The State of the Nation’s Housing 2015 (Harvard Joint Center for Housing Studies)

Good afternoon and welcome
to the release of the Harvard Joint Center for Housing
Studies’ 2015 Housing Report, State of the Nation’s
Housing Report. We’re here at the
Ford Foundation. I am Jim Zarroli
from NPR, and I am joined by the Joint Center’s
Managing Director, Chris Herbert, along with Paul
Weech, the President and CEO of NeighborWorks
America, Celia Smoot is the Director of Housing for
the Local Initiatives Support Corporation. Next to her is Lynn
Fisher, Vice President of Research and Economics at the
Mortgage Bankers Association, and finally, Don
Chen, who is Director of Metropolitan Opportunity
here at the Ford Foundation in New York. If you’re watching online,
you can tweet your questions to our panel using the
hashtag #harvardhousingreport, and we’ll take some of
those questions in a bit. This report is really
a tale of two markets. The home ownership
market has recovered quite a bit in the
past five years or so, but the rebound has
been less vigorous than we would expect given the
improvement in the economy. At the same time, the
market for rental housing is booming right now. The nation’s
vacancy rate is low. So we want to talk about some
of the forces behind that. Chris Herbert, let’s
start with home ownership. About 650,000 a
single family homes were started last year, which
is a really significant increase from the depths
of the recession. But it is still surprisingly
low by historical standards. What are some of the
reasons that we continue to see a lag in single
family home construction, even though prices are going up? That’s a great question. I think we often lose
sight of the fact when we look at statistics
about the housing market and the state of
the housing market, and we look at the latest
increase, and we say, oh, housing starts,
housing construction is up, and lose that
longer perspective. And so when we do look at
this longer perspective, where we are now with single family
housing starts at 650,000, this would’ve been the
worst year for single family construction in the last half
century before this downturn. So we really are at
very anemic levels. I do think it’s important,
though, before we even talk about the home ownership
side is just to look at overall construction levels. And so this past year we just
got back to a million housing units built overall,
which itself is also a really low figure
even given the strength of the rental market. So I think the first
thing we have to look at is why is that overall level
of construction so low. And it goes back to the
question of household formation. How much are we
adding households? And at this point,
when you look at what the primary driver of
household growth is it’s the adult population. And we haven’t had any
significant falloff in adult population through the
downturn, but what has happened is we’ve seen a
lot less household formation particularly
among young adults. And so that’s
really pulling down the rate of household
growth, and pulling down the overall level of
construction that we’re seeing. So on the one hand, we’re
seeing multi-family starts that are at historic highs
relative to where we’ve been over the last two decades. But overall housing demand has
been so low because of the fact that household
formation has been low. But there’s a whole
other set of reasons why it is that we’re
not buying homes, and why it is we’re
choosing to rent. What are some of
the other reasons? Well, I think a key reason
is there’s supply and demand factors. And on the demand
side, I think we’ve seen household incomes have
really been falling sharply through the recession. Median household income is now
back to where it was in 1995, and so I think we’re
really seeing in some sense that we haven’t had
that buying power. And then on the supply
side, I think that we really do have to look at the
questions of what’s happening in the
mortgage market, and then access to credit. And while there certainly was
needs to tighten up credit, and under what terms
mortgages are made available, I think there’s a variety
of measures, the Urban institute, CoreLogic, the
Mortgage Bankers Association have all come up with measures
to assess where are we now in terms of the ability to
get a mortgage, relative not to the peak, but to
where we were a decade ago. And by all those measures,
we’re seeing that it’s much harder to get a mortgage. You factor in, we both have
weakness on the demand side, and also challenges
on the supply side and getting a mortgage. I think that’s partly what’s
pulling down home ownership. Paul Weech, people still
say they want to buy and mortgage rates
are still relatively low, homes are more
affordable than they were before the
recession, so why do you think it is that
people aren’t trying to buy? Well, Chris just touched
upon some of the things that I had on my
mind, Jim, but I’d be remiss if I didn’t
start by thanking the Ford Foundation for hosting
this event today and for praising the
Joint Center for Housing Studies for this report. It’s a service to America. It’s great analysis and data
that we housers really rely on, so I just want to honor Chris
and his team for doing that. So I think my answer
to your question, Jim, is that there’s obviously
a variety of factors, and as I said, Chris
talked on a couple of them. And what’s more
interesting me as I go through the different
factors that come out to mind is which one of
these are cyclical and which ones are structural? Because that’ll tell
us five years from now, 10 years from now where we’ll
be on home ownership again. And so the first one I
think is somewhat cyclical. We’re suffering from post
traumatic stress syndrome here as a result of
the foreclosure crisis. Prior to the crisis, everybody
expected housing prices to rise. You can invest in a home, and
buy a home, and make money. It was a good investment, and it
turns out that that’s not true. And so people are
very, very cautious about going back
into the market, I believe, with that
in their recent memory. And this PTSD also affects
the lending industry. So banks lost a lot of
money, and the risk officers were embarrassed
throughout the crisis. And so the banks are
in the mortgage market in what I think is a
historically cautious way as a result of the
recent experience. To be sure, though,
there are also structural changes in market. At least, I believe
they’re structural. There have been major changes
in the rules governing lending and servicing. This is going to change
the way that people access credit going forward. I think these are structural
and it concerns me about what it means for access
to credit going forward. And then getting one more
level of post traumatic stress is there are an awful
lot of consumers who could be part of our
demand equation out there who’ve been damaged by
the foreclosure crisis. Their credit has been battered
from prolonged delinquencies or from a foreclosure,
their houses are worth less than they
owe on those houses. Those are an awful lot
of people that normally might be circulating the
market, buying homes, accessing credit, and creating
more market demand. In the report, I thought they
did a terrific job of also focusing in on the
typical first time home buyer, the young person who
might be out there to buy their first home,
and they’re under particular different kinds of
financial stress right now. Their incomes are lower on
average than in the past. Many of them, their student
debt is a lot higher than it’s ever been
in the past, and more pronounced on their
