Friday, August 18, 2017

Who Owns Rental Properties, and is it Changing?

by Hyojung Lee
Postdoctoral Fellow
Institutional investors own a growing share of the nation's 22.5 million rental properties and a majority of the 47.5 million units contained in those properties, according to the US Census Bureau's recently released 2015 Rental Housing Survey (RHFS). The changes are notable because virtually all of the household growth since the financial crisis has occurred in rental units, with more than half of the growth occurring in single-family rental units.

According to the RHFS, individual investors were the biggest group in the rental housing market in 2015, accounting for 74.4 percent, or 16.7 million rental properties, followed by limited liability partnerships (LLPs), limited partnerships (LPs), or limited liability companies (LLCs) (14.8 percent); trustees for estates (4.1 percent); and nonprofit organizations (1.6 percent) (Table 1). However, because the share of rental properties owned by individual investors tends to decrease with the property size, individual investors owned less than half (47.8 percent) of rental units, followed by LLPs, LPs, or LLCs (33.2 percent), trustees for estates (3.3 percent), real estate corporations (3.3 percent), and nonprofit organizations (3.2 percent).


Source: Rental Housing Finance Survey, 2015.

When combined with data from the 2012 RHFS and the 2001 Residential Finance Survey (RFS), the new data also show that the number and share of rental properties owned by institutional investors increased for all types of properties between 2001 and 2015 (Figure 1). For example, while about a third of properties with 5 to 24 units were owned by non-individual investors in 2001, that share soared to 47 percent in 2012 and about two-thirds in 2015. Similarly, about 66.1 percent of properties with 25 to 49 units were owned by institutional entities in 2001, which rose to 77 percent in 2012 and about 81 percent in 2015.


Source: Residential Finance Survey, 2001; Rental Housing Finance Survey, 2012 and 2015.
Note: The condominiums and mobile homes the 2001 RFS were excluded as they are excluded in the 2012 and 2015 RHFS. Single-family units were not counted in the 2012 RHFS.

While individual investors (often called "mom-and-pop landlords") still owned about three-quarters of all single-family rental properties in 2015, the share of those properties owned by institutional investors rose from 17.3 percent in 2001 to 24.5 percent in 2015. However, during this time, many individual landlords reportedly created their own LLCs and transferred ownership of their property to protect themselves from liabilities and take advantage of tax benefits. As a result, the figures for single-family rentals may understate the number of mom-and-pop landlords.

Finally, the 2015 RHFS also provides useful information about when these changes occurred. Overall, non-individual investors accounted for about 16 percent of rental properties acquired from 1980 to 2004. That changed dramatically in the years after the financial crisis. Non-individual investors bought 28 percent of rental properties sold between 2010 and 2012 and 49.3 percent sold between 2013 and 2015 (Figure 2). Moreover, this shift was particularly pronounced for properties with 1 to 4 units (compared to those with 5 or more units).


Source: Rental Housing Finance Survey, 2015.

Despite potential implications for both renters and the broader housing market, there have been relatively few studies assessing the impacts of changing ownership patterns for rental properties. However, some research suggest that the changes are more than just paperwork. Illustratively, a 2016 discussion paper published by the Federal Reserve Bank of Atlanta reported that large corporate landlords and private equity investors of single-family rental homes in Fulton county, Georgia were far more likely to file eviction notices than small landlords in the county. Hopefully, the changes documented in the 2015 RHFS will spur additional research on how ownership patters affect such key issues as rental affordability, housing instability, and the upkeep of rental units.

Friday, August 11, 2017

Pay for Success: Opportunities and Challenges in Housing and Economic Development

by David Luberoff
Senior Associate
Director
Pay for Success (PFS) initiatives have received widespread attention in the United States over the past several years. These outcomes-based projects – which generally do not pay service providers and government entities until and unless they achieve certain agreed upon outcomes – hold great promise in a variety of fields, including housing and community development, notes Omar Carrillo Tinajero in a new working paper jointly published by NeighborWorks® America and the Joint Center for Housing Studies. In the paper, Carrillo, a 2016 Edward M. Gramlich Fellow, notes that PFS projects may offer important opportunities to break down funding silos, devise innovative new ways to address pressing problems, and compel providers to focus on the results of an intervention. However, he adds, “because their complexity makes them at present difficult to structure and finance, PFS projects are likely to be useful only in limited circumstances, which means the PFS model should therefore be used judiciously and carefully.” Moreover, he notes, “the interest in and discussion about PFS projects has highlighted approaches that could be carried out by the public sector without the structure of PFS arrangements.”

To better understand how this approach could be used to address housing and community development issues, Carrillo examines three projects: 
  • The Denver Supportive Housing Social Impact Bond Initiative, which focused on providing supportive housing for individuals who are both frequently in jail and often go to emergency medical services in Denver.
  • The Chronic Homelessness PFS Initiative, which aims to provide 500 units of permanent supportive housing for up to 800 of the 1,600 people currently experiencing homelessness in Massachusetts.
  • Project Welcome Home, an initiative in Santa Clara County, California focused on providing housing and supportive services for 150-200 chronically homeless individuals in the Silicon Valley over six years.
In the paper, Carrillo reviews the goals of each initiative and describes the metrics that will be used to decide whether and how much providers will be paid.  He also offers detailed descriptions about how each initiative was organized, funded, and evaluated.

