IREM Blogs

Can the Market Address the US Household Imbalance?

July 22, 2019 | John Salustri


The Harvard Joint Center for Housing Studies has released its 2019 “State of the Nation’s Housing” report, which paints a composite good-news/bad-news scenario for the rental segment of the industry. The big question, of course, is, can the market address the diversity of demand equally for both the high-rollers and the cost-burdened?

On one side of the coin, the report states that homeownership has ticked up over the past two years, albeit by inches rather than feet. “Although last year’s increase was just 0.5 percentage point, this translates into a 1.6-million jump in the number of homeowners,” the report reveals, “bringing growth since 2016 to 2.8 million.”

Much of new home construction targets higher-ticket players. “The housing that is being built is intended primarily for the higher end of the market,” says Harvard. “The relative lack of smaller, more affordable new homes suggests that the rising costs of labor, land and materials make it unprofitable to build for the middle market. By restricting the supply of land available for higher-density development, regulatory constraints and not-in-my-backyard (NIMBY) opposition may also add to the challenges of supplying more affordable types of housing.”

And that bears the possibility of good news for the rental market. “Trends in rents and vacancy rates indicate that rental markets are still on solid footing. . . . Rents for professionally managed apartments were up more than 3.0 percent in more than half of the 150 metros that RealPage tracks, with growth exceeding 5.0 percent in 25 of those markets. Low and falling vacancy rates are keeping the pressure on rents, with the national vacancy rate sliding from 7.2 percent in 2017 to 7.0 percent in the first quarter of 2019. Tightening occurred in all regions of the country and in about two-thirds of RealPage metros.”

This despite a slight softening in renter demand over the past few years. Happily, Harvard points to a reversal of that condition and projects increases of “about 400,000 net new renter households annually over the coming decade.”

While that softening continues to be felt, the report suggests the possibility of excess supply filtering down to more affordable families, a priced-to-move sort of gamble. Indeed, the report indicates a 0.5-percent inching down of “cost-burdened” households (defined as the share of US households paying more than 30 percent of their incomes for housing) to 5.7 percentage points below the 2010 peak.

In terms of outlook, the next decade will see population growth dominated by boomers and millennials, says Harvard, and these two groups will fuel housing growth. The big question, obviously, is if the market can supply housing to fit family budgets.

“If current housing-supply trends persist, house prices and rents will continue to rise at a healthy clip,” says Harvard, “further limiting the housing options for many. To ensure that the market can produce homes that meet the diverse needs of the growing US population, the public, private and nonprofit sectors must address constraints on the development process. And for the millions of families and individuals that struggle to find housing that fits their budgets, much greater public efforts will be necessary to close the gap between what they can afford and the cost of producing decent housing.”

The full report can be found here.

About the Author
John Salustri is editor-in-chief of Salustri Content Solutions, Inc., a consultancy focused on enhancing the web and print content of clients around the nation. He is a regular contributor to JPM Magazine and a frequent blogger for IREM. Prior to launching SCS, John was founding editor of
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