household balance sheet. And they, too, are
a little bit more cautious about getting
into the market. I am reflecting now
on the final issue that I should mention that
came out of the report that I think is
interesting to pose, and that is whether there’s been
a structural change in consumer preferences for buying homes
amongst these young people. I’ve seen it as I’ve traveled
the country in my new job here at NeighborWorks, in
Washington, DC, where I live. I’ve been to Raleigh,
North Carolina, I’ve been to Denver,
Colorado, and I’ve been to midtown Detroit
where the pressures on rents are incredible as young people
moving back into the cities, and this preference for renting,
and that urban lifestyle seems very pronounced in those places. I think we all have to just
wait and see how that plays out, and whether those young
people, when they get married, move to the suburbs
where they can have a backyard for their
kids and better schools. And so, in my mind,
I look at the survey that you reference in
your question, Jim. The survey show
people do think they want to own a home
over their lifetime, and I think it’s
probably the new trends into the urban areas are just
a pause or a postponement of the day when they will
go out and buy homes. Celia Smoot, there’s
been a big decline in the forced sale of
distressed properties, which is a good thing. But 15%, according to the
report, 15% of homeowners still have less than 20%
equity in their homes. So there is a hangover from
the great recession still. Can you talk about
some of the problems this creates in
individual neighborhoods, and also just in the
housing market as a whole? One of the things that
immediately strike me around that particular
number is that we look at overall
values in the market as we come out of the crisis. And then there’s
definitely as you look at certain neighborhoods
and certain markets, there’s definitely
inequality about how values have returned or not
returned in neighborhoods. So what you see playing
out is in some places where the values have
returned, those are in areas what we would call
more hot markets or markets that are tipping. You can still have
a weak market. You would never say particularly
that Detroit is a hot market, but there’s definitely
neighborhoods within Detroit that are more tipping to more
of a hot market area, some parts of the urban core. And so this
inequality in values, it’s more pronounced in
largely minority neighborhoods. You’re going to see this value
issue more pronounced in areas where you have high rates of
foreclosures and vacancies. And then what you also
have is issues with owner occupied housing. And so that plays out in
the neighborhood in a way especially around
values where you see there’s not a return to this
housing wealth that for most, especially for African-American,
Latino families, that is where their wealth was. The wealth was in the
house that they owned. And I know that Don and I
have talked a lot about that, and he’s going to
add some as well, but I wanted to talk about
anecdotally how that plays out. So for example, there was
a report that came out, there was an article
a couple months ago about Prince George’s County. Prince George’s County
just have a predominantly African-American neighborhood,
and what you will find is a lot of those
are African-Americans who work in DC, work in
the federal government, and during the housing
boom, they built houses. There was a lot
of housing built, single family housing
built in that market. Crash happens, and you see
the market “returning,”– and I’m putting that
in quotation marks– you see the market “returning,”
but it’s not really returning in that particular county. So what’s so different? What’s so different
from that county that you can go
two miles, and then you’re in parts of what was
really a rougher low income neighborhood in DC, and now
it’s completely gentrified. So what’s changed? And I think some of it has
to do with some of the market inequalities that we’re
seeing in neighborhoods. Just to add to
that a little bit. The report talks about the fact
that the share of households that are underwater
has come down a lot, but the places where
it’s concentrated are minority and low
income communities. It’s also a difference
between high end and low end of the market, so
the larger balance mortgages are much less likely to be
underwater than small balance mortgages. I think that’s really blocking
the first time buyer market. That entry level market is
still facing much more headwind from recovery from the
housing crisis, which is holding back that first time
buyer market, the entry buyer. And that’s a whole
change of activity that has to happen
in the market. So the fact that the
market is healing differentially both in terms
of communities of color and low income communities, and
also at different price points is having an effect
on the grow to market. Don Chen, do you want
to talk about that? Housing is the way
people build wealth. So what do these problems
that Celia is talking about, what does that mean especially
for low income people, but for minorities,
for people of color? Sure. Well, I think one
thing that we’ve seen from the
post-recession years is that the racial
wealth gap in particular among African-Americans,
Latinos, between them and whites has
accentuated a huge amount. It’s gone up quite a bit. And it’s not just
a temporary thing. It seems like it’s going to
be a generational impact. This is one of the
things that we really get to dig into in this report. One of the challenging
things is it’s not just the tremendous loss of wealth
as a result of homes being more likely to be
underwater, more likely to be in that 10% of really
distressed neighborhoods, it’s also what we’re seeing
is that the recovery in terms of the people’s proportional
wealth, African-Americans, Latinos tend to have
most of their wealth, as Celia mentioned,
in their home. White households tend to have
a more diversified portfolio of wealth. And so as the
recovery occurs, we see the stock market
rebounding a little bit, the white households are
doing much better relatively speaking. Black and Latino households
are trailing far behind. And I think that
what this tells us is that there are a number
of implications for that. Being able to really
target the band of potential
prospective homeowners that really are not able
to get a mortgage because of these tightened requirements
is real key strategy that I know we’re going to
talk about some more as well. And then also really targeting
revitalization efforts in these distressed
communities where recovery has not occurred. I like this theme of
a tale of two markets. What we’re also seeing
is a tale of two cities geographically and
spatially, and then also a tale of two recoveries
if we look at it from a demographic standpoint. Can I add a macro point to that? We’ve been looking at the
Federal Reserve’s household balance sheet recently, and
it is really interesting to see that homeowner’s
equity in their homes has recovered to the
percentage of home value that it was back in
2008, so we’ve actually had that recovery at
least in aggregate. How it plays out
is quite disparate. And the other fact that was
in there was homeowner equity is now about $11
trillion dollars, a little over $11 trillion. Households hold about $10
trillion in bank deposits. And so to the point that this
is such an important piece of wealth for most homeowners,
we’ve recovered back. Lynn Fisher, Paul Weech
talked about this a little bit that people are a
little bit maybe gun shy about getting back
into the housing market, but so are bankers. The housing collapse
