market for lower-quality (1 & 2 star) apartments remained especially tight, with a vacancy rate of just 5.2 percent in the first quarter of 2021. The vacancy rate for moderate-quality (3 star) apartments was nearly as low at 5.6 percent. At the metro level, first-quarter 2021 vacancy rates were up year over year in about a third (48) of the 150 markets tracked by RealPage. The sharpest increases were primarily in high-cost mar kets such as San Francisco (up 3.0 percentage points), San Jose (up Many of the states with the smallest shares of renters behind on hous ing payments were in the West and Upper Midwest, where housing cost burden rates are relatively low and the local economies are less dependent on service industries. The share of renters behind on rent was just 10 percent in Idaho and under 12 percent in Montana, North Dakota, and Utah. MODERATION IN RENTAL DEMAND AMID UPTURN IN SUPPLY The pandemic came on the heels of a nationwide slowdown in renter household growth. After increasing by nearly per year from 2004 to 2016, the number of renter households has since remained essentially flat. Indeed, the latest Housing Vacancy Survey put the total number of renter households at 43.4 million in the first quarter of 2021, just shy of the 43.5 million recorded in 2016. Completions also slowed briefly in the second quarter of 2020 but recovered quickly, climbing to units for the year—the highest annual total since 1989. Completions of professionally managed apartment units also rose throughout 2020, climbing from units at an annual rate in the first quarter to in the fourth quarter. The pace of com pletions picked up even further in the first three months of 2021, increasing to a unit annual rate on average. As a result, the national vacancy rate for profes sionally managed multifamily rentals increased from 6.7 percent in early 2020 to 6.9 percent in early 2021. J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y 27 which slowed during the pandemic but remained positive through 2020—accelerated from 1.5 percent in the fourth quarter to 3.0 per cent in the first quarter of this year. Rent growth for lower-quality apartments was essentially flat, edging up from 1.7 percent in the fourth quarter to 1.8 percent in the first quarter of 2021. RENTAL PROPERTY PRICES HOLDING UP Despite rising vacancy rates and slowing rent growth, apartment property prices were up a relatively strong 7.1 percent year over year in March 2021, according to Real Capital Analytics. Still, the increase was substantially smaller than the 10.2 percent gain a year earlier. At the same time, vacancy rates fell in 101 metros, with especially large declines in Riverside (down 1.9 percentage points) and Virginia Beach (down 1.3 percentage points). SLOWDOWN IN RENT GROWTH With vacancy rates moderating, rents followed suit with only mod est gains in early 2021. The annual change in the Consumer Price Index for rent of primary residence—the broadest and most stable measure of rents—dropped from a high of 3.8 percent in March 2020 to just 2.5 percent in April 2021. This was the smallest annual increase in any month since 2012, although still substantially larger than the 1.2 percent rise in prices for all other items. Rents in the higher-quality segment started to rebound as well, recovering from a 1.9 percent year-over-year decline in the fourth quarter of 2020 to a 0.8 percent gain in the first quarter of 2021. At the same time, rent increases for moderate-quality apartments— Although overall mortgage debt remained on the increase, the pace of growth slowed. Multifamily mortgage originations in the first quarter of 2021 were 5 percent below the year-earlier level, with lower transaction volumes more than offsetting the strong demand for refinancing. data indicate that year-over-year growth in transaction volumes in the professionally managed market sank from a 7.5 percent increase in the first quarter of 2020 to a 71.6 percent drop in the second quarter. By the first quarter of 2021, year-over-year transaction volumes were recovering but still down 37.5 percent. Lower returns, in combination with rising property prices, may have dampened investor interest in multifamily properties. Indeed, ris ing vacancy rates, declining incomes, and increased operating costs pushed rental property returns deeply into negative territory last year.

[Assistant] The National Council of Real Estate Investment Fiduciaries reports that annualized declines in net operating incomes acceler ated from 1.5 percent in the second quarter to 10.3 percent in the third and to 17.2 percent in the fourth—the largest drop since 1987.


[User] T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 2 2 Rents for single-family homes rose even faster than those for apartments, pushed up by increasing demand for more living space among households able to work remotely. According to CoreLogic data, single-family rents nationally rose 14 percent in March 2022, the 12th consecutive month of record-high growth. The largest year-over-year increases were in Miami (39 percent) and Cape Coral (28 percent), as well as six other Florida metros. Other Sunbelt metros where single-family rents rose sharply include Phoenix (18 percent) and San Diego (17 percent). Although leveling off from the record surge in 2021, both home prices and rents are still rising because of the severe constraints on supply. Indeed, the inventory of existing homes for sale set a new low of units in January 2022 before edging up to 1.0 million units in April, still down 10 percent from the year-earlier level. Rental vacancy rates in the professionally managed apartment stock also reached an all-time low of 4.8 percent in the third quarter of 2021 and held at just 5.0 percent in the first quarter of 2022. But now with the Federal Reserve in a battle to curb runaway inflation, rising interest rates will likely slow the growth of households along with that of the economy. Even so, household formation rates among young adults are still low relative to those of previous generations at similar ages, suggesting that there is still pent-up demand among the under-45 age group. Increased immigration may also provide a near-term lift to household growth as borders reopen and immi gration services return. Indeed, the Pew Research Center reports that green card issuances were back to pre-pandemic levels at the end of 2021. Younger buyers accounted for a substantial share of these new homeowners. Homeownership rates among households under age 35 jumped by 1.5 percentage points over this two-year period, to 38.8 percent, while the rate for households aged 35–44 rose 0.8 percentage point, to 62.3 percent. Indeed, measured from their lows in the first quarter of 2016 to the first quarter of 2022, homeownership rates for these two age groups have rebounded by a solid 4.6 percentage points and 3.4 percentage points, respectively, outpacing the increases among all other age groups. As a result, the number of homeowner households under age 45 rose by 2.7 million over the past five years, to a total of 23.3 million, while their share of all homeowners increased to 28 percent. Households of color accounted for half of the total growth in homeowners between early 2016 and early 2022, and even a larger share (55 percent) of the increas es over the past two years. Even so, disparities in home ownership remain large. In early 2022, the homeowner ship rates of Black households stood at just 45.3 per cent—some 28.7 percentage points below the rate for white households. Although the homeownership rate for Hispanic households was somewhat higher at 49.1 percent, the gap was still substantial at 24.9 percentage points. These wide disparities are in part the legacy of centuries of discrimination—in education and labor markets as well as in housing—that has constrained the earning power of households of color. Between high prices and rising interest rates, the home buying frenzy has already started to cool. As of mid- May 2022, the Mortgage Bankers Association’s unad justed Purchase Index shows a 16 percent year-over- year drop in average weekly home purchase mortgage applications. In addition, sales of existing homes were down each month from January to April, bringing the total decline so far in 2022 to 13.6 percent on a seasonally adjusted basis. Given the additional bump in interest rates in May, home sales are likely to slow even further.

[Assistant] PERSISTENT INEQUALITIES IN WEALTH Although making conditions more challenging for first-time buyers, the surge in home prices has been a boon for current homeowners. Federal Reserve data show that, in aggregate, owners’ equity in real estate soared by $4.3 trillion between the fourth quarter of 2020 and the fourth quarter of 2021, to $26.4 trillion. At the same time, the amount of mortgage debt outstand ing rose by only $823 billion, to a total of $11.7 trillion. By CoreLogic’s estimates, the typical US homeowner saw an increase in equity of $55,300, although state-level averages reached as high as .


