In an effort to go beyond my normal “we have a housing crisis, not just an affordable housing crisis” rap, I read Fixer-Upper: How to Repair America’s Broken Housing Systems by Jenny Schuetz. I was interested in it because it looked like it would be prescriptive, not just descriptive in nature and I was not disappointed. The chapter headings pretty much tell the story:
At the day job I work for a trade association that represents the apartment industry, thus the companies I work with are on the front lines of our nation’s housing situation. You may not be aware of it, but we do indeed have a housing situation that can be best summed up as this: we have too many people who don’t make enough money to pay for the housing that’s available, and/or we don’t have enough housing units that are affordable for people at the bottom of the income scale. Even worse, we have a LOT of people who, thanks to any number of life events, lose their housing and thus end up living in flop houses, cars, tents or under a bridge.
Because apartment owners and managers provide over a third of the housing in the U.S, and a majority of the rental housing, they are often looked to for a solution to the problem of affordability and homelessness. It would be great if they could snap their fingers and solve the problem, but due to the complexity of the issue (static income, increases in the costs of everything from health care to food, lack of housing inventory in general, etc.) this is not something housing providers can solve on their own. That’s not to say that people in the industry aren’t trying, and a perfect example is a woman named Lori Trainer who has been working for years down in Florida to address homelessness in her community. (Here’s a link to a video about some of her work, and I’ll embed it below as well). She just wrote an article for Multifamily Insiders titled The Story Behind the Sign that helps put homelessness in perspective. Here’s an excerpt:
We’ve all seen the homeless person with the sign on the side of the road and when we do, many people think these thoughts. What the people offering these judgments don’t realize is that the overwhelming majority of people don’t “choose” to be homeless. In fact, nearly 50% of the homeless in America are working. Why are they homeless then? Well, that is the “564,788 person question” (the number of homeless on the street each night according to the National Alliance to End Homelessness).
The causes of homelessness range from sad to tragic. Job loss, foreclosures, divorce and natural disasters such as the tragedies we are seeing in the Midwest and in Canada are a few examples. These storm victims certainly didn’t choose to be homeless or do anything wrong but they are indeed homeless now. If their insurance isn’t perfect, takes a year to work out the details or worse yet, doesn’t pay, what do those families do? They have lost everything; their homes, belongings and jobs. They are now homeless…
Another very prevalent and sad demographic in the homeless arena are families. Approximately 206,268 were identified in the last count. Divorce, domestic violence, death, single parents and low wage workers are all in this category. Children are resilient but often suffer irreparable damage when forced to live in vehicles, shelters or motels for weeks or months on end. 60 Minutes did a great job highlighting this epidemic:https://youtu.be/L2hzRPLVSm4 (Be sure to have tissues handy!)
Then Lori goes on to point out that there are many, many more people who are just a misstep away from becoming homeless themselves.
Many people think it could never happen to them. But the truth is that one out of three people are two paychecks away from being homeless. There are 12 million renters pay more than 50% of their annual income for housing and 37 million people living in poverty in America. Simple fact, a minimum wage worker cannot support a household and pay rent. There is a critical shortage of affordable housing in the US and, according to the National Low Income Housing Coalition; approximately 200,000 units are destroyed annually. That combined with the “aging out” tax credit population and the mile long waiting lists for section 8 vouchers, we have the perfect storm.
One of the initiatives we are working on at the national level in the industry is to identify the programs that industry groups are participating in at the local level around the country. For instance, my employer is working with Partners Ending Homelessness to help match their clients with available apartment units in Guilford County. What we’ve found is that like many things in life, the concept is simple but the implementation is complex. Still, we’ve seen progress and we will continue working because this is an issue that will be with us for the foreseeable future.
That’s just one initiative in one community, but that’s the kind of effort we’re going to need in every community around the country to address homelessness, because quite frankly this is not an issue that can be solved from Washington. What our national leadership CAN do is address the big picture issues that underlie homelessness, including:
An economy that is not providing adequate income for average workers
A health care “system” that bankrupts some, and financially cripples many
A crumbling infrastructure that threatens all of us
A byzantine regulatory structure (think HUD & EPA) that makes affordable housing development a challenge
Another chief culprit is an under-performing, and some would say under-valued, education system, but that’s not just a Washington issue so let’s not throw it entirely on them. The point is that homelessness is the most severe symptom of an ailing nation. If we are truly measured by how we treat the least of us, then as a nation and a community we have a lot we need to do to heal ourselves.
Here’s the video about the effort in Florida that Lori’s been a big part of:
The U.S. homeownership rate is below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage Americans to buy homes. Conventional wisdom says the rate, at 63.7%, is leveling off to where it was for decades before the housing-market peak.
But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least 15 years.
Demographics tell the story.
Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households—nearly half of which will be Hispanic—have lower incomes, less wealth and lower homeownership rates than the U.S. average.
The upshot is that fewer than half of new households formed this decade and the next will own homes. By contrast, almost three-quarters of new households in the 1990s became homeowners.
The downtrend would push homeownership below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.
You really should read the whole article. A couple of people who disagree with this assessment are quoted, but even they see the rate of home ownership stabilizing and staying lower than it was before the recession. There’s also some discussion about the impact on housing affordability, and interestingly it’s led by Ron Terwilliger who was the keynote speaker at this year’s Apartment Association of North Carolina (AANC) education conference. He has some interesting ideas about reducing the mortgage deduction and moving some of those dollars over to help with rental housing. That would be a political hot potato, but it’s a sign of how different times are these days.