happened in part because lending
standards were loosened, and after that, regulators
have taken a lot of steps to tighten lending standards. But do these continuing
problems in the housing sector suggest maybe we went
a little bit too far? I think to give a
balanced answer I’d have to start work
where Chris did, and say they’re both demand. Do people want and can people
afford mortgages right now? And if they want one,
can they get one? There’s two sides to the story. And I think that
no one would want to go back to the type
of lending environment we had that led to
the housing crisis, but I think it’s also
a pretty fair statement to say the pendulum’s probably
swung a little bit too far in the other direction
and has tightened up credit to the point that it is having
an impact on the markets. I think both of these
forces are at play. We have a mortgage credit
availability index. I, of course, alluded to
that a little bit ago. And if you look at the
current level of that index, it’s measuring the
supply of mortgages that are available
to the market, but not only just the amount,
the types, the variety of loans that are out there, the types
of terms that are available. And it’s nowhere near
the level it was in 2004. And I don’t know what
the exact right level is, but it’s an order of
magnitude different than what we saw prior to the crisis. So I think it’s certainly an
important factor in what’s going on in the housing market. A lot of people will
talk about needing money to have a down payment. A lot of people have
talked about the need to have very high credit scores. I think the lenders are looking
at some other things that are perhaps constraining credit. The amount of verification
of income that has to happen, the amount of
documentation is enormous. And the documentation
has to be perfect. It can’t be good enough. It has to be perfect now. It’s onerous both for the
lender and for the borrower. In addition, lenders are
really trying to figure out what the rules of the game are. There is a real desire for
clarity about the rules, about the liability that
they’re going to take when they originate a loan. There’s a lot of things
that they can have liability for that may not have a
lot to do about the credit worthiness of the
borrower at hand, and they very much would
like clarity about the rules, and how they’re
going to be enforced. And I think that
would help a lot, and we’re certainly working
with a variety of partners to try to do that. And then there’s the law
of unintended consequences. There’s a lot of
rules that have been put in place, some of
which have probably impacted different parts
of the market differently. So for example, to originate
a qualified mortgage, which gives lenders a little bit
of protection from liability, there’s a cap on
points and fees that can be charged that’s
3% of loan value. Well, that means that for
some smaller loan balances– and we know that
smaller loans haven’t been getting
originated– that could be a constraint to credit. I think there’s lots of
different things going on, and some of them not quite
as visible as others. Can I add to that, Jim? I think that this is a
really serious issue. And I think one way
to begin to address it is to look at the
supply, which is largely what you’ve described, and
also look at the demand. There’s a lot of set of
things that we can really look at on supply side. On the demand side, I’m
going back to what Paul said, it is a challenge for us to
figure out what’s cyclical and what’s structural, and
I think the report really sheds some light on that. One of the exciting
things is that we see potential growth in home
ownership and participation in sector from immigrants. And so, to me, that
seems like an opportunity for really targeting and working
with different communities to try to generate more
interest in that area. The other thing that
I’ve seen recently is a potential
generational shift away from home ownership
for a variety of reasons. Maybe as you were
saying, Paul, some people are damaged not only in
terms of their credit, but also in terms of
their perception of what the American dream is. And some are really starting to
think about retirement savings as opposed to home ownership
as a vehicle for wealth generation. And so that’s a serious
set of things as well, and we’re going to
have to really set through a lot of those
causes as we go forward. We have a question from Twitter. The question is the
report says minorities are expected to make up the
majority of future household growth. So what does this mean
long term for the future of housing and home ownership? Will home ownership
rates keep going down? That’s a good question. Anybody want to talk about that? I’ll start. I think we do have historically
wide gaps in home ownership rates between
minorities and whites, so something in the order
of 25, 26 percentage points, and so it’s quite substantial. It’s interesting, if you do
look at the stated desire to own a home, there really
is very little difference in terms of racial
groups in terms of saying how much they wish to own. So it’s not so much
differences in will, it’s difference in way of
being able to achieve that. So I think if you project
out where we are today and say that those disparities
are going to persist, you will see that we’re going to
have downward pressure on home ownership rates overall. I think the question is do
we have the will as a country to think about a pathway to
home ownership for people who want it, and who
could succeed at it? So I wouldn’t take
that as necessarily a given to say that the home
ownership rate has to go down. I think what we want to do
is see if there are ways to make sure that
people who can buy have an opportunity to do it
when it’s within their means. Jim, I’d just add
we at NeighborWorks have set rebuilding the path
to low income and minority home ownership as a priority. It’s going to take new
kinds of interventions, new kinds of products. We have a lot of the tools,
so the homebuyer education programs, new models
of financial coaching and counseling,
nonprofit as lenders that can underwrite
in a different way and attract that
market in a better way. So I’m with Chris. I don’t think we should look
at the projections just based on the current gaps in
home ownership rates to project that we’ll have lower
home ownership rates in future. In fact, we should have
very conscious strategies to upend that. I think it’s also a little
bit misguided to just anchor on 2014 or 2015, because
we’re at historic lows on home ownership rates
right now, and there will be some economic
forces that will naturally provide a rebound. Income is improving,
job market is improving as we speak, a lot
of job openings right now. And so I think income will
improve somewhat and help. But the other thing, more
to the original question, we will have a more
diverse population, but that millennial population
is aging right into that 30 to 40-year-old
bucket where they are more likely to be homeowners. So while there is a difference
in race and ethnic home ownership rates across different
groups, they’re all aging. And so there’s a
partial offset in some of those behavioral factors. I’ll just add that this is
another opportunity/challenge for us, because Chris is
absolutely right about the way things are looking in terms
of the next generation. One of the challenges
that there is a perception that African-Americans
and Latinos really don’t have as good a proposition
in terms of home ownership. For example, for
every dollar of wealth that a white household gains,