[User] T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 2 6 prices and rents. Even so, new construction adds supply primarily at the upper end of the market. In just the past two years, the share of new homes that sold for at least increased from a third of all homes to more than half (56 percent). Meanwhile, the typical asking rent for new multifamily units stood at $1,740 per month in 2021, well above the $1,080 afford able to the median renter. THE ONGOING AFFORDABILITY CRISIS Job and income losses early in the pandemic increased the affordability challenges for millions of households already struggling to pay for housing. In 2020, the nationwide share of cost-burdened households pay ing more than 30 percent of their incomes for hous ing stood at 30 percent. Moreover, 14 percent of all households were severely burdened and spent more than half their incomes for shelter. The shares among lower-income households and households of color were also dispro portionately high. These shares reflect the first substantial uptick in national cost-burden rates in 10 years and include large increases for some groups of households. In 2019–2020, the cost-burdened shares were up far more for renters (2.6 percentage points) than for homeowners (1.0 per centage point), and more for Black households (2.4 per centage points) than for white (1.6 percentage points), Asian (0.8 percentage point), and Hispanic households (0.6 percentage point). Although lowest-income house holds continued to have the highest cost-burden rate, the share for households earning between $30,000 and $45,000 increased the most—up 4.2 percentage points in 2019–2020, to 46.4 percent. The spike in inflation has compounded the pressures on these financially stressed households. Overall prices shot up 8.6 percent in March from a year earlier, the steepest rise in 40 years, and only edged down to 8.3 per cent in April. The cost increases were especially large for necessities such as food (up 11 percent), in-home energy (up 16 percent), and gasoline (up 44 percent). Assuming a constant level of consumption, average household spending on these three items alone jumped by $200 per month from April 2021 to April 2022. So far, the federal approach has been largely reactive, providing funds through the FEMA recovery programs and HUD’s CDBG program. However, repeated damage to the housing stock is costly and poses a serious risk to the housing finance system. THE OUTLOOK Assuming that the Federal Reserve can tame runaway inflation without causing a serious downturn, the near- term outlook for housing demand is largely positive. Demographic shifts are favorable, unemployment is low, and wage growth remains strong. Conditions on the supply side are also encouraging, with supply-chain delays diminishing and a record number of homes set for completion in the coming months. 9 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y UNPRECEDENTED RISE IN HOUSING COSTS The imbalance between supply and demand sent home prices up sharply in 2021. As measured by the S&P CoreLogic Case-Shiller index, nominal home prices rose at an unprecedented 20.0 percent annual rate in August—more than three times faster than the 5.8 percent increase a year earlier and the fastest pace in records going back more than 30 years. Even after adjusting for inflation, the year-over-year rate of price appreciation was at an all-time high of 12.7 percent. Unlike the previous runup when loose credit and spec ulative buying fueled a housing bubble, the current home price surge largely reflects years of underbuild ing. In the current market, the number of households with sufficiently high incomes and savings to buy homes far exceeds the for-sale inventory in places Housing markets across the country remain extremely tight. The combination of soaring demand and historically low inventories of available homes pushed both home prices and rents to unprecedented heights in the past year. Although ramping up to its highest level in decades, residential construction is still being held back by supply-chain issues, labor shortages, and regulatory constraints on homebuilding. With interest rates now on the rise, housing markets are headed for a cooldown in 2022 as affordability pressures increase. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G With the spectacular rise in home prices, the median home price-to-income ratio was at an all-time high in 2021. As estimated by Moody’s Analytics, the median sales price for existing homes last year was 5.3 times the median household income—well above the 4.6 ratio in 2020 and a notable increase from the previous peak of 4.9 in 2005. By comparison, price-to-income ratios averaged 3.9 in the 2010s, 4.1 in the 2000s, and just 3.1 in the 1980s. Soaring prices have kept many would-be homeowners in rental housing, contributing to the already strong growth in renter households. In turn, increased compe tition for the limited supply of rentals accelerated the year-over-year rise in typical rents from 0.8 percent in December 2020 to 16.2 percent in December 2021. Such large rent increases make it more difficult for would-be buyers to save for a downpayment, further delaying their transition to homeownership. However, given that home prices have risen even faster than rents, the price- to-rent ratio (typical home value divided by the annual ized typical rent) stood at 14.5 at the end of last year, up from 14.1 a year earlier and just 12.2 in 2015. PRICE GROWTH UP NATIONWIDE Home prices have climbed across the country, with all 100 markets tracked by the FHFA Purchase-Only House Price Index posting year-over-year increases in the first quarter of 2022. In fully 67 of these markets, home price appreciation was at record highs at some point since the start of 2021. Home price-to-income ratios were sky-high in many markets in 2021. Median sales prices outstripped medi an incomes by a factor of 10 or more in four Western metros, including San Jose (12.6), Honolulu (12.5), San Francisco (11.3), and Los Angeles (10.3). At the same time, price-to-income ratios remained below 4.0 in 26 mar kets, with the lowest ratios in McAllen (2.8), Pittsburgh (2.9), Scranton (3.0), Syracuse (3.1), and Wichita (3.1). At the same time, though, the climb in interest rates above the 5.0 percent mark may prevent some home owners with low-rate mortgages from selling, further reducing the for-sale inventory. According to FHFA data, over half of outstanding mortgages in the fourth quarter of 2021 had interest rates below 4.0 percent, including 13 percent with rates below 3.0 percent. Homeowners with such low-rate mortgages may hesi tate to sell if they have to take on new loans at substan tially higher rates. ONGOING RISE IN EXISTING HOME SALES Despite the limited supply of homes and record-high prices, the number of existing homes sold was up again last year. Some 6.1 million homes were sold nationally in 2021, an increase of 8.5 percent from 2020 and the highest level since 2006. Sales of single-family homes rose by 6.8 percent, to 5.4 million, while sales of condos and coops jumped 22.3 percent, to units. Home sales climbed in all four regions, led by 10.2 percent In contrast, sales of new single-family homes fell 6.2 percent last year, to units, with declines across all four regions. The drop was largest in the West (down 10.1 percent), but still significant in the Midwest (down 7.5 percent), South (down 4.4 percent), and Northeast (down 2.7 percent). However, these declines followed a 20.4 percent surge in 2020, leaving new single-family home sales up 12.9 percent in 2021 from 2019. The combination of rising prices and rising interest rates already took a toll on homebuying activity in early 2022. Indeed, the annualized pace of existing home sales fell from 6.5 million units in January to 5.6 million units in April, the lowest rate since June 2020. In addition, the Michigan Surveys of Consumers reported that the share of households that considered it a good time to buy a home stood at just 35 percent in the first quarter of 2022, the lowest reading since the early 1980s. Investors have focused primarily on markets in the South and West. In the fourth quarter of 2021, the high est investor share of home sales was posted in Atlanta (41 percent), followed closely by San Jose (38 percent), Phoenix (36 percent), and Las Vegas (36 percent). The investor share was lowest at 14 percent in several markets in the Northeast, including Albany, Buffalo, Pittsburgh, and Rochester. 13 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y share of existing homes sold for vacation use increased from 5.0 percent in 2019 to 5.5 percent in 2020 and to 6.7 percent in the first four months of 2021. Until then, single-family pro duction in the preceding 13 years had lagged below the 1.0 million unit annual rate averaged since 1980. Multifamily starts increased even faster, surging 21.8 percent to units from already high levels. In fact, more multifamily units were started in 2021 than in any year since 1987. Multifamily construction has now topped units for eight straight years, after hitting that mark only twice in the previous quarter- century. Starts of multifamily units continued to climb in the first four months of 2022 to a seasonally adjusted average annual rate of units. The building boom lifted the number of homes under construction above 1.6 million units in April 2022, up 24 percent from a year earlier and the highest total in records dating back to 1970. Homeowner improvement and repair spending also soared. According to the Joint Center’s Leading Indicator of Remodeling Activity, annual homeowner expenditures jumped by more than 11 percent in the first quarter of 2022, to $391 billion. As a result, residential fixed investment—which includes spending on home improvements, manufactured hous ing, and brokers’ commissions as well as new construc tion—accounted for some 4.7 percent of gross domestic product last year. This is a notable increase from the 3.3 percent average annual share in 2008–2020 and even exceeds the 4.4 percent share averaged since 1970. PERSISTENT BARRIERS TO NEW HOUSING Even with the elevated pace of new construction, sev eral barriers continue to limit how much new housing can be built. In the short term, the price and availability of materials remain key constraints. According to the NAHB/Wells Fargo Housing Market Index, 96 percent of builders surveyed in December 2021 considered the price of materials a significant issue, and 91 percent considered availability a significant issue. Echoing these results, multifamily developers responding to an NMHC COVID Construction Survey in August– September were nearly unanimous in reporting that building material prices had increased and that the lack of some materials had affected their operations. Along with other inflationary pressures, these short ages have led to higher building material costs. The price of inputs to new residential construction (exclud ing capital, labor, and imports) was up 20 percent year over year in February 2022. Although significantly smaller than the 30 percent price jump in midJ O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y this increase was still 7 percentage points larger than the year-over-year increase in February 2021. Although slowing somewhat from their hectic pace in 2021, the prices for lumber and wood products continued to climb at a 20 percent clip early this year. The disruption of global supply chains has prevented builders from finishing homes and delivering them to market on time and on budget. According to data from Zonda for March 2022, more than a third of home builders experienced serious shortages of windows, home doors, and garage doors, while more than a fifth reported serious shortages of HVAC equipment and appliances. As a result, the average time from authori zation to start of a single-family home hit an all-time high of 1.3 months in 2021, while the average time from start to completion was at a 12-year high of 7.2 months. On average, multifamily structures took 2.1 months to start and 15.4 months to complete, on pace with the previous two years but also tied with the all-time high. Limited availability of land and high lot prices also pose significant barriers to housing construction. According to Zonda’s New Home Lot Supply Index, the inventory of single-family lots ready for development fell by 28 percent in the fourth quarter of 2021 from a year earlier and some 44 percent from two years ear lier. In 2021 alone, inventory was down in 29 of the 30 large markets tracked by the index, and lot supply in all 30 markets was already significantly depleted.