The initiatives, he writes, “are promising, especially as they promote an emphasis on outcomes and begin to streamline services from various government sources.” However, he also cautions that “it is not immediately obvious that their benefits outweigh their costs,” particularly the extensive time and resources needed to develop and oversee the initiatives. He adds that it may be possible for the public-sector to adopt many PFS approaches (particularly their focus on outcomes, and the need for better data systems to measure those outcomes) without developing the complex structures and systems needed to establish and oversee an effective PFS.

“Though PFS sounds promising,” he concludes, “putting a project together can entail logistical difficulties and substantial transaction costs. Because of these challenges, the PFS model should be used judiciously. In particular, it could be a promising strategy for situations in which addressing problems requires coordination of a variety of disparate sources of public funding which, for various reasons, are difficult to use in a coordinated fashion.”

However, he adds, “we should not lose sight of the overall problem that PFS programs address: the need to provide services to as many people as possible, in the most effective way possible. It seems difficult to conceive of increased funding for these much-needed resources from the federal government, and state and local governments will continue to find themselves pressed for solutions to deliver evidence-based services. The PFS movement has pushed public-sector entities to focus more heavily on outcomes and, in doing so, to consider more multi-pronged approaches for addressing key issues.”


Monday, August 7, 2017

Significant Improvements in Energy Efficiency Characteristics of the US Housing Stock

by Elizabeth
La Jeunesse

Research Analyst
Compared to 2009, single-family homes built before 1980 are now better insulated, have relatively newer heating equipment, and are more likely to have undergone an energy audit. These and other energy-related characteristics of the owner-occupied stock, shown in Table 1, are consistent with the expanding size of the home improvement industry over the past few years, with particular growth in energy-sensitive projects. Homeowners' annual spending for related projects—including roofing, siding, windows/doors, insulation and HVAC—expanded from $50 billion to nearly $70 billion over 2009-2015.



The transformation of the existing US housing stock toward greater energy efficiency also reflects a wave of energy-related incentives for HVAC and building envelope upgrades put in place following the rise of energy prices in the mid-2000s. At the federal level, one of the biggest initiatives was the Obama administration’s American Recovery and Reinvestment Act of 2009, which extended and strengthened tax credits for energy improvements to existing homes, including insulation, windows, roofs, water heaters, furnaces, boilers, heat pumps, and central air conditioners.

Despite recent progress, there is room for growth. As of 2015, 17 percent of single-family homes built prior to 1980 were still reported to have ‘poor insulation’, and only 11 percent had received an energy audit. By comparison, a recent profile of newly constructed homes (built after 2009) showed only 1 percent of residents reporting ‘poor insulation’—an impressively low share. Moreover, nearly 90 percent of new homes come with double- or triple-pane windows. Bringing older homes up to this higher standard will require significant investments to the existing stock.
At the same time, only 5 percent of new homes have smart thermostats—a relatively inexpensive but potentially high-payoff upgrade—and a similar share have energy-saving tankless water heaters. These lower shares suggest room for growth in energy-efficient technologies in new and old homes alike.
Renewable technologies, particularly solar energy, are also showing signs of growth. As of 2015, nearly 6 percent of recently built homes reported on-site solar generation, a relatively small share, but nearly triple the incidence in older homes. Thanks to the Consolidated Appropriations Act of 2016, US taxpayers can still claim a credit of up to 30 percent of expenditures for photovoltaic and solar thermal technologies placed in service in their homes. Several US states also now provide consumers with credits for net excess energy generation, further increasing the payoff for installing renewable energy systems.
With recent declines in energy prices, however, there is some question of whether homeowners still have strong incentives to pursue energy-efficiency improvements. Since 2015, the consumer price index for energy has hovered around 10 percent below its average for the prior ten years (2005-2014). If this trend continues, further progress in energy-related improvements will probably depend even more on consumer preferences and finances, in addition to changing building and product codes, and evolving industry standards. 
Data used in this analysis comes from a newly released 2015 Energy Information Administration survey that tracks the energy-related characteristics of all US residential units. Further results detailing energy consumption intensity (or usage per square foot) will be released in 2018, enabling deeper analysis into the evolution of energy efficiency in US homes.

Monday, July 31, 2017

Why is Moving to a New Home Worse for African-American and Hispanic Children than for White Children?

by Kristin Perkins
Postdoctoral Fellow
Compared to children who do not move to a new home, children who move are more likely to do worse in school, have more physical and mental health problems, and are more likely to be delinquent and use alcohol and drugs. In recent research that uses detailed data from the Project on Human Development in Chicago Neighborhoods, I find that African-American and Hispanic children showed more signs of anxiety and depression after they moved. I also find that, on average, Hispanic children demonstrated more aggressive behavior after they moved (Figure 1). White children in this sample, however, did not appear to be negatively affected by a move.
Figure 1.  



Why might moving be worse for African-American and Hispanic children than it is for white children? Perhaps non-white children are more likely to be exposed to violence or have fewer social supports in their homes and neighborhoods, which would make them more susceptible to the disruptive effects of a move? Neither of those factors, however, explained the negative effect of moving for African-American and Hispanic children (as measured by the Child Behavior Checklist, well-established scales that are frequently used as indicators of child behavior). A variety of other factors, such as being renters instead of homeowners and, for Hispanic children, their immigration history, also failed to explain the differences.

