We are in a housing crisis. This statement is not meant to invoke a sense of shock; it's simply an expression of fact.
Today, more than 11 million households, a record, spend more than 50% of their income just on rent. Some 21 million households, another record, pay in excess of 30%.
With such high rent burdens, many of these families struggle to pay for necessities like medical care and nutritious food.
The construction of new rental homes offers little relief: The median rent for newly constructed rental units now stands at $1,372 per month, more than half the median monthly household income in America.
Years of stagnating wages that have not kept pace with rising rents are a major factor contributing to these unsustainable rent burdens. So, too, is the severe shortage of rental homes affordable to the lowest-income Americans.
Yet the demand for rental housing, already strong, is now intensifying as a result of the 83 million Millennials, many of whom are forming households for the first time and choosing to rent.
The gentrification we see in many cities, where those needing access to long-term affordable housing are being pushed further away from places of work, is one of the outcomes of this phenomenon.
While rents are soaring, the national homeownership rate has plummeted, reaching a 21-year low.
The gains in minority homeownership over the past decade have been wiped out. The result: fewer and fewer Americans are able to take advantage of the wealth-building opportunities that homeownership can provide.
What’s perhaps most disturbing is the significant decline in the first-time homebuyer share of the market. A recent survey by the National Association of Realtors indicates this share has just begun to climb off a 29-year low. Inadequate job opportunities, high levels of student loan debt, and the lack of affordable inventory are all contributing to the depressed level of homeownership among young adults.
In addition, rising rents are making it harder to accumulate savings for a mortgage down payment, demonstrating that the rental and homeownership sides of the housing market are deeply connected.
Powerful demographic forces are likely to add to these challenges. Approximately two-thirds of all new households that will form in the next decade will be minority. Many will initially opt for rental housing, adding to the demand pressure. Others will have variable income, multiple income sources, and thin or no credit files, and some will be “unbanked”, challenging their ability to qualify for a mortgage.
Responding to the crisis in housing will require aggressive action. Here are three ideas:
1. The government cannot do it alone.
To encourage greater private investment in homes affordable to low-income families, Congress should increase federal support for the Low Income Housing Tax Credit program by at least 50%. Since its creation in 1986, the Housing Credit has leveraged nearly $100 billion in private investment to finance the construction and preservation of 2.8 million rental homes. It’s time for Congress to strengthen this successful and battle-tested supply-side program.
2. Broaden the array of options available to families who need help covering their rent.
While the Section 8 project-based and housing choice voucher programs are a critical source of assistance, funding for these programs has remained relatively flat while rents have risen and project maintenance costs have increased. The result is a net loss of tens of thousands of affordable rental units each year, further limiting the options for far too many families in need. Unfortunately, fewer than one in four households eligible for federal rental assistance actually receives it today. Delivering relief to these unassisted families through alternative approaches like a renters’ tax credit should be considered.
3. Create new opportunities for young people to buy a home for the first time.
Lease-purchase programs, tax-exempt or matching down payment savings programs, and incentive programs to encourage the building of entry-level housing should be part of the suite of tools that are developed, tested, and potentially scaled up. After World War II, America built entire communities like Levittown to provide affordable housing to young Americans returning from war. We need that type of national effort today.
Paying for these initiatives will no doubt be a challenge.
But creative federal and state tax policies and greater efficiencies in the management and allocation of existing subsidies can offer significant financing opportunities. Ensuring the broad array of federal housing programs, as well as those sponsored by state housing finance agencies, are working to achieve common and complementary objectives will also be critical.
To realize this vision, housing must rank at the top of our next president’s domestic agenda. The president will also need a leader working within the White House or at HUD who is fully empowered to engage the vast number of housing stakeholders and armed with sufficient resources to get the job done.
When it comes to meeting the housing needs of its people, America has always responded forcefully. During the Great Depression, Congress created the Federal Housing Administration to help stabilize the mortgage market and keep people in their homes. More recently, initiatives like the Dodd-Frank law, the Troubled Asset Relief Program, and the Hardest Hit Fund helped lead our nation through the Great Recession.
Today, we find ourselves at another crossroads moment when bold leadership by our next President will be essential.