[Assistant] THE OUTLOOK Housing markets are likely to remain tight in the near term. However, the steep rise in interest rates has already cooled homebuyer demand somewhat and should give inventories a chance to rebuild and help slow the pace of price growth. With higher interest rates making homeownership even less affordable, though, these changes will likely reinforce the tight conditions in rental markets.


[User] T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G PERSISTENT STRENGTH OF HOUSEHOLD GROWTH Although no reliable annual estimates for 2020 or 2021 are available, the latest Housing Vacancy Survey data indicate that some 3.2 million households were added between the first quarter of 2020 and the first quarter of 2022. This implies average annual growth of 1.6 mil lion households, or just short of the 1.8 million average increases in the preceding two years. By this latest count, the total number of US households stood at 127.6 million in early 2022. The current pace of household growth substantially outstrips the Joint Center’s baseline projection of 1.2 million per year in 2018–2028. Nonetheless, private market measures mirror the unexpected strength of demand shown in the Housing Vacancy Survey data. For example, RealPage reports that the number of occupied apartments in the professionally managed rental segment rose by a record units between the first quarter of 2021 and the first quarter of 2022. This large increase is notable given that this segment accounts for only about 13 percent of the housing stock. Two major demographic trends have contributed to the surge in household growth. Over the decade from 2011 to 2021, the population of 25–34 year olds—the age Household growth was unexpectedly robust over the past two years as millennials aged into the prime household formation years, more than offsetting the drastic slowdown in overall population growth. HISTORIC SLOWDOWN IN POPULATION GROWTH The recent strength of household growth is all the more remarkable given the slowdown in population growth. The number of people living in the United States increased just 0.1 percent in 2021, the slowest pace in records going back to 1900. The overall popula tion grew by less than people, a fraction of the 2.0 million annual average increase from 2011 to 2020. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G International immigration receded to a trickle between 2016 and 2021, driven down first by federal policies dis couraging immigration and then by pandemic condi tions that limited entry into the country. According to the Census Bureau’s Population Estimates Program, net immigration dropped from a recent peak of 1.07 million in 2016 to in 2019, and then by more than half to just in 2021. Given the typical lag between the time when new immi grants arrive in this country and when they form new households, the severe drop in immigration has not yet become a noticeable drag on overall household growth. However, it has already had a significant impact on states that rely on immigrants to buoy population growth. The state experiencing the largest decline was California, where net international immigration plunged from a recent peak of in 2015 to 14,000 in 2021. New York also posted a sharp decrease from 84,000 to 18,000 over this period. Meanwhile, natural population change contributed even less than immigration to population growth in 2021. The number of births had been declining well before the pandemic, notching down from 4.0 million in 2011 to 3.8 million in 2019. At the same time, the annual number of deaths climbed from 2.5 million to 2.8 million, due in part to the aging of the population. After the onset of the pandemic, births fell again to 3.6 million in 2021, while deaths shot up to 3.4 million. As a result, births exceeded deaths by only last year—a small fraction of the difference as recently as 2019 and the 1.5 million difference in 2011. GROWING DIVERSITY OF DEMAND The increasing racial and ethnic diversity of house holds, as well as the aging of the overall popula tion, are reshaping housing demand. According to the new Decennial Census, the US population grew by almost 23 million from 2010 to 2020. People of color accounted for all of the net increase, with the Hispanic population growing by nearly 23 percent, the Asian population by 36 percent, and the Black population by 6 percent. The largest proportional increase was in the number of people identifying as multiracial, which jumped some 127 percent to almost 8 million. Meanwhile, the white population declined by nearly 3 percent over the decade. People of color also drove most of household growth. The latest Housing Vacancy Survey indicates that people of color formed 11.0 million of the 14.5 million households added from Q1 2011 to Q1 2022. The largest absolute increase was among Hispanic householders, up 40 percent to 18.6 million. The number of Black householders also rose by 18 percent to a total of 16.5 million, while the number of multiracial householders grew by 36 percent to 1.7 million. However, the largest proportional gain was among householders identifying as Asian or another race, whose numbers were up 53 percent to 8.1 million.

[Assistant] The increasing diversity of households has several implications for future housing demand. First, there is evidence that people of color are more likely to live in households that include at least three generations. In 2019, 7.6 percent of Hispanic householders lived in mul tigenerational settings, along with 6.9 percent of Asian householders and 5.3 percent of Black householders. By comparison, the share among white householders was just 2.5 percent. As multigenerational households become more common, demand will increase for larger homes with floorplans and features that can accom modate the needs and preferences of both older and younger occupants.


[User] T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Households of color are also more likely to have expe rienced recent income losses. According to Household Pulse Survey data for early percent of Hispanic households reported lost employment income within the previous four weeks, along with 20 percent of Black households, 20 percent of households identifying as another race or multiracial, and 12 percent of Asian households. The share for white households was only 11 percent. CONTINUING TRENDS IN HOUSEHOLD MOBILITY The decades-long slowdown in residential mobility con tinued in 2021. According to Current Population Survey data, only 8.5 percent of US households moved last year, down from 10.7 percent annually on average in 2011– 2020. The decline occurred across all age groups, with the sharpest drops among the age groups most likely to relocate—householders aged 18–24 (from 41.2 percent to 37.0 percent) and aged 25–34 (from 22.7 percent to 19.3 percent). The mobility rate for renter households also fell significantly, from 22.7 percent annually on average in 2011–2020 to 16.8 percent in 2021. A recent Housing Studies article pointed to housing shortages and worsening affordability since the Great Recession as a reason for the sharp decrease in mobil ity rates over the past decade. Current housing market conditions therefore suggest that residential mobility rates will slow even further.

[Assistant] Sharply higher interest rates will likely reduce relocations among the many households that recently bought homes or refinanced, while record-low vacancy rates and rapidly rising rents will likely keep many renters in place. THE OUTLOOK Household growth should remain robust in the short term. The sheer size of the millennial generation will continue to fuel increases as this large cohort moves through the age range of 24–34 when household forma tion rates are highest. Many other adults who fared well financially during the pandemic are also in a posi tion to form independent households.