African-American households only gain $0.75 on that dollar,
because their properties accrue at a slower rate. For Latino families I believe
it’s $0.70 on the dollar for white households. And so the perception
of how good a deal this is in
terms of how they should invest their
money over the long term needs to be addressed. And I think it’s another
opportunity for us. So we’ve been talking a lot
about problems in the housing market and the fact that
it still faces challenges, but the rental market is very
strong as the report points out. 2014 was the 10th
consecutive year of robust growth in the
number of rental households. The national rental vacancy
rate is at its lowest level in two decades. Chris Herbert, who
were all these people who were now flooding
into the rental market and what are they renting? I think the answer
is it’s everybody, and they’re renting everything
is the short answer. The numbers are staggering. We went back and looked at
different 10 year periods, and the average annual
growth in renter households. To go back to say the 1970s,
which is when the baby boom generation was really
starting to come out, and live on its own, and really was a
big decade for rental housing. In the ’70s, we averaged about
500,000 new renters a year. Over the last 10 years,
we’ve averaged 770,000. And over the last four years,
we’ve averaged over 900,000. And this last year, based on
the best data we have available, it’s somewhere
north of a million. So that expansion in the rental
market is really phenomenal is the short answer. Who it is is it really
reflects the fact that the home ownership rates
have fallen off substantially pretty much across the board
except for among the oldest households. So we’re seeing more
young people renting. We talked a lot about
the millennials. Millennials are now solidly
in their 20s, a period of time when people tend to
rent, and that certainly boosted the rental market. I think we hear about all
this hot rental market. We keep picturing 20
somethings in Brooklyn. Well, the 20 somethings
are certainly out there, but it’s also a lot of
people in 30s and 40s and 50s who were
formerly homeowners, and it’s a lot more
families with kids too who were formerly
homeowners if we look at the age distribution. In fact, the biggest
group of people are oldest age group who are
growing fastest as renters. And that’s really
reflecting the fact that we have an aging
society as well. You asked what are they renting? And so because of
the fact there’s a diverse group of
households we’re seeing a diversity in terms
of the type of housing that’s been brought
into the rental market. And part of it also represents
an opportunistic movement of the fact that we built a
lot of single family homes over the last decade, and
a lot of those homeowners no longer in those homes,
a lot of that housing is converted over to rentals. So the figure that’s
now being shown shows by decade that we
added so many rental occupied housing units. Were they multi-family
or single family? And the dark portion show
you the single family share, and what we see is
over the last 10 years, and certainly the
last five years, a majority of what
we’ve added has been single family
housing that’s been added to the rental stock. And that’s reflecting
the fact that we have this diverse
set of households that are looking to rent. We conflate renting
with multi-family and owning with single family. That’s never been true,
but it’s less true now than it was in the past as well. So we’ve seen a lot of
single family housing. And the last two years, we’ve
seen a tremendous increase in multi-family construction. The report points
out that we now, last year, we started
more multi-family housing than we had at any year
since the late 1980s, and much more of that
is for rental housing. So the good news is that given
we have all this demand we are seeing a really strong
supply response, but as you noted with
vacancy rates down, the supply response hasn’t
been sufficient to keep up with that demand, keeping
upward pressure on rents. And so a real challenge
for us in the country is can we keep adding
multi-family housing and other types of housing for renters
across a broad rent spectrum? A lot of what we’ve been
adding has been more at the high end, and not
enough at the moderate income, and certainly the
low income levels. So what does that
mean for rents? I know in New York City it is
really, really difficult right now to find a place
to rent, an apartment. Anybody? It means that households are
incredibly cost burdened. There’s a great report
that comes out every year by the National Low Income
Housing Coalition called Out of Reach, and they
estimate the amount that people have to
earn if they’re just working a regular job in order
to afford a modest two bedroom apartment. And I think it’s close to $19
or $20 an hour at this point, and that’s a really
serious concern. And the Harvard study really
has established these benchmarks over time to understand how
cost burdened households are. I think what it means
is also that in cities like New York, San
Francisco, and others there’s a real perception and
a real fact of displacement and gentrification, people
getting squeezed out of places. And there has been a really
interesting debate online on Slate, on other
publications saying gentrification is a myth. I think a lot of
the people who are getting squeezed of these
markets would beg to differ. It’s much more complicated
than these relatively straightforward simple
analyses of what’s going on. And I think as a result you see
cities, especially the hot ones like New York City where the hot
housing market is dominating, you see cities really
scrambling to try to come up with solutions. They have a very heroic
and admirable housing plan, and a lot of other cities do. A lot of the tools
that are available are inclusionary
housing, and trying to get the private sector
to participate in that. But the fact is you can’t
really do this without capital. We can’t do it without public
investment, private capital, and the mechanisms for
really investing a lot more in affordable housing are just
not there like they used to be. And I think that’s a role for
federal and state governments as well. Celia Smoot. So one of the things we
particularly look at, especially as we look in
some of our hot markets– and I always want to
say hot neighborhoods, because you can have
a weak market that has certain hot neighborhoods–
and what we’re finding is that we generally
are looking at housing, and we have a tendency
sometimes in our industry to focus on affordable
housing as a monolith. OK, we need to figure
affordable housing, and we pick one demographic,
one particular type of AMI. We focus on that,
but really if you look at the need for housing
especially you talk about rent burden, it really is a horizon. I feel like the
private high market stuff that’s coming
online now, that’s going to take care of itself. What we have is a real
disparity about what we do around this
middle income band, because there’s not
really a true programming, there’s not true funding to
really figure out how you build and create that type of
affordable middle income band. And then you have basically
federal programming, federal funding that
supports the lower AMI, but that’s decreasing
every year. So what you end up is
this huge disparity around just rental housing in
which you have a lot of this, and then everyone else
in that other band basically has a really high
increase in their rent burden. And that goes to all the other
things we’ve talked about. Income disparity between