Another factor could be the differences between the types of neighborhoods that people are leaving and those they are entering. In general, most of the children in my sample whose families left their neighborhoods moved to a new neighborhood with similar characteristics. This is consistent with other research showing that it is uncommon for families to move to new neighborhoods that are radically different (in terms of poverty level and other characteristics) from the neighborhoods they are leaving. Given this, it's not surprising that among those moving to similar (or worse) neighborhoods, African-American and Hispanic children showed more signs of anxiety and depression, on average, after they moved.

I do, however, have suggestive findings that indicate that African-American children who moved to much better neighborhoods, within or beyond the city of Chicago, did not experience increases in anxiety and depression, unlike African-American children who moved to similar or worse neighborhoods. This finding is consistent with research on the Moving to Opportunity program showing better outcomes in some domains for children who moved from neighborhoods characterized by concentrated poverty to lower poverty neighborhoods.

These and similar findings from other studies of residential mobility and neighborhood effects have several possible implications for policymakers. The data suggest that the children most likely to experience negative effects of moves seem to be similar to children that Matthew Desmond's work on evictions shows are more likely to experience forced moves. If this is the case, the findings underscore the importance of efforts to prevent and reduce evictions and other forced moves.

The findings also suggest that policymakers pursuing programs that aim to improve neighborhood contexts by relocating families need to acknowledge the potential disruptive effects of residential mobility that could undermine the benefits of those moves. If further research confirm the suggestive results showing that the disruptive effects of residential mobility may differ depending on the characteristics of the destination neighborhood, then mobility programs should be designed to focus on efforts to move families to more advantaged neighborhoods.

Beyond mobility programs, policymakers might consider the extent to which other programs and policies unintentionally increase the number of moves that children make and thus increase the possibility of negative outcomes. As one example, it would be useful to determine if the Housing Choice Voucher Program's time limits for finding a unit to rent with a voucher unnecessarily result in temporary moves before a household finds a permanent unit.

Taken as a whole, such measures could potentially reduce negative outcomes among African-American and Hispanic children whose families have to move, particularly those who have to move frequently.

Monday, July 24, 2017

We're Finally Building More Small Homes, but Construction Remains at Historically Low Levels

by Alexander Hermann
Research Assistant
Census data released last month show that after years of stagnation, construction of smaller homes grew appreciably in 2016. New completions for homes under 1,800 square feet increased nearly 20 percent in 2016 to 163,000 units, the first significant growth since 2004 and the largest rise since the data series began in 1999.

This growth is significant because many first-time and lower-income homebuyers hope to purchase smaller homes, which are generally less expensive than larger ones. Moreover, historically-low levels of home construction over the last decade have led to declining inventories, decreasing vacancy rates, and increasing prices, as discussed in our latest State of the Nation's Housing report (Figure 1).


Even with the uptick in 2016, though, small-home construction remains 65 percent below the 464,000 units completed annually between 1999 and 2006, and comprises a much smaller share of newly-built housing than in the past. In 2016, small homes were 22 percent of single-family completions, well below their 37 percent market-share in 1999. In contrast, the share of large homes built grew from 17 percent in 1999 to 30 percent in 2016, while moderately-sized homes, which have consistently been the largest share of the market, have annually been 43-to-48 percent of all new single-family homes.

Construction of condos and townhouses, possible alternatives to smaller single-family housing, also remains low. Builders of multifamily properties continue to focus on the rental market where demand remains strong. Consequently, only 28,000 condos were started in 2016, a modest increase from the 26,000 starts in 2015 but much lower than the 53,000 starts averaged annually in the 1990s (Figure 2). Similarly, townhouse starts grew from 86,000 units in 2015 to 98,000 units in 2016. While this is more than double the number of starts from 2009 and comparable to the 95,000 units started annually in the 1990s, it is less than half the number started in 2005.



The low levels of new construction have resulted in historically-low housing inventories, especially entry-level housing. According to data from CoreLogic, the supply of modestly-priced homes – those selling for 75-to-100 percent of the area's median list price – was below three months at the end of 2016, about half of the six months that generally represents a balanced market (Figure 3). Indeed, according to data compiled by Zillow, only a quarter of the homes for sale at the end of last year were in the bottom one-third of area homes by price, while half were in the top one-third.



Increased demand for entry-level housing and the corresponding uptick in smaller housing construction have already contributed to the growing number of first-time homebuyers in 2016. According to the National Association of Realtors, first-time homebuyers comprised 35 percent of home sales in 2016, up from 32 percent in 2015 but still below long-term historical rates, which are close to 40 percent of all buyers. Looking forward, increases in the supply of smaller homes, townhouses, and possibly condos could help address the growing demand for lower priced homes for first-time and low-income homebuyers.

Thursday, July 20, 2017

Steady Gains in Remodeling Activity Moving into 2018

by Abbe Will
Research Associate
Healthy and stable growth in home improvement and repair spending is anticipated for the remainder of the year and into the first half of 2018, according to our latest Leading Indicator of Remodeling Activity (LIRA), released today. The LIRA projects that annual increases in remodeling expenditures will soften somewhat moving forward, but still remain at or above 6.0 percent through the second quarter of 2018.