[User] In the longer term, housing demand is set to decline dramatically with the slowdown in population growth and the changing age structure of the population. Over the next decade, millennials will move out of the prime household formation years and be replaced by the small er Gen Z generation in this age group. At the same time, the oldest baby boomers will be reaching their 80s, the age when mortality rates start to climb sharply. These trends will weaken the pace of household formations and ultimately curb the growth of housing demand. With more younger households financially ready to purchase homes, the share of first-time buyers increased last year. According to NAR’s 2021 Profile of Home Buyers and Sellers report, first-time buyers accounted for 34 percent of all purchases between July 2020 and July 2021, up from 31 percent in the preced ing year and the highest share since 2017. However, trends in more recent mortgage lending data are mixed. In either case, GROWING PRESSURE ON AFFORDABILITY The average rate on a 30-year mortgage hit a record low of 2.68 percent in December 2020 and remained under 3.00 percent through most of 2021. Even though home prices continued to climb, these rock-bottom rates helped many first-time buyers qualify for mortgages while also providing current owners a chance to reduce their monthly mortgage payments through refinancing. In turn, the substantial increase in monthly payments pushed up the amount of income necessary to qualify for a mortgage. In April 2021, a household had to earn at least $79,600 a year to afford payments on the median- priced home of . One year later, the income requirement stood at . According to the latest American Community Survey data, this cost increase meant that roughly 4 million renter households earning between $79,600 and that could have bought a median-priced home last year could no longer afford that home in April 2022. These amounts far exceed the typical renter’s sav ings. At last measure in 2019, the Survey of Consumer Finances estimated that the median savings of renter households was just $1,500. Indeed, renters in the top income quintile had only $26,100 in savings, or just under the 7.0 percent of the median sales price that first-time buyers typically put down. Even if home price growth slows, the gap between renter household savings and downpayment costs at current prices will remain a significant obstacle for first-time buyers, leav ing many potential homeowners on the sidelines. STUBBORNLY LARGE RACIAL/ETHNIC DISPARITIES Despite recent modest gains, homeownership gaps by race and ethnicity remain wide. According to the T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Housing Vacancy Survey, the share of Black house holds owning homes was at 45.3 percent in early 2022, up 0.6 percentage point from early 2020—twice the 0.3 percentage increase for white households. But with fully 74.0 percent of white households owning homes, the Black-white gap still stood at 28.7 percentage points. Meanwhile, the homeownership rate among Hispanic households increased by just 0.2 percentage point, to 49.1 percent, slightly widen ing the gap with white households to 24.9 percent age points. UNEQUAL BENEFITS FROM RISING PRICES Surging home prices have given a big lift to the balance sheets of current owners.

[Assistant] The latest Federal Reserve Flow of Funds data show that real aggregate owners’ equity in real estate rose for 39 consecutive quarters, increasing from $10.1 trillion in early 2012 to a new peak of $26.3 trillion at the end of 2021. Meanwhile, real aggregate home mortgage debt remained essentially flat, dipping from $11.9 trillion in 2012 to a low of $11.0 trillion in 2014 before rising to $11.7 trillion at the end of last year.