minority households and white households, the
millennials and the fact that they’re coming into
the marketplace with much lower incomes, and thus, they’re
more in that middle income band, but their housing burden
is just pretty, it’s tough. I’d actually like to
jump in there, Jim. I’m back on my
structural, cyclical kick, and it feels to
me, just as Celia said that the robust growth
in multi-family market is building to the increased
demand for units with amenities and fitness centers
and that sort of thing. But that it’s not building
to the needs of low income and very low income households. And what hits me about
all this is that this is a structural problem. We have had an affordable
rental housing crisis in this country for years. And what’s noteworthy, and the
State of the Nation’s Housing Report has been
reporting year after year how high the rent burdens
are in America, especially for low income people. What’s noteworthy
about this report is how much it’s grown
over the last couple years, and how much worse the
problem has gotten. Lynn Fisher, this might seem
like an obvious question, but if you look in
different sectors of the economy like
retail, for instance, retail has a high
end and a low end, it doesn’t seem to be the
same in the housing sector. It seems, certainly
here in New York, lots of very high end buildings
are going up everywhere you look. But why don’t developers step in
and build more moderate income or even low income housing? I think you need to start
with the economics of this. In economics, we would use the
word filtering that typically what happens is housing
is you build class A, high end with the best
of everything housing, and over time that housing
ages and it becomes available at different rent
levels and different price levels, and that tends to
circulate through the community in that way. And then we see revivals
where people will redevelop that housing and gentrify it. It might be brought back
up to a new price point. But typically, if
you’re a developer, you’re going to maximize
the value of your site, and that is going to be
building to the highest value that you can attain. Now, that doesn’t
mean that there’s not sites for which class B– if
I use an office term– housing wouldn’t be the right type
of stuff to build to a lower income point. And so there could be
different locations where it might be viable
from a market point of view, but maybe where zoning or other
local regulatory restrictions might not allow for the housing
to be built that you want. And I think the other
thing to keep in mind is there’s a breakpoint. Housing is big. It’s bulky. There’s only so far
down the income spectrum that you can build
new product that will be supported by the rents
or the price that are going to be paid in the other end. And so at some point, it
becomes an income problem as much as it is
a housing problem. And you have to put those
two pieces together. In fact, Jim, that’s the
way I was going to say it. The cost of land, the
cost construction, the cost of operating a building
leads to a certain rent level, and in many, many
markets that rent level isn’t affordable to
low income people. In fact, the way I
always say it and think about the next level of person,
the extremely low income person, if we could build or
provide housing at no cost, very low income
people can’t even afford to pay the
operating costs of that unit at an affordable
part of their income. And so that’s really
the structural mismatch in our society. We have a question
from Twitter, which goes to what we were
talking about before about gentrifying neighborhoods. What have hot
market neighborhoods done to achieve that status
that other neighborhoods can take as an example? Are there things that
some neighborhoods–? That status meaning
their hotness? How does a neighborhood
become hot? Is there something they can do? What made them become hot? I wonder about that. Why is Bed-Stuy a
hot neighborhood now and Sunnyside,
Queens is not? Why? One factor is often access
and transportation access. And so if you’re a place, if
you put in a new subway line, you’re going to
gentrify the area that that subway line goes to. Part of it can be that we had
areas that had been accessible, but for other reasons– their
history– Bed-Stuy’s history. And so it had become a
place that was impoverished, and safety was an issue. Then you have some people who
enter into that market who start to change the
dynamic a little bit, and suddenly you realize,
Bed-Stuy is pretty close. We can actually live there
and get to Manhattan, so that access issue
starts to become one that you can take advantage of. I always think about
it in terms of places that are going to gentrify
are places that have access to employment centers. And if they’re low
income now they’re probably at risk if there’s
a change in that dynamic. We always think about
artists and others that go in and pioneer that change,
but the other thing is that any kind of major
transit improvements will do that. In Boston, there’s going to be
an extension of the green line through part of Somerville
that has not been gentrified, and Somerville is trying
to get out in front of that by creating a master plan
for that area to say we know that this place
is going to gentrify as soon as this
green line comes in, what can we do to try to
get out in front of it? It’s not easy. I would just say
there’s numerous stories across the list footprint that
tells that particular story. There have been neighborhoods
that we’ve been working in for 20 years, and we
look up 20 years later, it’s like we did a lot
of community development in this neighborhood, and
wow, the neighborhoods start not to look like,
it didn’t look anything like it did 20 years ago. In some ways to respect
it means that everyone in the marketplace
did a really good job. But I think the fine report is
we did a good job as a housing industry is if we
did the good job, and we made sure that
we had intentionality about creating long
term affordability in the neighborhood. So we want to create communities
of choice, communities where people want to live. But as these neighborhoods
are changing, and they are becoming
more gentrified. We, as an industry,
we’ve only really have done our jobs really well if we
make sure that there is clearly affordability that’s maintained
as the neighborhoods gentrify. For another prime
example, which is in DC, which is
Columbia Heights. You have new metro
station that popped up, and then all of a sudden,
literally half that community has been priced out
of that community. And it was just one little
extension on the metro line. And now you went from
having a neighborhood where there was a lot
of CDC activity, ideas about trying to address
owner occupied housing, dealing with some
blight and vacancy, and now what you have
is a Whole Foods. It’s just completely
changed that housing market. It has. And this is a really
important point, because if you think about
the way cities operate, in a lot of cities, I would say
the vast majority of cities, it’s really low income
people on balance who take public transportation. And so you could
have a situation if you don’t do that equitable
TOD– transit oriented development– with
affordable housing and permanent
long-term affordability then you run the risk of having
transit dependent people not being able to access
public transportation. They don’t live
close enough to it, they can’t get to
their destinations, and that’s been a
focus of a lot of us in the philanthropic
sector to try to make sure that those
connections are made. The flip side to all this,