The remodeling market continues to benefit from a stronger housing market and, in particular, solid gains in house prices, which are encouraging owners to make larger investments in their homes. Yet, weak gains in home sales activity due to tight inventories in many parts of the country is constraining opportunities for more robust remodeling growth given that significant investments often occur around the time of a sale.

Even with some easing this year, the remodeling market is still expected to grow above its long-term averageOver the coming 12 months, national spending on improvements and repairs to the owner-occupied housing stock is projected to reach fully $324 billion.


For more information about the LIRA, including how it is calculated, visit the JCHS website.

Monday, July 17, 2017

The Effect of Debt on Default and Consumption: Evidence from Housing Policy During the Great Recession

by Peter Ganong and
Pascal Noel, Meyer Fellows
What is the effect of mortgage debt reductions that reduce payments in the long-term but not in the short-term? In a new paper using data from a recent government mortgage modification program, we find that substantial mortgage principal reductions that left short-term payments unchanged had no effect on default or consumption for "underwater" borrowers who owed more on their home than their homes were worth.

This finding is significant because the design of mortgage modification programs was a key question facing policymakers attempting to help struggling households during the Great Recession. Policymakers faced a choice between debt reductions that focused on borrower liquidity by temporarily reducing mortgage payments or debt reductions that focused on borrower solvency by permanently forgiving mortgage debt.

This normative policy debate hinged on fundamental economic questions about the effect of long-term debt obligations on borrowers' default and consumption decisions. While a large academic literature has examined the effect debt reductions that mix both short and long-term payment reductions, little is known about the specific effects of long-term debt obligations.

To help fill this gap, we compared underwater borrowers who received two types of modifications in the federal government's Home Affordable Modification Program (HAMP). Both modification types resulted in identical payment reductions for the first five years. However, one group also received $70,000 in mortgage principal reduction, which translated into increased home equity and substantial long-term payment relief. By comparing borrowers in each of these modification types, we were able to isolate the effects of long-run debt levels holding fixed short-run payments. An important feature of the policy we studied was that borrowers remained underwater even after substantial debt forgiveness.

To compare these borrowers, we built two new datasets with information on borrower outcomes and HAMP participation. Our first dataset matched administrative data on HAMP participants to monthly consumer credit bureau records from Transunion. Our second dataset used de-identified data assembled by the JPMorgan Chase Institute (JPMCI) that included mortgage, credit card, and checking account information for borrowers who received HAMP modification from Chase.

Using an empirical strategy called a regression discontinuity design, we found that principal reduction has no effect on default. The analysis exploited a cutoff rule in a model used by mortgage servicers to assign borrowers between the two modification types. While borrowers just above the cutoff were 41 percentage points more likely to receive principal reduction than those just below the cutoff, default rates were smooth at the cutoff, which indicates that principal reduction had little effect on default (Figures 1 and 2). We also estimated that even at the upper bound of our confidence interval, the government spent $800,000 per avoided foreclosure. This is over an order of magnitude greater than estimates of the social cost of foreclosures.

Figure 1.  

Figure 2.  



In the second part of our empirical analysis, we examined the effect of principal reduction on consumption by comparing the monthly spending of the two groups of borrowers over time. We showed that these two groups of borrowers were similar before modification on a broad range of observable characteristics, and that their credit card and auto spending measures were trending similarly in the months before modification. This means that the payment reduction group could be used as a valid counterfactual control group for the principal reduction group.

We found that $70,000 in principal reduction had no significant impact on underwater borrowers' credit card or auto expenditure (Figure 3). Although the spending of both groups stabilized after modification (consistent with the idea that short-term payment reductions helped borrowers), the group that received the additional principal forgiveness showed no differential effect. Rather, we estimated for each $1 of principal reduction received by borrowers, their total spending increased by only 0.2 cents. This is an order of magnitude smaller than the consumption response for average homeowners examined in prior studies, which typically have found spending increases between 4 and 9 cents per $1 of wealth increase.

Figure 3.



The inability of underwater borrowers to borrow against the housing wealth gains from principal reduction may explain why they were far less sensitive to housing wealth changes than borrowers in other economic conditions. Typically, housing wealth gains expand borrowers' credit access--in fact, prior research has found that equity withdrawal through increased borrowing may account for the entire effect of housing wealth on spending between 2002 and 2006. But if homeowners need positive home equity in order to borrow against their house, then principal reduction that still leaves borrowers underwater or nearly underwater will fail to free up collateral that can be used to finance new consumption. This limitation helps explain why policies to lower current mortgage payments were more effective than principal reductions at increasing consumer spending during the Great Recession.

Tuesday, July 11, 2017

The Rise of Poverty in Suburban and Outlying Areas

by Elizabeth La Jeunesse
Research Analyst
A key takeaway from our latest State of the Nation’s Housing report is that poverty is both increasing and becoming more concentrated across the country. Moreover, while a third of the poor live in high-density urban neighborhoods, the number of poor people and poor neighborhoods grew particularly rapidly in the “exurbs,” low-density neighborhoods on the fringe of the nation’s metro areas (Figures 1 and 2).