[User] The low rates for delinquencies and foreclosures so far attest to the effectiveness of federal interventions that helped millions of homeowners weather the economic disruptions brought on by the pandemic. According to Black Knight, of all borrowers that were ever in for bearance between March 2020 and April per cent exited their plans. Among this group, 53 percent were current on their mortgage payments, 29 percent had paid off their loans by refinancing or selling, and only 10 percent remained in delinquency or were in active foreclosure. The Homeowner Assistance Fund (HAF) may provide some relief for homeowners still experiencing financial hardship. Created by the American Rescue Plan Act, this program has nearly $10 billion in funding to help income- eligible homeowners cover their mortgage payments, utility bills, or insurance costs. Recipients may also use the funds to pay down principal or lower the interest rate on their mortgages to ensure long-term affordabil ity. State, territory, and tribal agencies are responsible for establishing programs to administer this aid. According to the National Council of State Housing Agencies, most states had their HAF programs up and running by May 2022, although six (including the District of Columbia) were still in the pilot stage and three only had prelimi nary information on programs available. After a brief dip in 2020, rent growth in the profes sionally managed segment hit a record 11.6 percent at the end of 2021 and remained at that pace in the first quarter of 2022. This was the largest year-over-year increase in two decades and more than three times the 3.2 percent average annual rise in the five years preced ing the pandemic. According to data, asking rents for higher- quality (4- and 5-star) apartments fell the most early in the pandemic but also rebounded the fastest, increas ing at a record 14.0 percent year-over-year rate in the fourth quarter of 2021 and then at a 13.5 percent rate in the first quarter of 2022. The recent pace of growth is more than five times the 2.5 percent annual average in 2015–2019. Rents for moderate-quality (3-star) units were also up by a substantial 12.1 percent in early 2022 from a year earlier, or more than three times their pre- pandemic average of 3.8 percent. Meanwhile, rents for lower-quality (1- and 2-star) units rose 5.9 percent year over year in the first quarter of 2022, well above the 3.5 percent growth rate averaged in 2015–2019. Rental markets across the nation bounced back quickly from the pandemic-induced downturn, with rents rising at a record pace and vacancy rates hitting new lows. Although at a decades-long high, multifamily construction has not kept up with the growth in rental demand even at the upper end of the market. These tight conditions have boosted returns from multifamily properties and in turn sparked a surge in new investment. At the same time, however, job and income losses over the past two years have left many lower-income households and households of color unable to cover their rents and potentially at risk of eviction. 31 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y Rents for single-family homes also surged. CoreLogic reports that single-family rents shot up 12.4 percent year over year in the first quarter of 2022, the fastest pace in records going back to 2004. The increase in February alone of 13.1 percent was also an all-time high. By comparison, year-over-year rent growth for single- family homes averaged just 3.1 percent in 2015–2019. The rapid climb in single-family rents since 2020 in part reflects the jump in demand for more living space after the pandemic forced the closure of offices and schools. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Of the 34 metros where year-over-year rent growth was under 10 percent, most were in the Midwest (15 markets) and Northeast (11 markets). Just 8 were in the South, and none were in the West. Rent growth was lowest but still positive in Midwestern markets that include Champaign-Urbana (1 percent), Youngstown (2 percent), and Fargo, Madison, and Minneapolis (all at 5 percent). In general, lower-cost housing markets posted relatively modest increases in rents. REBOUND IN RENTAL DEMAND Despite the pandemic and recession, renter household growth continued to climb between early 2020 and early 2022. According to the Housing Vacancy Survey, the number of households that rented their housing grew by 1.1 million over this two-year period, to 44.2 mil lion. This implies an average annual increase of about households, significantly exceeding the year- over-year addition of households in the first quarter of 2019. Demand for rental units in the professionally man aged segment bounced back sharply in the past year. RealPage reports that net new leases for profession ally managed apartment properties were up by units in the first quarter of 2022 compared with a year earlier, the largest annual increase in net occupancy in records going back to 2000. VACANCY RATES AT NEW LOWS The resurgence in rental demand left the national vacan cy rate at a record low last year. Housing Vacancy Survey data indicate that the vacancy rate fell in each quarter of 2021, ending the year at 5.6 percent—the lowest quarter 33 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y ly reading since 1984. Although edging up to 5.8 percent in the first quarter of 2022, the vacancy rate remained a full percentage point below the average in 2019. Conditions in the professionally managed stock are especially tight. According to data, the vacan cy rate in this segment hit a record low of 4.8 percent in the third quarter of 2021 and held at just 5.0 per cent in the first quarter of 2022. By comparison, the vacancy rate for professionally managed apartments averaged 6.1 percent annually in the five years pre ceding the pandemic. This latest reading is 0.9 percent age point lower than the pre-pandemic average. Even so, conditions in other urban and suburban areas are even tighter. The rental vacancy rate in other urban neighborhoods stood at just 4.6 percent in early 2022 (0.9 percentage point below the 2015–2019 annual average) while that in suburban markets was at 4.8 percent (a full 1.5 percentage points below the 2015–2019 average). According to RealPage data for 150 markets, the num ber of metros with vacancy rates below 2 percent jumped from just 10 in the first quarter of 2021 to 56 in the first quarter of 2022. At the same time, the number of markets where vacancy rates were falling in early 2022 surged to an astounding 144, up from 101 in early 2021. However, these unusually tight conditions may begin to ease as the large supply of new apartments now under construction becomes available. JUMP IN NEW RENTAL SUPPLY With vacancy rates so low and demand so high, rental housing construction is booming. In 2021, starts of mul tifamily units reached —the highest level since the mid-1980s and 24 percent above the average annual increases in 2015–2019. Of those units, 88 percent were in larger buildings with 20 or more apartments. In addition, fully 94 percent of all multifamily units started last year units) were intended for the rental market. But even at this elevated pace, completions of new rental housing have not caught up with the record- breaking growth in absorptions. In the five years pre ceding the pandemic, supply and demand for profes sionally managed apartments were in much closer balance, with annual completions averaging units and net new leases averaging units. But as RealPage data show, despite completions running at a robust unit annual rate in the first quarter of 2022, the number of occupied apartments was rising at more than twice that pace. It will take a significant increase in housing production for the rental supply to match such strong demand. CONSTRUCTION TARGETED TO THE HIGH END New rental construction has added supply almost exclusively at the upper end of the market. Although helping to meet strong demand from higher-income households, these new units have rents that are gener ally out of reach for low- and moderate-income house holds. According to preliminary data from the Survey of Market Absorption, the median asking rent for newly completed units in 2021 was $1,740, up 24 percent from the median in 2015. Meanwhile, the share of newly completed units renting for less than $1,250 fell from 39 percent in 2015 to 15 percent in 2021, including a drop in the share of units renting for less than $850 from 9 percent to just 2 percent. The central location of new multifamily construction has contributed to high asking rents. According to the NAHB Home Building Geography Index, 41 percent of multifamily permitting between 2016 and 2021 was in core counties of large metro areas, where land prices have risen sharply in recent years. Added amenities have also helped to push up asking rents. For example, the share of newly completed multifamily units built for rent offering in-unit laundry facilities increased from 70 percent in 2010 to 89 percent in 2020. Although the overall share of new rental units with air conditioning only edged up from 93 percent to 95 percent over the past decade, the share in the Northeast increased some 14 percentage points in 2010–2020, to 99 percent. Another factor in high asking rents is the increasing size of new apartments. The share of new multifamily rental units with less than 1,000 square feet declined from 45 percent in 2000 to 37 percent in 2020, while the share with at least 1,400 square feet rose from 9 percent to 12 percent. Even so, the share of newly completed rentals that were studios or one-bedroom units rose from 37 percent to 53 percent, while the share with two bedrooms fell from 47 percent to 39 percent, and that with three or more bedrooms dropped from 15 percent to 8 percent. SURGE IN RENTAL PROPERTY INVESTMENT With vacancy rates at record lows and rent growth at record highs, the National Council of Real Estate Investment Fiduciaries Property Index shows a 24.1 percent jump in returns on investment in multifamily apartment properties in the four quarters ending in early 2022. Much of this strength comes from a rebound in net operating incomes, which were up 23.5 percent over the year—a spectacular comeback from the 17 per cent year-over-year drop in the fourth quarter of 2020 and further declines in the subsequent two quarters. The current pace of growth is more than four times the 5.3 percent average annual increase in 2015–2019. Meanwhile, rental property prices reached a 20-year high in early 2022. Real Capital Analytics data indicate that year-over-year price appreciation hit a record 22.5 per cent in February and only inched down to 22.4 percent in March. The February and March readings were three times the pandemic low of 7.3 percent in September 2020 and more than double the 8.4 percent average monthly increases in 2019. With property prices rising so rapidly, Multifamily loan originations also increased signifi cantly in late 2021. According to the MBA Commercial/ Multifamily Mortgage Bankers Originations Index, originations were up 57 percent year over year in the fourth quarter of 2021, raising multifamily mortgage debt outstanding to $1.8 trillion. At the same time, delinquency rates for multifamily mortgages remained historically low. By the FDIC’s measure, the delinquency rate for loans secured by multifamily properties in late 2021 was double the late 2019 rate but still near historic lows at just 0.25 percent. According to Household Pulse Surveys covering late December through April, one in five renter households said that they had lost income in the preceding four weeks. Although declining from a peak of 19 percent, the share of households behind on rent in early 2022 was still at a concerning 15 percent. The shares of renters in arrears varied widely by state, ranging from a high of 23 per cent in Mississippi, followed by Louisiana, New York, and New Jersey, to a low of just 7 percent in Idaho, fol lowed by Utah, Vermont, and Montana. The longer-term picture is quite different from today’s overheated conditions. Over the next decade, the millennials will be replaced in the prime house hold formation years by a smaller generation, reduc ing the demand for housing among young adults. At the same time, the baby boomers will age into their late 70s, the time of life when mortality rates begin to rise more quickly. And with overall population growth already at historic lows, household growth will ultimately slow as well, dragging down the demand for rental housing. Disproportionately large shares of renters that lost income or were behind on rent have lower incomes or are households of color. Fully 27 percent of renter households earning less than $25,000 said that they had lost income in the previous four weeks, compared with 9 percent of those with incomes of $75,000 or more. Since lower-income households are also more likely to have housing cost burdens and limited savings to cover those income losses, they are also more likely to have fallen behind on rent. Indeed, 21 percent of lower- income renters stated that they were in arrears—more than four times the 5 percent share of households mak ing $75,000 or more. 37 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y THE AFFORDABILITY SQUEEZE Millions of US households are unable to afford their housing. According to the American Community Survey, nearly a third of households spent more than 30 percent of their incomes on housing costs in 2020, including 14 percent that spent more than half of their incomes for shelter. Renters were particularly hard-pressed, with 46 percent at least moderately cost burdened and 24 percent severely burdened. Just over a fifth of homeowners also had cost burdens, including 9 percent with severe burdens. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G households that moved because asking rents and home prices were climbing even more rapidly. Historically high inflation in the prices for all other goods—includ ing energy (up 16 percent), gasoline (up 44 percent), and food (up 11 percent)—has added to the financial strain on household budgets. The surge in energy prices has hit lower-income households especially hard, given that they typically spend about 12 percent of their limited incomes on monthly utility costs. HOUSING INSTABILITY ON THE RISE With government protections now ended, eviction filings have picked up pace. In fact, evictions were increasing even before the Supreme Court struck down the federal moratorium in August 2021 and continued to climb through December as state-level measures expired and emergency rental assistance ran out in some locations. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Just over $46 billion in emergency rental assistance was targeted to households that lost income during the pandemic. As of March 2022, 5.3 million payments— covering current and back rents, plus utility expens es—had been made on behalf of these hard-hit rent ers. According to the National Low Income Housing Coalition, states and localities still had about $20.4 billion left to spend in early May 2022.

[Assistant] Meanwhile, ARPA allocated nearly $10 billion for the Homeowner Assistance Fund to help owners experi encing financial hardship pay their mortgages, home owner’s insurance, and utilities. As of early June states and Washington, DC, were serving homeowners in need, while the remaining states were expected to open their programs soon.


[User] ARPA also includes ongoing support for affordable housing and homelessness services through the Coronavirus State and Local Fiscal Recovery Funds pro gram. The National Council of State Housing Agencies estimates that 24 states applied these allocations to affordable housing initiatives, utility payment assis tance, or grants for struggling tenants and landlords, with outlays totaling more than $8 billion by April 2022. At the local level, estimates from the Brookings Institution indicate that some $2.3 billion of ARPA funds had gone toward housing-related activities as of February, including $867 million for projects to expand the affordable supply and $1.1 billion for housing and services for people experiencing homelessness. LONGER-TERM ASSISTANCE NEEDS The stopgap measures put in place over the past two years underscore the need for substantial, consistent investment in affordable rental housing. At last count in 2019, some 7.8 million unassisted households with very low incomes had severe cost burdens, lived in severely inadequate housing, or both. Moreover, just one out of every four income-eligible renter households actually receives federal assistance. According to the Center on Budget and Policy Priorities, there were house holds on waiting lists at just 44 housing agencies in 2021. One drawback of both the Section 8 and LIHTC pro grams is that the units they support can revert to market rate once their affordability periods expire. The Public and Affordable Housing Research Corporation and NLIHC estimate that project-based Section 8 and LIHTC units could come to the end of their affordability periods by 2025. The dwindling stock of rural USDA Section 515 housing is also at severe risk of loss. According to the Housing Assistance Council, an average of 2,000 USDA-subsidized units will exit the program annually in 2022–2027, and the affordability requirements on all units will expire by 2050. The Housing Choice Voucher program provides its 2.3 million recipients greater options about where they live. However, the effectiveness of vouchers depends on the participation of private landlords and the avail ability of suitable housing that meets HUD’s payment standards. The regulatory requirements of the program can be onerous for landlords, who are under no obliga tion to accept vouchers in most places. Indeed, a 2018 Urban Institute study in five cities found that 59 per cent of tests simulating rental inquiries from voucher holders were denied.