All in all, those signs bode will for the apartment industry from years, maybe even decades to come.
For starters, income levels for those between 25 and 34 are down. Median household income for that demographic has declined between roughly 5% and 15% in real terms from 2000 to 2012 for every education level of the head of household, according to the National Center for Education Statistics. And in 2013, the real median net worth of households under 35 years old was just $10,400. That was approximately 32% below the level estimated in 2001, according to the Federal Reserve Survey of Consumer Finances…
He then cites some data showing that the combination of an increasing population and anemic job growth coming out of the past two recessions led to a highly competitive job market that prompted many students to continue on to grad school. That demand allowed universities to jack up tuition which led to more debt:
That brings us to the most commonly cited economic constraint for Gen Y – student debt. Over the decade from 2002-2003 to 2012-2013, the number of full-time undergraduate students rose from 9.1 million to 11.6 million people, according to College Board. That increased demand enabled higher education institutions to raise tuition prices 51% past the rate of inflation in the past 10 years,…
Add to that the increase in health care costs, which he cites as being 31% greater than the reported rate of inflation, and the increase in cost of staples and you can see that young adults face some serious obstacles to home ownership. Even the accelerated job growth of 2014 is recognized with a caveat:
Given that job growth has accelerated notably in 2014, with a much higher share being created in higher-paying sectors, these trends in income and net worth are bound to start improving to some degree. Though, considering that the appreciation of median home prices has vastly outpaced wage growth over the past decade, many in the Millennial generation will likely continue to find it more difficult to qualify for a mortgage than Generation X did 10 years ago.
It would be easy to point to the Great Recession as the primary cause for the struggle young adults will have in moving from renting to buying, but some of the contributing factors are the result of societal shifts that began a generation ago. For instance, the decoupling of income from worker productivity:
The “decoupling” is the divergence between labor productivity and employment/wages that happened in the US in the 1980s and has become quite pronounced over the past thirty years. During the great postwar boom, productivity and wages grew in lockstep in the US. Of course, we don’t see any data from the 19th century and the first half of the 20th century so it’s not clear that labor and wages have always grown in lockstep. But something certainly changed in the 1980s and the result has not been good for median family income which has been stagnant in the US for almost thirty years now.
This is the kind of shift that does not happen overnight, and if that trend is to reverse it will not happen in a matter of years but in decades. What that means for rental housing providers in particular is that the falling rate of home ownership could be the new normal for a generation to come, which is good news for their businesses. On the other hand, if real median household income continues to decline then the demand for market rate units could stall and the demand for affordable housing units could skyrocket.
Obviously some policy changes could change this outlook. For instance if lending standards are relaxed again and if more affordable single family homes are constructed, then rental demand would obviously be impacted. Considering the lessons we learned when the housing bubble popped that first if is pretty big, and given the persistent problem of slow income growth any growth in home construction we do see probably won’t come close to what we saw in the late 90s through mid 00s.
Long story short – rental housing should continue to grow for the foreseeable future.
In 2005, Utah set out to fix a problem that’s often thought of as unfixable: chronic homelessness. The state had almost two thousand chronically homeless people. Most of them had mental-health or substance-abuse issues, or both. At the time, the standard approach was to try to make homeless people “housing ready”: first, you got people into shelters or halfway houses and put them into treatment; only when they made progress could they get a chance at permanent housing. Utah, though, embraced a different strategy, called Housing First: it started by just giving the homeless homes…
…Housing First has saved the government money. Homeless people are not cheap to take care of. The cost of shelters, emergency-room visits, ambulances, police, and so on quickly piles up. Lloyd Pendleton, the director of Utah’s Homeless Task Force, told me of one individual whose care one year cost nearly a million dollars, and said that, with the traditional approach, the average chronically homeless person used to cost Salt Lake City more than twenty thousand dollars a year. Putting someone into permanent housing costs the state just eight thousand dollars, and that’s after you include the cost of the case managers who work with the formerly homeless to help them adjust. The same is true elsewhere. A Colorado study found that the average homeless person cost the state forty-three thousand dollars a year, while housing that person would cost just seventeen thousand dollars.
Partners Ending Homelessness, a partner agency of United Way of Greater Greensboro, says the “Housing First” initiative it launched in February is providing access to stable housing to 28 formerly homeless households.
The initiative by the agency, a collaborative effort that includes 80 community partners, was funded in 2013 with a $1 million grant from the Phillips Foundation to address the needs of the chronically homeless.
The agency says it needs to secure roughly $2.5 million over the next four years from public and private sources to expand the program.
The early results reflect the experiences of the first five participants in the year before joining the program and in the six months after joining program.
In addition to paying for a consultant who has worked with other communities, the money has been used to develop an Assertive Community Treatment Team for long-term housing support and case management, the highest level of mental health service available short of hospitalization.
“Although $1 million seems like we are spending a lot of money, the statistics are showing we are saving a lot of money,” said the Rev. Mike Aiken of Greensboro Urban Ministry, one of the partners in Ending Homelessness.
“People are being housed and supported. We were absolutely sold on it.”
The number of emergency room visits also dropped, from eight to none. The cost of housing these people dropped from $30,650 in shelters to $8,927 in rent for their new homes. And the number of nights spent in jail dropped from 28 to none.