Figure 1. The Number of People Living in Poverty Has Increased Most in Suburban and Exurban Communities

Figure 2. Much of the Growth in High-Poverty Neighborhoods Has Been in Suburban and Outlying Areas


According to the report, from 2000 to 2015, the number of people living below the federal poverty line rose by 41 percent, from about 33.8 million to 47.7 million. Additionally, the number of high-poverty neighborhoods (census tracts where the poverty rate is 20 percent or more) rose by 59 percent, and the poor population living in these areas increased by 76 percent to 25.4 million. As a result, 54 percent of the nation’s poor now live in high-poverty neighborhoods, up from 43 percent in 2000.

The growth in high-poverty neighborhoods was widespread, occurring in all but three of the nation’s largest 100 metros (Honolulu, El Paso, and McAllen, TX). Moreover, the rise of poverty was particularly rapid in the exurbs, where the number of high-poverty neighborhoods more than doubled between 2000 and 2015, and the number of poor people living in these neighborhoods grew by 164 percent, rising from 1.5 million in 2000 to 3.9 million in 2015. Such growth presumably was due to the fact that housing generally is less expensive in these areas, but the savings in housing costs are often offset by higher transportation costs and more time spent travelling to work and other activities.

Our new interactive chart shows that these changes were not uniform in the nation’s 100 largest metropolitan areas. To begin with, two-thirds of these metros underwent a rise in concentrated exurban poverty from 2000-2015. Moreover, the magnitude of the increase varied. For example, the number of high-poverty, exurban tracts increased more than tenfold in the Detroit, Greensboro, and Cape Coral, FL metros, and increased by a factor of five or more in 11 other metros, including Atlanta, Denver, Charlotte, Cincinnati, Kansas City, Las Vegas, Nashville and Orlando. Other large metros where the number of high-poverty, exurban neighborhoods more than tripled included Baltimore, Philadelphia, Pittsburgh, Portland, St. Louis, and Tampa.

For example, in the Atlanta metro, the number of low-density, high-poverty, exurban tracts rose from only 11 in 2000 to 72 in 2015 (Figure 3). Meanwhile, in the St. Louis metro, there were 28 high-poverty, exurban neighborhoods in 2015, up from 8 such areas just 15 years earlier (Figure 4).

Figure 3. Atlanta


Figure 4. St. Louis


While poverty remains highly concentrated in dense urban areas, several large metros now have unusually large shares of high-poverty, exurban neighborhoods. In the Atlanta, Charlotte, and Nashville metro areas, for example, nearly a quarter or more of all high-poverty neighborhoods are located in low-density, exurban areas. Poverty’s shift to lower-density areas was especially pronounced in the Charlotte area, where 41 percent of high-poverty tracts are now situated in low-density, exurban areas, up from just 15 percent in 2000 (Figure 5).

Figure 5. Charlotte, NC


Moreover, in several smaller metros across the South – such as Columbia, SC; McAllen, TX; Greenville, SC; Jackson, MS, and Knoxville, TN – well over half of all high-poverty neighborhoods are located in low-density, outlying regions (Figure 6).

Figure 6. McAllen, TX 



Use our interactive tool to see the change in high-poverty neighborhoods in the nation’s 100 largest metro areas between 2000 and 2015.

Download Excel files for additional data on high-poverty neighborhoods. (W-1 and W-15)

Download Chapter 3 of our State of theNation’s Housing 2017 report, which contains additional discussions on the growth of poverty and the spread of high-poverty neighborhoods.

Thursday, July 6, 2017

Are Home Prices Really Above Their Pre-Recession Peak?


by Alexander Hermann
Research Assistant
In 2016, national home prices not only rose for the fifth year in a row, they finally surpassed their pre-recession peak in nominal dollars, according to most national measures of home prices. However, as our new State of the Nation’s Housing report notes, when adjusted for inflation, home prices were still 9 to 16 percent below peak, depending on the measure used (Figure 1).



Figure 1. National Home Prices Now Exceed Their Previous Peak in Nominal Terms, But Not in Real Dollars



Note: Prices are adjusted for inflation using the CPI-U for All Items less shelter.
Source: JCHS tabulations of S&P CoreLogic Case-Shiller Home Price Index data.

Moreover, as our interactive maps show, changes in home price vary widely across the country and often exhibit strong regional patterns (Figure 2).

Figure 2. How Much Have Home Prices Changed?




Our interactive maps give users the ability to view price changes in 951 markets across the country over two time periods—since 2000 and since each area’s mid-2000 peak. Viewable markets include 371 Metropolitan Statistical Areas and 31 Metropolitan Divisions (derived from 11 additional metro areas), which together contain about 85 percent of that nation’s population, as well as 549 smaller Micropolitan Statistical Areas, which are home to another nine percent of the population.

The data indicate that nominal home prices were above their mid-2000s heights in 48 percent of all markets (454 total). These markets were largely concentrated in the middle of the country, the Pacific Northwest, and Texas.

However, in real dollars, prices reached their peaks in only 138 (15 percent) of all markets. Furthermore, while prices were above peak in only 10 percent of Metropolitan Statistical Areas and Metropolitan Divisions, they topped their peak in 17 percent of the smaller micro areas, which experienced less home price volatility over the last decade.

In contrast, real prices were still 20 percent below peak in about one-third of all markets, most located in areas hardest hit by the housing crisis, including Florida and large parts of the Southwest, Northeast, and parts of the Midwest.