[Assistant] With limited federal funds available and millions of renters with unmet housing needs, state and local gov ernments increasingly use bonds to fund the produc tion and preservation of affordable units. In 2020 alone, state agencies issued more than $17.2 billion in multi family private activity bonds, surpassing the previous year’s record high of $16.4 billion. In addition, more than 820 state and local housing trust funds generate about $3 billion annually for affordable housing through developer impact fees, real estate transfer taxes, sales taxes, property taxes, and general funds.


[User] EXPANDING THE MARKET-RATE SUPPLY The national housing shortage is not just in affordable homes. According to Freddie Mac estimates, the short fall in market-rate housing both for sale and for rent amounts to some 3.8 million units. Although the federal government has limited power to expand the residential stock, the Biden Administration’s new Housing Supply Action Plan would advance this goal by giving commu nities higher scores on competitive grants if they reduce exclusionary zoning and other regulations that severely restrict housing development. State and local zoning reforms have in fact gained traction in recent years, allowing construction of other types of housing in areas previously limited to single-family homes. Minneapolis and Oregon took the lead with changes that went into effect in 2020 and 2021, followed by California in 2022.

[Assistant] MEETING THE NEEDS OF AN AGING POPULATION The Joint Center projects that the number of house holds headed by adults age 65 and over will surge from about 33 million in 2018 to more than 50 million in 2038, lifting the older-adult share of all households from 26 percent to 34 percent. In addition, the number of house holds in their 80s and older is expected to more than double from 8.1 million to 17.5 million over this period.


[User] 01 Housing markets continue to cool even as homeowners and renters face higher costs. On the for-sale side, home sales and construction levels are declining, as is the pace of home price appreciation, while rental markets are experiencing sharply reduced rent growth and rising vacancy rates. Nevertheless, home prices and rents remain elevated from pre-pandemic levels. Millions of households are now priced out of homeownership, grappling with housing cost burdens, or lacking shelter altogether, including a disproportionate share of people of color, increasing the need for policies to address the national housing shortfall at the root of the affordability crisis. Likewise, there is growing urgency for public and private investment to address longstanding disinvestment in underserved communities of color, adapt the housing stock to increasing risks of climate change, and expand options for older adults to age safely in their communities. Asking rents nationally also rose year over year, though the rate of growth has slowed considerably. Annual rent growth also slowed over Notes: Asking rents are for professionally managed apartments in buildings with five or more units. Home prices in 2023q1 reflect data for January and February only. Source: JCHS tabulations of RealPage data; S&P CoreLogic Case- Shiller US National Home Price Index. Still, housing costs remain high relative to pre-pan demic levels. Between the beginning of 2020 and early 2023, asking rents in the professionally managed sector rose 23.9 percent. Similarly, nominal home prices rose an astounding 37.5 percent, helping to push up the median sales price for existing homes from just before the pandemic to in March 2023. In the face of higher home prices, first- time homebuyers must save even more to afford the up-front and downpayment costs needed to secure a mortgage, and require ever-higher incomes for the ongoing payments. In the near term, home prices are unlikely to return to pre-pandemic levels, due largely to the low number of homes available for purchase. However, the run-up in home prices during the pandemic has resulted in record-high levels of home equity for existing home owners. According to the Federal Reserve, homeowner equity totaled $31.0 trillion in the fourth quarter of 2022, $7.7 trillion higher than in the first quarter of 2020 after adjusting for inflation. On average, homeowners had in equity, according to CoreLogic. Meanwhile, renter household growth slowed in 2022 following a brief mid-pandemic surge in late 2021. The slowdown has been most evident in professionally managed apartments, thanks in part to rising rents and the increased number of households with higher incomes transitioning to homeownership. Looking forward, total household growth is likely to slow in the coming few years, in part because much of the pent-up demand for household formation among young adults has been released, and also because of deteriorating affordability and slowing population growth, the primary long-term driver of household growth. The oldest baby boomers are turning 77 this year and as they continue aging the death rate will eventually exceed that of births, making immigration the country’s main source of population growth. But, compared with natural growth, immigration is much less predictable. However, homeownership growth of this magni tude is unlikely to continue in 2023. First-time home buying plummeted in the second half of last year in response to sharply rising interest rates that have significantly increased the cost of homeownership. Median monthly payments then settled to $3,000 by March 2023 as interest rates plateaued at 6.5 percent, but Monthly Mortgage Payment on US Median-Priced Home (Right scale) 30-Year Mortgage Interest Rate Note: Monthly mortgage payments include principal, interest, taxes, and insurance (PITI) and assume a 3.5% downpayment on a 30-year fixed-rate loan, 0.85% mortgage insurance, 0.35% property insurance, and 1.15% property taxes. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; National Association of Realtors (NAR), Existing Home Sales. Agency data provided by the Urban Institute show a 22 percent annual decline in the number of mortgages originated to first-time home buyers in 2022, including a year-over-year drop in the fourth quarter of nearly 40 percent. Note: Single-family and multifamily historical averages are of seasonally adjusted monthly data from January 1990 to March 2023. Source: JCHS tabulations of US Census Bureau, New Residential Construction. While estimates of the degree of the undersupply vary significantly, there is widespread agreement that new supply has not kept pace with demand, compressing vacancy rates and limiting the supply of homes for sale. In March 2023, just existing homes (including single-family homes) were avail able for purchase, an uptick from the all-time inventory lows reached during the pandemic but still 42 percent less than in 2019, when supply was already historically low. Movement in both interest rates and the economy will help determine whether single-family construction rebounds in 2023. Either way, there remains an urgent need for more new single-family construction. Multifamily Construction Thriving Unlike single-family homebuilding, multifamily construction continued to rise in 2022 even as rental demand softened. Indeed, new multifamily units were started last year, the highest number since the mid-1980s. Plus, fully units in multifamily buildings were under construction as of March 2023, the highest number in half a century. Meanwhile, rental vacancy rates are rising, which suggests a forthcoming slowdown in multifamily construction when combined with higher interest rates, tightening lending standards, and weak developer sentiment. The overall rental vacancy rate climbed to 6.4 percent in the first quarter of 2023 after falling to a four-decade low of 5.2 percent in late 2021. Like wise, the vacancy rate for professionally managed apartments has more than doubled from a record low of 2.5 percent in 2022 to 5.2 percent in early 2023, with vacancy rates highest for the highest-cost (Class A) units, at 5.6 percent, and lowest for the lower-cost (Class C) units, at 4.7 percent, suggesting the market for these units remained relatively tight. Given that the bulk of new construction targets the higher-cost market segment, the robust pipeline of multifamily units may lead to additional vacancy rate increases that will simultaneously help to limit rent growth for high-cost units, while likely providing less relief to renters with lower incomes. According to data from the Survey of Market Absorption, the median asking rent for newly completed multifamily units in 2022 was $1,800 and thus affordable only to households earning more than $72,000 assuming the 30 percent of income affordability standard. Moreover, fully 36 percent of newly completed multifamily units had asking rents of $2,050 or more, while just 5 percent had asking rents below $1,050, leaving renters with low and moderate incomes to reckon with a stubbornly tight supply of moderate- and lower-priced apartments. Cost Burdens Reach Record Levels Rising housing costs, coupled with pandemic-era income losses, produced the most significant drop in housing affordability in years, as seen in the most recent Census data. Among these, 11.6 million were severely cost burdened, spending more than 50 percent of their income on housing. Although the share of renter households with cost burdens had been steadily declining in the past decade, the trend reversed during the pandemic. Between 2019 and 2021, the share of cost-burdened renters grew by * 2021 Severely Burdened Moderately Burdened Notes: Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing. Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Likewise, the number of cost-burdened homeowners increased by 2.3 million to 19.0 million, including 8.7 million who were severely cost burdened in 2021. This increase upturned a years-long decline in the share of homeowners with cost burdens and drove the cost- burden rate up by 1.5 percentage points to nearly 23 percent of homeowners. In total, 40.6 million house holds were cost burdened in 2021, including 20.3 million who were severely burdened. Predictably, cost burdens affect the vast majority of households with lower incomes, including 86 percent of those with incomes below $15,000 and 68 percent with incomes between $15,000 and $29,999. But, cost-burden rates are rising quickly among those higher up the income scale, particularly among renters. Between 2019 and 2021, the share of cost- burdened renters with incomes between $30,000 and $44,999 increased 3 percentage points to 63 percent. Meanwhile, the share of cost-burdened renters earning between $45,000 and $74,999 increased by 4 percentage points to 34 percent—the largest increase of any income group. With such high housing costs, many households with lower incomes may struggle to pay for other neces sities like food, clothes, and healthcare, which have become more expensive as inflation has risen. In 2021, the median renter and homeowner households with incomes under $30,000 had just $380 and $680 per month, respectively, after paying for housing to cover other necessities—the lowest residual incomes in two decades. Residential Mobility Shifting Geography of Housing Demand Mobility patterns dominant during the pandemic persisted in 2022, as people continued to move into lower-cost, lower-density areas. Social distancing put a premium on living space and motivated moves to less expensive suburban and rural areas. But as the pandemic has eased, the share of people working from home has remained elevated for many occupations, sustaining demand for housing in lower-cost areas. Longer-distance moves to states with warm climates and lower housing costs also remained high in 2022. Regionally, the South saw the largest net inflows, led by Texas, Florida, and North Carolina. Some moun tain states, including Montana and Wyoming, also recorded net gains in movers from other states. As such, domestic migration has become the largest source of population growth in 20 states and the largest source of population decline in 23 states. Further jeopardizing homes is the increasing damage from climate-related disasters. CoreLogic estimates that more than 14.5 million homes were affected by hazards in 2021, amounting to $57 billion in damage. Even more homes are at potential risk, including 60 million units located in areas with at least moderate expected annual losses. Federal programs that help communities and households repair their homes after disasters are crucial for minimizing losses in housing stock. In 2022 alone, the Federal Emergency Manage ment Association (FEMA) provided $1.9 billion to 1.2 million households through its Individuals and House holds Program, defraying the cost of home repairs and other recovery needs. The number of people experi encing homelessness on a given night in January 2022 was a 0.3 percent (2,000 people) increase from 2020. That homelessness didn’t increase more may indicate that government supports limited evic tions and provided emergency rental assistance. The expiration of renter protections and the looming end of rental assistance could leave more people unhoused. Disaster Recovery funds in 2021–2023 to help commu nities rebuild after disasters. While these recovery efforts are important, reduced development in high- risk areas, improvements to the stock to mitigate future damage, and better awareness of risk will be needed to adapt to climate change over the long term. Moreover, the housing stock requires modifications to mitigate its impact on climate change given that homes are responsible for 20 percent of US green house gas emissions. Recent federal efforts to reduce housing’s contribution to greenhouse gas emissions have been substantial. The 2022 Inflation Reduction Act provided nearly $9 billion for energy-efficiency and electrification rebates and extended the Resi dential Clean Energy Credit, which helps homeowners offset the costs of renewable energy improvements. A one-time $3.5 billion infusion into the Weatheriza tion Assistance Program will further support energy- efficiency upgrades for households with lower incomes.