to what Chris was saying, and Jim you asked earlier
about what do people do if they’re very low income? What are their options,
is there supply of really low cost housing? A lot of that low
cost housing means driving 90 minutes for
your commute every day from a really distant
location, because housing is a lot less costly,
and then therefore, you generate a ton of traffic. And that’s how you
make up the cost in terms of your housing cost. One more example. In addition to transit
investment sometimes it’s the investment
and new employer. What’s coming to mind now
is the city of Detroit. It’s actually a
constellation of things, but in Detroit a lot
of that revitalization started when Quicken
Loans decided to move its entire workforce downtown. And its workforce
tends to trend young, and so was instant
gentrification. And around that grew up the
bars and the restaurants and nightlife that that
population tends to want. But a bunch of other
things happened too. They got a new mayor,
and a new confidence in the city government. They got a lot of work to
do, but a new confidence in the city government. There’s a bunch of other
kinds of investments coming in like a light rail system, like
new stadiums, new money coming in. And overlook that struck me
about what allowed this all to happen was that some of
the anchor institutions, including Quicken Loans
and Wayne State University, supplemented the local police
force, that they provided the security, Wayne State
provided the security for all of midtown. And Dan Gilbert provided
additional security for the space around
his buildings downtown, which made it that much easier
for people to live there. Celia Smoot, I wanted
to just ask you as moving to the area of
affordable housing again. A lot of the affordable
housing that exists today was built with programs like the
Low Income Housing Tax Credit, which were meant
to be temporary. So what happens when
those programs expire and how much is that
going to aggravate the problems that we’re seeing? I think there’s
going to be a slide. But what we’re seeing overall
is that these programmings, and it’s intentional
when you think about it. Because what it
was meant to do was to try to create this marriage
between the public and private industry, pad the banks
through getting the credits, put equity into low income
neighborhoods, which is great, and to build low income housing. And I want to point out
something about the tax credit program. It actually gets to not
extremely low income. It really does address more
of your 15, your 16% AMI. It doesn’t touch 30% AMI. That’s where the other housing
programs like the project based rental assistance
programs– HUD, USDA– those generally are touching
the lower income bands. But as we are seeing over the
years as these projects that were built some 30
or 40 years ago, lot of tax credit
projects that were built are coming out of that first
15 year compliance period. We’re seeing a trending of a
loss of affordable housing. There was literally a study
that was done that said that for every two units
of affordable housing that we do put
online, we lose one. And so it becomes
especially acute in some of our hot markets
where, just quite frankly, if you could get out
of these regulatory environment from the project based
rental assistance or the loan and housing tax
credit program you can just switch to a
market rate project. And does that tend to happen? Do these properties
usually become market rate? So what we are finding
in those markets. Literally I remember
working in DC, and working on several
projects, and that literally was what was happening. They were getting
to a place where they were able to opt out of
sectioning rental [inaudible], this hot regulatory
environment, and the projects were going market. So that happens in these hotter
markets because the rent levels that you can charge now for
these neighborhoods that are changing,
they’re gentrified, you don’t need the idea
of this rental assistance to keep the project
afloat when the market itself will take care of it. Now, I always have
this commentary. The market is not
equitable on its own. It just isn’t. So these programs were supposed
to create more equality in the market, but what
we’re finding, even for some of the tax
credit projects, you have this initial 15
year compliance period. And on most of them, after 1994
had this additional 15 years, this extended use agreement
after the 15 year compliance period. But we’re seeing even
in that particular case, after the first 15 years,
the projects are then still creeping above
maximum LIHTC rents even though those are supposed
to be the affordable units, even those rent burdens
are going up higher, even throughout this
extended use agreement. Some of it coming from the
fact that the regulators are just overburdened, and so
they can’t pay attention to that longer
extended use period. They’re focusing really
on the first 15 years. So it means that you have a
lot of housing that really is intended for low income
people that’s not so much there anymore. And then the costs,
housing costs, building costs are
really expensive, so that really puts
us back into this idea that we need to
preserve what we have. One of the things
the report says is the growing need
for housing aid continues to overwhelm the
capacity of federal, state, and local government. I know here in New York
City the city is making a real effort to build
affordable housing and has for a long time. It’s not keeping
pace with the demand. No, it’s not, and
think about a market like New York that
has such rents. But the same thing is true
in lower, not so hot markets. Even cities that have
declining populations, like a lot of the legacy cities,
lot of the Rust Belt Midwest cities. Even there, for the
housing that’s remained, it’s either not
in the best shape. It’s very distressed. We have a lot of this distressed
owner occupied housing, and then you also have, for
the rental market that’s there, it’s actually truly
not affordable for the income levels
that are there, so their rent burden even
in these weaker legacy city markets. And so you find
that the programming from federal and local
cities and states are trying to focus on how do
we create a marketplace that allows for development
of affordable housing, and really trying
to leverage what they have, and try to bring
the private market involved. If you think about some of the
program that has happened here in New York, some of the
program that’s definitely happened in San Francisco. And I wanted to tie
one particular thing in there, which we’ve talked a
lot about affordable housing. We’ve talked about this rental
and home ownership market, but there’s one
particular type of housing that was created really to
address this low income band, and that’s public housing. And you see that as a huge
burden in the marketplace. $25 billion based on some
estimates of deferred capital needs. So what we’re losing
is housing that’s being lost to obsolescence
and just conversion to market. And so the programming
that cities are trying to do is how do
we raise funding to address and build this rental housing? The city of Austin,
San Francisco, they’ve done these
general obligation bonds. And for cities to do
general ob bonds really focus really purely, we’re
going to use that funding to build and preserve housing. Jim, just a couple
quick observations too about the pressures
on these programs. So one thing to bear in mind is
that programs like the Housing and Choice Voucher
Program that pays the difference between
a household’s income and 30% of their