There were notable differences in long-term patterns in areas where real prices remained well below their pre-recession peak. In many markets on both coasts—such as Miami, Washington, DC, and Sacramento—prices have risen significantly over the last several years and, in real terms, are now well above their levels in 2000. However, because prices in these areas rose significantly during the boom years and fell so sharply during the recession, the recent gains have left prices far below what they were in the mid-2000s.

In contrast, in some Midwestern and Southern markets—such as Detroit, Chicago, and Montgomery, Alabama—prices rose only modestly in the 2000s, dropped significantly during the recession, and have grown only slightly in recent years. Consequently, real prices in these areas were not only well below their peak levels from the mid-2000s, but remained below 2000 levels in many cases.

The uneven growth in home prices over the past two decades has led to increasing differences in housing costs. Illustratively, in 2000 the inflation-adjusted median home value in the 10 most expensive metros (of the country’s 100 largest metros) was about $350,000, about three times higher than the median value of homes in the 10 least expensive metros. But between January 2000 and December 2016, real home values in the ten highest-cost housing markets rose by 64 percent to about $574,000, more than five times the value of homes in the least expensive areas, which grew by only 3 percent, to $113,000.

A broader look at home prices further highlights these stark disparities. Nationally, real home prices rose 32 percent between 2000 and 2016. But home prices in 30 percent of markets (290 total) actually declined in real terms, including 28 percent of metro and 33 percent of micro areas, most of them in the Midwest and South. In the Detroit metro area, home prices declined 26 percent, the largest decrease among large metros. Prices also fell significantly in the Cleveland (22 percent decline), Memphis (15 percent decline), and Indianapolis (13 percent decline) markets.

At the opposite end of the spectrum, between 2000 and 2016 real median home prices rose by more than 40 percent in 153 markets (16 percent), most of them on the East and West Coasts. In fact, prices doubled in twelve markets, including the Honolulu metro areas, which saw 104 percent growth. Home prices also rose considerably in the Los Angeles (97 percent), San Francisco (84 percent), Miami (73 percent), and Washington, DC (62 percent) markets. While micro areas were more likely to be past their previous peak, the lower price volatility also meant they experienced less price growth since 2000, with only 12 percent of micros exceeding 40 percent growth.

Thursday, June 29, 2017

Making Collaboration Work: Four Lessons from Chicago CDFIs

by Alexander von Hoffman
and Matthew Arck
Although many in the housing and community development field are excited by the idea of collaboration between organizations, such partnerships are often easier said than done. In practice, as our new case study of a partnership in Chicago shows, effective collaboration requires the partners to be thoughtful, nimble, and flexible.

The case study analyzes the work of the Chicago CDFI Collaborative, a partnership of the Community Investment Corporation (CIC), the Chicago Community Loan Fund (CCLF), and Neighborhood Lending Services (NLS). In 2014, the collaborative received a 3-year, $5 million grant from PRO Neighborhoods, a $125 million, 5-year grant program of JPMorgan Chase & Co. that supports community development financial institutions (CDFIs) pursuing innovative collaborations. The Chicago CDFI Collaborative used the money to restore abandoned and dilapidated housing in economically depressed neighborhoods, such as Englewood and West Woodlawn, which were particularly affected by foreclosures in the financial crisis. To do so, it provided loans and technical assistance that helped small-scale investors and owner-occupants purchase and rehabilitate one-to-four-unit buildings, which comprise nearly half of the affordable rental stock in Chicago.

The Chicago CDFI Collaborative helped a small-scale investor acquire and rehabilitate this home in the Chatham neighborhood on Chicago’s South Side. (Photo by Nathan Hardy.)





By 
By early 2017, the collaborative had lent nearly $25 million, acquired or financed the acquisition of 430 properties, and helped to preserve almost 600 housing units in low-income communities.  In interviews, leaders of the Chicago CDFIs identified four important lessons that emerged from their work.

1. Try new approaches

Although each member of the Chicago CDFI Collaborative is a well-established community lender, none of them had focused extensively on abandoned one-to-four-unit buildings. The new partnership enabled the officers of these groups to tackle this vexing problem on a large scale. The lesson, according to Robin Coffey, Chief Credit Officer of NLS, is that instead of “trying to play it safe” by simply expanding the volume of their current lending practices, collaborating CDFIs should imagine “how can we work together to change the way that we’re approaching something” so they can better aid residents of troubled low-income communities.

Some CDFI leaders might be wary of this approach because they perceive other CDFIs as rivals, but participants in the Chicago collaborative said that is not the case. In the CDFI field, Wendell Harris, Director of Lending Operations for CCLF, asserts, “there is so much work that needs to be done, there really is no discussion of us being competitors.”

2. Pursue many lines of attack

CDFIs must develop and carry out a multi-faceted strategy to overcome the multiple and systemic obstacles to revitalization in depressed neighborhoods. One way to do this is by targeting neighborhoods that have other revitalization programs already in place. For example, the Chicago CDFIs prioritized lending in seven neighborhoods where their organizations already were working.  Moreover, since NLS’s parent organization, Neighborhood Housing Services of Chicago, also dispersed grants from the City of Chicago that help low- and moderate-income homeowners improve the exteriors of their homes, NLS was able to direct some of those outside grants to the same neighborhoods targeted by the Chicago CDFI Collaborative. According to Coffey, this reinforced the coalition’s revitalization efforts. When a potential buyer saw improvements being made to other buildings, the NLS leader explained, he or she would conclude that the neighborhood was “not as bad as I thought.”