[Assistant] Meanwhile, multifamily construction has remained strong, with a record number of apartments under construction. However, most of this new housing supply targets renters with high incomes, and renters with lower and moderate incomes will likely find little relief.


[User] 02 H O U S I N G M A R K E T S After reaching record highs during the pandemic, home price and rent growth have fallen through early 2023 as interest rates rose sharply, affordability worsened, and housing demand softened. In the for-sale market, significantly fewer homes sold in 2022. Despite historically low levels of supply, single-family homebuilding also declined. Likewise, in the professionally managed apartment market, the number of renter households dropped and vacancy rates returned to pre-pandemic levels. Nevertheless, multifamily development remained robust, with the number of units under construction the highest in half a century. Decelerating Home Price Growth As mortgage interest rates rose sharply in 2022, the for-sale housing market cooled rapidly, leading to a decline in home prices. According to Center tabula tions of the S&P CoreLogic Case-Shiller home price index, monthly home prices dipped 0.2 percent in January 2023 on a seasonally adjusted basis, the seventh consecutive month of declines following 124 months of growth, before ticking up slightly in February. After adjusting for inflation, real home prices declined 2.8 percent relative to the prior year. Late 2022 was the first decline in real home prices in over a decade. Nominal home prices declined year over year in fully a quarter of the 100 large markets tracked by the Freddie Mac House Price Index in March 2023, compared with zero metros a year earlier. Prices dropped most sharply in previously hot Western markets such as Boise, down 11.8 percent, and Austin, down 8.8 percent, and also fell significantly in Northern California, where the lack of affordability, a slumping tech sector, and the preva lence of remote work likely softened demand. While prices rose in the remaining 75 markets, the rate of increase slowed across the board. Despite this slowdown, prices continued to rise in most markets. Knoxville was the lone market with double- digit price growth—up 10.5 percent year over year in March—as compared with all 100 metros a year earlier. On an annual basis, home prices rose most rapidly in the South, including Greensboro (8.8 percent), Columbia (8.0 percent), and Charleston (7.8 percent). Some Northeast and Midwest markets experienced similarly swift appreciation, including New Haven (7.5 percent), Syracuse (7.1 percent), Youngstown (7.1 percent), and Omaha (6.9 percent). Although national home prices have declined in the past several months, they have risen astoundingly when measured from the start of the pandemic. Between February 2020 and February 2023, nominal home prices jumped a stunning 37.5 percent, or 17.5 percent after accounting for inflation. Over the longer term, nominal home prices since 2010 have more than doubled—rising 102.2 percent—while real home prices have climbed 51.5 percent.

[Assistant] As long as interest rates remain elevated, home price growth will likely continue to slow. But prices are unlikely to plummet like they did during the Great Recession thanks to the combination of the strong job market, the continued aging of millennials into peak homebuying years, the dearth of housing available for purchase, and the low foreclosure rate.