income in rents, with incomes falling
and rents rising, the amount of subsidy that
has to go to each person is going up. So even if we’re
devoting more money to that, how many
people we can help is being strained by the
general dynamic in the market. Another fact I
think is important is thinking about we talked
about the Low Income Housing Tax Credit. It has two uses. One use is to build
new housing and expand the supply of housing
we’ve had, but it’s also used to a great degree
by injecting capital into preserving existing stock. And so as much as
this need to preserve has been rising the Low
Income Housing Tax Credit program is getting pulled
in both of those directions. So I think there’s a variety of
reasons why there are pressures on these programs. And then I guess
the backdrop of that is the fact that,
with the recession, the number of people
who qualify for housing has been rising and rising. It’s starting to level
off a little bit as we’re seeing incomes start to
turn, but in sense that need is growing against
this background of strained resources. And the other another
piece of the puzzle too is the HOME Program,
which is a block grant program through HUD that
provides critical gap financing that closes the gap
between what the tax credit can provide, say, and what’s needed
to make units affordable. And that program’s been
subject to federal cutbacks as part of sequestration
and the like. That’s really reduced it. Lots of different
fronts are nibbling away at what we can do, and
a situation where already we only help one out of
four people who are eligible for this assistance. We don’t have a lot
more time, but I want to give the audience
a chance if you’d like to ask a question,
please just raise your hand. In the meantime, I wanted
to ask Lynn Fisher. One of the things that came
out of the report, which struck me was the millennial
generation is huge. I’m used to thinking
of the baby boomers as the dominant
generation and everything. But the millennial
generation is huge, and they are now
at the point where they are moving into buying
houses or they should be. So what does that actually mean
for the housing market today, and what’s the potential
impact 10 years from now? I think the impact today is
somewhat obvious by what Chris was talking about earlier. There was a graphic,
a great graphic, in the report on
this where we look at the number of millennials
that are out there in terms of population, and they
have been very, very slow– and the graphic is up now,
population’s on the left– the number of households
in the same age groups and the same cohorts
are on the right. Millennials have been really
slow to form new households. They haven’t had the money. They came out, got their first
job if they could find one, and money’s been tight. Still living in
their parents’ home. They’re still living
in their parents’ home. They’re doubling up. But what we’ve seen, very
end of 2014– and I think, again, the report alludes
to this– house formation started picking up. And just at the time that we
know real wage growth has, in fact, began and more
jobs are available. So we’re seeing the simultaneity
of household formation. And so what that big
millennial population means is that there are
a lot of households that are going to come. Right now, they
are overwhelmingly becoming renters, because
they’re getting that first job, they’re getting settled,
they’re moving out of their parents’ homes. And so we’re seeing, there’s
more multi-family housing under construction right
now than at any time since the mid 1970s, but for
a couple months in the ’80s. So I know people are somehow
dissatisfied with the amount that we’re producing,
but it is record levels of multi-family housing that’s
being produced right now. That’s the short-term impact. Everybody’s looking
at them as renters. I think the long-term picture
is really interesting, because we don’t know. Everybody tries to get
inside the millennials heads. We’re not exactly sure
where they’re going to go. A colleague of mine is fond
of saying 35’s the new 25. Millennials have more education. They’re putting
off families later. Especially, the women are
much more highly educated than they were
even 20 years ago. And they’re putting off
families till later, so that home buying
age is creeping up, but there’s still
the sense that they want to become homebuyers
in and around that 35, 40-year-old age. So my numbers are
a little bit more may be optimistic on how many
households they’re going to be. I think there’s going
to be about five million new households
over the next 10 years that are age 45 and under. And of those, who’s going
to be homeowners and who’s going to be renters
I think is still something to be figured out. If it stays at 2014
ownership rates, and we look at this by age and
race and the specific groups, if we just play that
out with that five million new households, it
could be a 50/50 split, owners and renters. If we revert to something
more like a long-term average, not as high as we were in
terms of home ownership rates in 2005, but something
more like a long-term average, we need the economy
to support it, we need the mortgage
market to be able to support those things. But if that would
happen then we could be looking at four million
new millennial homeowners and a million renters. Either way, there’s a
lot of housing demand coming from the sector. No matter which way they’ll
go, we need housing. Jim, just want to throw
in a plug for the Baby Busters, the Echo Boom
generation, Gen X. Me. For Lynn. There’s a lot of talk
now about the Baby Boom, the age of the Baby
Boom, the impact they’re going to have on
the housing market, and a lot of talk for good
reason about the millennials that we were just talking
about, because they are so big, and they are going to
form a lot of households. And as Lynn said,
I think there’s going to be plenty of
rental demand and homeowner demand from that group. I think you get
in trouble if you try to peg them because they
are the most diverse generation that we’ve had in this country. And so there is no
millennial, there’s a lot of different
types of milennials. But back to the
Gen X generation, we call them out in this
report because that’s really a group that is,
because they’re smaller, they haven’t gotten
as much attention. And that’s part of the headwind
the housing market has faced is the fact that we have many
fewer people between, say, 35 and 54 right now, which
is really the period of time when you’re most active
in the housing market. And then you factor in
that this group is also one that saw their home
ownership rates fall off the most from where
they were in 1993. That group is really
one that’s struggling. They’re more likely to have
gone through a foreclosure, more likely to have that kind of
blemish on their credit report. And to the extent
that that group wants to get back into
the housing market, I think we need to figure out
a path for them to the extent that, again, that
they want to and can. Because that group is important
to the housing market, and also their
phase of life where you’re trying to get
that housing stability that will be important for them. I want to take a question. I had a quick question about
how foreign investors have been impacting the
housing market, especially in places like New York. As a millennial in
[inaudible] because I can’t afford to live in Manhattan. See a lot of really [inaudible]
really targeted to New Yorkers. A lot of foreign investment in
the housing market in New York, in Manhattan, in Brooklyn. What impact is that having? It’s having, well, it