In addition, the neighborhoods selected by the Chicago CDFIs were part of a larger set of neighborhoods that received funding from the City of Chicago’s Micro-Market Recovery Program, which supports a variety of revitalization efforts. Adding the PRO Neighborhoods funds to these other tools, such as financial assistance and community organizing, Coffey noted, “made it that much more effective.”

3. Communicate regularly and in-person

Leaders of the collaborating CDFIs stressed that regularly scheduled, in-person meetings were a key to their success. Monthly meetings facilitated open communication, which in turn helped create an effective, adaptive partnership. Doing so in face-to-face meetings rather than conference calls meant that the partners had fewer distractions and were more likely to focus on the work at hand.

The face-to-face meetings also helped partners discover issues sooner than they might have otherwise, and, according to Coffey, gave them a “sense of urgency” to solve the problems that emerged in their discussions. Conferring in person, Harris added, encouraged the partners to share information about their networks of people in the field as well as details about properties that were under discussion. In one meeting, for instance, CIC’s representative told the group that it had acquired a building in a particular neighborhood, and NLS’s representative suggested an owner-occupant who would likely be interested in acquiring and rehabbing it.  

4. Expect the unexpected and adapt to it

Leaders of collaborating CDFIs must be prepared to respond to unexpected conditions on the ground. Going into the venture, the partners in Chicago initially thought the best strategy was to target long-vacant homes for rehabilitation. However, Coffey recalled, “we learned really quickly that getting people into homes so that they wouldn’t become vacant” was easier for the homeowner and better for the block. The partners also discovered that, despite the robust technical assistance provided by the Chicago CDFI Collaborative, many potential owner-occupants remained doubtful they possessed the expertise necessary to rehab long-vacant properties. To adapt, NLS’s leaders broadened their strategy to include run-down buildings that were not currently vacant, but were likely to become vacant if major repairs were not done in the near future.

The members of the Chicago Collaborative also encountered unexpected difficulty when they tried to carry out their core strategy to acquire and renovate large numbers of distressed properties in close proximity. In response, they expanded their efforts beyond simply acquiring foreclosed buildings to include buying tax liens on properties and purchasing and reconverting condominiums back into single properties. Without such changes, said Andre Collins, vice-president of acquisition and disposition strategy for CIC, the Collaborative would have rehabilitated fewer properties and preserved fewer affordable units than they did.

Taken together, these practices can help collaborative efforts succeed, which, Harris says, is particularly important because “it takes a collaborative effort to make things better.”

Tuesday, June 27, 2017

Our Disappearing Supply of Low-Cost Rental Housing

by Elizabeth La Jeunesse
Research Analyst
It’s not an illusion: low-cost rental housing in the US is disappearing. And our 2017 State of the Nation’s Housing report has the numbers to prove it.

Using ACS data from 2005 and 2015, our new report shows how gains in the supply of high-end units and losses of low and modest-priced units over the past decade has shifted the entire rental stock toward the high end. Nationwide, the number of units renting for $2,000 or more per month (in constant, inflation-adjusted dollars) nearly doubled between 2005 and 2015, while the number of units renting for below $800 fell by 2 percent (Figure 1).

Figure 1: Across the US

Released in conjunction with the report, our new interactive tool shows how this shift played out differently in the nation’s 100 largest metropolitan areas. Metros reporting the most dramatic losses of units renting for less than $800 per month included Austin, Seattle, Portland, and Denver – all places where apartment markets heated up in recent years.

Austin’s transformation was particularly striking. The number of units with rents under $800 declined by nearly 40 percent (a loss of around 27,000 units), while those with rents at $2,000 or more increased more than three-fold (Figure 2).

Figure 2: Austin

The pattern was similar in Denver, where the number of units renting for under $800 declined by nearly a third, a loss of 31,000 modest-priced rentals, even as the number of units with rents over $2,000 per month tripled, an increase of more than 24,000 units (Figure 3).

Figure 3: Denver


The largest aggregate increases in high-cost rentals took place in the New York, Los Angeles, San Francisco, and Washington DC metro areas. According to ACS data, the New York metro added nearly 250,000 units renting for more than $2,000 per month, while it lost more than 120,000 units renting for less than $800 a month (Figure 4).

Figure 4: New York

Los Angeles underwent a similar shift in rental stock, losing over 94,000 units renting for less than $800 between 2005 and 2015, while gaining over 200,000 high-cost units (Figure 5).

Figure 5: Los Angeles


The San Francisco and Washington DC metropolitan areas both added over 100,000 high-cost rental units. In San Francisco, the highest-cost rental segment (those renting for more than $2,400 per month) underwent particularly rapid growth, rising by 145 percent, from almost 60,000 units in 2005 to more than 146,000 units in 2015. In contrast, the stock of low-priced rentals in the region, which was quite low in 2005, was virtually unchanged over the subsequent decade (Figure 6).

Figure 6: San Francisco



In general, areas with large numbers of assisted rental units saw little or no growth in their stock of low-priced rentals but significant growth in the most expensive units. For example, the number of units renting for less than under $800 in the Boston metro was basically unchanged, while the number of units renting for more than $2,000 grew by 70 percent (Figure 7).