[User] Persistent Shortage of For-Sale Housing Contributes to Declining Home Sales The number of homes available for sale remained near historic lows in early 2023, driven by a decade-long slowdown in the construction of single-family housing that preceded the pandemic, the growing population of older adults who are less likely to move, and the lack of available inventory for would-be sellers. According to the Housing Vacancy Survey, homeowner vacancy rates remained at 0.8 percent in the first quarter of 2023, tied for the lowest reading since data became available in the mid-1950s, and under 1.0 percent for the ninth consecutive quarter. Inventories have remained low in part because many homeowners may be disinclined to move in the face of rising interest rates. According to the FHFA National Mortgage Database, nearly two-thirds of outstanding residential mortgages carry an interest rate of less than 4 percent, including one-quarter of mortgages with interest rates below 3 percent—significantly lower than the 6–7 percent averaged on a 30-year fixed-rate mortgage in early 2023. Consequently, the number of new listings continued to decline into early 2023, dropping 16 percent in the first quarter, according to Realtor.com. Instead, growth in overall inventory has been due to homes remaining on the market longer. On average, homes were on the market for a median of 65 days in the first quarter of 2023, up from 47 days the year before but far short of the 81 days recorded in the first quarter of 2019. The constrained supply, along with rising interest rates and eroding affordability, contributed to a sharp decline in home sales last year. According to Center tabulations of data from the National Association of Realtors, existing home sales dropped 18 percent in 2022 to 5.0 million, including a 17 percent decline in single-family home sales, to 4.5 million, and a 23 percent decline in condo/co-op sales, to units. Sales of newly built single-family homes also fell. In new homes sold, down 17 percent from the year prior and well below the pandemic peak of in 2020. Seasonally adjusted existing home sales declined just 4 percent in the first quarter of 2022 relative to the first quarter one year earlier but 32 percent in the fourth quarter of that same year. In January 2023, the season ally adjusted rate of existing home sales was just 4.0 million units, down 37 percent from the year prior and the lowest since 2010. As interest rates stabilized in early 2023, so, too, did the sales rate, which ticked up to 4.4 million units in March. Notes: Months of supply measures how long it would take homes on the market to sell at the current rate. Six months is typically considered a balanced market. Source: JCHS tabulations of NAR, Existing Home Sales. Investor Demand for Single-Family Homes Softens but Remains Strong Investor activity in the housing market skyrocketed during the pandemic as interest rates hit record lows and home price and rent growth reached all-time highs. But, as interest rates rose in late 2022, investor home purchases fell significantly. According to Core Logic, purchases of single-family homes by investors who simultaneously owned three or more properties within the past 10 years declined by 25 percent year over year in the fourth quarter of 2022. Nevertheless, investor purchases remained a high share of total sales because owner-occupant homebuying fell just as sharply. Investors bought 26 percent of single- family homes in the fourth quarter of 2022, just shy of the record-high 28 percent share recorded in early 2022 and well above the 16 percent share averaged in the three years immediately preceding the pandemic. Investor activity in the housing market can exacer bate inventory shortages and limit homeownership opportunities for owner-occupant buyers by reducing the available supply, especially in markets where investor activity is highest. According to CoreLogic, investors purchased a third or more of single-family homes in Los Angeles, Memphis, and Salt Lake City, among others, in the fourth quarter of last year. And in one study of home sales in metro Atlanta, large institutional investors accounted for up to three- quarters of annual single-family home sales in some neighborhoods. Investor activity in these neighbor hoods was associated with a decline in homeowner ship for Black households in particular. Likewise, investor activity influences the single- family rental market. According to CoreLogic, about 16 percent of investor purchases in the summer of 2022 were resold within six months, in line with histor ical averages. Many of the remaining homes were likely rented to tenants, and the implications of this activity for renter households are still unfolding. On the one hand, large single-family rental operators can provide higher value and potential cost savings to renters through more professionalized property management. Moreover, they might increase access to rental housing in a wider variety of neighborhoods, including those typically less accessible to renters. On the other hand, research indicates that at least some of these investors might more aggressively pursue evictions, and their activity is associated with increased rents. According to RealPage data, asking rents in the profes sionally managed apartment sector have moderated significantly after rising 15.3 percent year over year in the first quarter of 2022, an all-time high in data dating back more than 20 years. By the first quarter of 2023, rents rose 4.5 percent annually, just above the 3.6 percent average annual growth between 2015 and 2019. But even with the slowdown, rents have risen a stunning 23.9 percent between the first quarter of 2020 and the first quarter of 2023. The slowdown in rent growth was evident across the country. Asking rents in the first quarter of 2023 declined outright year over year in two of the 50 large markets consistently tracked by RealPage: Phoenix, down 1.9 percent, and Las Vegas, down 1.0 percent . Asking rents in both markets had risen about 25 percent annually in early 2022. Though rents increased in the remaining 48 markets, the rate of rent growth slowed as compared with a year earlier. Beyond previously hot markets in the West, rent growth moderated most precipitously in parts of Florida. Asking rents in West Palm Beach, Tampa, and Fort Lauderdale each rose over 27 percent annually in the first quarter of 2022, but less than 6 percent annually in the first quarter of 2023. Similar to apartment trends, rent growth for single- family homes cooled significantly from pandemic-era record highs. According to CoreLogic, single-family rents in March 2023 rose 4.3 percent year over year, still somewhat higher than the pre-pandemic rate though down from the 13.6 percent growth experienced a year earlier. This discrepancy relative to the sharp slowdown in gains among professionally managed apartments is partly explained by the CPI being a lagging indicator that estimates rents for the entire rental stock. Rising rents in the CPI show that many renters are still experiencing substantial rent growth as old leases turn over and rents reset at higher levels, and is an important indi cator of inflation for the Federal Reserve to consider when deciding the course of interest rate increases.

[Assistant] However, the softening of other rent indicators suggest that CPI rents will likely also slow in the future, which would be good news for those hoping for relief from today’s higher interest rates.


[User] Rising Rental Vacancies New leasing traffic plunged in the second half of 2022, according to data from RealPage, leading to the first drop in annual apartment demand since 2009 despite high retention rates. Leasing then ticked up only slightly in early 2023, as the professionally managed apart ment market added just 19,000 new renters on net in the first quarter—modestly reversing recent declines but the weakest first quarter in a decade. The decline in leasing, combined with new construc tion focusing on the high end of the market, pushed apartment vacancy rates back to recent norms. After falling to a record-low 2.5 percent in the first quarter of 2022, vacancy rates in the professionally managed apartment sector have subsequently increased every quarter. By the first quarter of 2023, vacancy rates had climbed to 5.2 percent, a full 2.7 percentage points Note: Data are for professionally managed apartment buildings with five or more units. Source: JCHS tabulations of RealPage data. Vacancy rate increases were widespread, rising year over year in the first quarter of 2023 in 148 of the 150 markets tracked by RealPage, including 117 markets with increases of at least 2 percentage points. Nationally, vacancies remained lowest in less expen sive market segments, where less new supply is coming online. The vacancy rate in more affordable Class C apartments was just 4.7 percent in the first quarter of 2023, lower than the 5.6 percent vacancy rate in higher-quality Class A apartments. Likewise, vacancies in the broader rental market ticked up in the first quarter, but remained near the decades-low set during the pandemic. According to Center tabu lations of the Housing Vacancy Survey, 6.4 percent of all rental units were vacant in the first quarter of 2023, up 0.6 percentage point from a year earlier. Still, such low vacancy rates have not been recorded since the mid-1980s, aside from the pandemic and one reading at the end of 2019. Slowing New Construction In both the for-sale and rental markets, significant amounts of new construction are required to alleviate the supply shortages. However, housing production declined modestly in 2022, driven by a sharp slowdown in single-family homebuilding. The number of newly started housing units fell from 1.60 million in 2021 to 1.55 million in 2022, a small but significant 3.0 percent decline in the context of the nation’s housing shortfall. Similarly, the number of permitted units declined 4.1 percent to 1.67 million in 2022. However, in the near term, more supply is coming online as the number of housing units completed continued to rise 3.7 percent to 1.39 million units last year. Most new units target the high end of the market. The median sales price for newly built single- family homes was in 2022, up an inflation- adjusted 23 percent since 2019. Likewise, the production of smaller, typically less expensive, single- family units remains historically low. In 2021, just homes under 1,800 square feet were built, less than a quarter of all single-family home completions. By comparison, smaller single-family homes repre sented 37 percent of new units as recently as 1999.

[Assistant] Given the glut of apartments under construction and rising vacancies in the professionally managed apartment sector, multifamily construction is likely to moderate going forward. Already, the Federal Reserve Board’s Senior Loan Officer Opinion Survey on Bank Lending Practices reported tighter lending standards and weaker demand for multifamily loans and commercial real estate construction loans. In the rental market, slowing rent growth and rising vacancies, especially in high-cost market segments, will likely lead to a slowdown in new apartment construction. But even as the abundance of mostly high-end apartment units under construction reaches the market, it remains unclear how much relief this will provide for households with low and moderate incomes.


[User] 03 D E M O G R A P H I C D R I V E R S Household growth remained high in 2022, driven largely by a surge in millennial household formation pent up since the Great Recession. However, the drivers of household growth are now likely receding, leaving record-low levels of population growth that will slow household growth going forward. Mean while, wide regional variation in housing affordability, combined with a rise in remote work, is spurring domestic migration, in turn shifting the geography of housing demand. As the US population ages and diversifies, the need to ensure equitable access to high-quality, affordable housing and communities becomes even more urgent. Nevertheless, the household growth rate in 2022 represents a slowdown from the 2.0 million annual average between 2019 and 2021, and likely signals that the recent surge is waning. Likewise, the share of Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys.

[Assistant] Because this pent-up demand has been largely satisfied, household growth will likely slow going forward, fueled by native population growth, which is at a near-record low, and immigration, which is inher ently mired in politics and therefore is unpredictable.