depends on who you are. If you’re an owner
of the building, then it’s having a
great impact this year. If you’re a millennial renter
seeking a place to live, it has a terrible impact. There’s an exceptionally
great New York Times series called “Towers of
Secrecy” that came out I think last year about
this very phenomenon of foreign investors
coming in and buying up lots of apartments in
different buildings to the extent that we have
these iconic skyscrapers that are going up in New York City
that might be half or 75% owned by foreign investors. And so it’s a really
out of control phenomenon where you have
these units sitting empty while lots of people are
looking for housing just to find a place to put
their head down at night. Is that as much a factor in
places other than New York though? Are we seeing a lot of
foreign money coming in to invest in US real estate? I think we’re
seeing– and I’m not an expert on this
particular point– but anecdotally, we’re seeing
Chinese investors, for example, investing in some markets
more on the West Coast. We’ve recently been
in Detroit, and there are some foreign investors
coming in, outside investors coming into that city. There’s always going to be
a market for speculation. I think we have
unprecedented levels, because of the unequal times,
the inequality that we’re seeing in various
societies right now, and people looking to
invest their money. If I could put a slight
silver lining on that cloud, and it is a cloud. It does represent, though,
people’s expectation about growth in the US versus
other places in the world. It’s very hard, and it’s hard
to think about housing markets, and recognize the fact
that the rest of the world really impacts our mortgage
markets, our interest rates, and our housing market. But it does say something about
where people want to invest. So we can take a
little credit for that. Time for just one
other silver lining. I am aware of a
development in a tougher part of the town of
Kansas City that’s being financed for
foreign investors under a little used piece
of our immigration code, that if you invest a certain
amount of money in this country you can establish
residency in this country. And so it’s a Asian-Americans
for Equality, which is a New York based nonprofit. It’s doing a redevelopment
of warehouse district and with residential and
commercial in Kansas City. It’s revitalizing a neighborhood
with foreign investors’ money. I guess we’re talking
about it differently. I think the New
York Times series, which was very good– I liked
that– was saying that there are these wonderful buildings
going up in Manhattan that are sitting empty most of the
time, because they’re owned by foreign investors
who just want to have a pied-a-terre in Manhattan,
which is, I guess, a different thing
from investing, from foreign investing,
which is a good thing. If we have any other questions? Given the growth in
single family rentals, especially for
affordable rentals the vast majority are single
family and the changes that have happened
in that market both in terms of the number
of single family rentals that are out there and
the types of investors that are buying them. It’s not something we’ve talked
a lot about on this panel, and it’s maybe not something
we have a ready infrastructure to deal with. Can you all [inaudible]
talk a little bit about where you think that market’s
going and what kind of things we need to be
looking forward to. We’ve always had a
lot of single family homes on the rental
market, so it’s not like it’s a new phenomena. Certainly this larger
institutional presence is new. And the fact that it’s gone
from about 31% to 35% of rentals are single family homes
is a tremendous increase in a short amount of time. I think there’s good
news, bad news there. And for the most part, I
think it’s probably good news. And I think that the absorption
of that housing during a period time when the housing
market was troubled helped to stabilize
a lot of communities. I think it’s also
potentially creating new opportunities
for rental for people who might want to have a
single family home before felt that the way to get into that
was through home ownership, but for other reasons
maybe they don’t want to be there for that long
and those transaction costs and that risk were not something
they wanted to take on. To the extent that there is a
professionally managed asset class that might be
more attractive to people could be a good thing. There’s a lot of concerns
about the nature of that at that investment
interests and what effect it’ll have on neighborhoods. I think that that’s an open
question that we need to see. I think it depends on the
strategy for those firms if they have an exit strategy
that’s too abrupt that might have a damaging effect. But I think if they have
a long-term interest in maintaining that
asset then there’s no reason why they can’t
be good neighbors as well. But lots of open questions. The California Community
Reinvestment Coalition came out with a report
with a number of questions I think we need to
pay attention to. But issues will have
to do with management. Can you manage this
diverse portfolio? I’ll let Paul talk
to that because I think there’s
reasonably that you can, but that is a question that
people are going to face. I join Chris with
all the concerns that we’ve had about
the entrance of the for profit owners into it,
but there’s some ambivalence. It’s bringing
professional management to an inventory that was
managed by mom and pops, ones and twosies, which
is isn’t very efficient, and also sometimes
led to the fact that rental housing
wasn’t accepted in a lot of neighborhoods
as a result. My biggest hope over
this time– and we haven’t made as much progress–
was that the nonprofit sector would enter into the
rental management to have longer term stewardship
of the rental housing, to management
consistent with both the resident and the community
values and stability. But it’s a challenging model. The scattered site
rental housing is much more
expensive to manage. We were talking earlier
about the heterogeneity of the single family
stock in America. Each one is going to
have a different toilet, a different boiler, a
different carpeting, but over time if you
accumulated a sizable portfolio, you could start to
standardize and create an efficient business model
as some of the folks Chris was talking about are showing. You can create efficient
management business models. And my final comment
on this is that I still remain bullish on that vision
in that we did a lot of work in my previous job with
international organizations, especially in the
UK that do have huge portfolios of single
family scattered site rental, and they have very
sophisticated business models. They’re providing a
terrific product that’s affordable to working
class people in the UK, and there’s a lot we can learn
from what they’ve learned in how to manage this stock. We’ve been talking about the
release of the Harvard Joint Center for Housing Studies 2015
State of the Nation’s Housing Report. I’d like to thank you
all for participating. This has been great. We have heard from
Chris Herbert, the Managing Director
of the Joint Center, Paul Weech, President and
CEO of NeighborWorks America, Celia Smoot, the Director
of Housing for the Local Initiatives Support
Corporation, Lynn Fisher, Vice President of Research
and Economics at the Mortgage
Bankers Association– and a proud Penn State
graduate– and Don Chen, Director of
Metropolitan Opportunity here at the Ford Foundation. Thank you very much. Thank you.

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