Figure 7: Boston

Because of such shifts, in most metro areas the share of units that rented for less than $800 a month fell between 2005 and 2015. In Austin, for example, the share of units renting for under $800 per month declined from over a third in 2005 to less than 15 percent in 2015. Similarly, the share of units renting for under $800 per month in New York City metro, home to around 3.5 million renter households, dropped from 23 percent of all units in 2005 to just 18 percent in 2015. And in the Washington, D.C. metro, the number of units renting for less than $800 per month dropped from 15 percent in 2005 to just 10 percent in 2015.

In contrast, both the number and the share of low-rent units rose in a few metros, including the Las Vegas, Cleveland, Sacramento, and Detroit metros. These areas tended to have larger numbers of distressed properties as well as lower rates of economic growth and multifamily construction, which combined to hold down the growth in real rents between 2005 and 2015. In Detroit, for example, there was a 17 percent increase in the share of units renting for less than $800 a month and only a small rise in the number of high-rent units (Figure 8).

Figure 8: Detroit



Use our interactive tool to see how the distribution of rental units changed in the nation’s 100 largest metro areas between 2005 and 2015.

Download an Excel file with the data for each metro area (W-16).

Wednesday, June 21, 2017

Wait... What? Ten Surprising Findings from the 2017 State of the Nation’s Housing Report

by Daniel McCue
Senior Research Associate

Every year, when we release our State of the Nation’s Housing report, we’re asked some variation of the question: “What surprised you in this year’s report?” Given all the time and effort that goes analyzing the data and writing the report, we are so close to it that little surprises us by the time of publication. Nevertheless, here are 10 findings in this year’s report that were new and maybe even a bit surprising:

1. For-sale inventories dropped even lower over the past year.   


For the fourth year in a row, the inventory of homes for sale across the US not only failed to recover, but dropped yet again. At the end of 2016 there were an historically low 1.65 million homes for sale nationwide, which at the current sales rate was just 3.6 months of supply - almost half of the 6.0 months level that is considered a balanced market.

2. Fewer homes were built over the last 10 years than any 10-year period in recent history.

Even with the recent recovery in both single-family and multifamily construction, markets nationwide are still feeling the effects of the deep and extended decline in housing construction. Over the past 10 years, just 9 million new housing units were completed and added to the housing stock. This was the lowest 10-year period on records dating back to the 1970s, and far below the 14 and 15 million units averaged over the 1980s and 1990s.



3. Single-family construction grew at a faster pace than multifamily construction.

The slow recovery in single-family construction picked up its pace in 2016. For the first time since the Great Recession, the rate of growth in single-family construction outpaced multifamily construction.

4. Smaller homes may be coming back.
Behind the growth in single-family construction, and as a new development in 2016, construction of smaller homes is back on the rise. The median square footage of newly completed single-family homes declined slightly, due to increase in construction of smaller-sized homes (less than 1,800 sqft).
 
5. Rental markets are still strong.  

Although there are signs of moderation, the slowdown in multifamily rental markets appears to be limited, so far, to a small number of markets. Indeed, last year, multifamily construction levels were still on the rise in most of the country, rents declined in just 10 of the 100 markets, multifamily loan originations and lending volumes both hit new record highs, and rental vacancy rates were at a 30-year low.

6. Long-term, metro-area home price trends show surprisingly wide variations.

Home prices have rebounded widely across the nation. In 2016, prices were up in 97 of 100 metros, and 41 metros had regained their nominal peak price levels from the mid-2000s. Over the longer period of time, however, the combined impact of the boom and bust has resulted in significant differences in home price appreciation across the country. In some metros (particularly on the coasts) real home prices have grown by 50 percent or more since 2000, while prices in 16 of the top 100 metros (mainly in the Midwest and South) were below 2000 levels, after adjusting for inflation.

7. The 12-year decline in the US homeownership rate may be nearing an end.

Homeownership rates flattened last year and the number of homeowners increased for the first time since 2006, suggesting trends in homeownership may be strengthening. In addition, first-time homebuyers accounted for a higher share of sales in 2016 than the year before. Still, lending remained skewed to highest credit score borrowers.

8. The homeownership gap between whites and African-Americans widened to its largest disparity since WWII.

The post-2004 decline in homeownership has been especially severe for African-Americans and has pushed black homeownership rates to fully 29.7 percentage points lower than that for whites. Comparing census data going back to WWII, the white-black difference in homeownership rates has never been wider.

9. More than half of all poor now live in high-poverty neighborhoods.

Poverty is growing, concentrating, and suburbanizing all at the same time. Overall, the total number of people living in poverty in the US increased by nearly 14 million in 2000-2015. Moreover, 54 percent of the nation’s poor live in high-poverty neighborhoods (those with poverty rates over 20 percent).

10. Poverty is growing across metros and in rural areas.

Poverty has been on the rise throughout cities, suburbs, and rural areas. Indeed, while the number of poor living in high-poverty tracts in dense, urban areas grew by 46 percent between 2000 and 2015, the number of poor living in high-poverty tracts in moderate- and lower density suburban areas more than doubled.

Read the full State of the Nation’s Housing report on our website.