The Boston Globe presents the Harvard Kennedy School PolicyCast, a weekly podcast on public policy, politics, and global issues. HKS PolicyCast is hosted by Matt Cadwallader at Harvard Kennedy School.
It has been nearly eight years since a series of financial crises dragged the world economy into a great recession, and while signs of recovery abound, you might not know it from looking at the housing market.
Homeownership is dropping. Rents are rising. Access to credit is limited. And the next generation of potential homebuyers has been historically late to the game.
This week on the Harvard Kennedy School PolicyCast we speak with Christopher Herbert, managing director of the Harvard Joint Center for Housing Studies, to try to get a sense of just what is going on with housing in the United States.
“It’s more than a blip on the radar,” says Herbert. “This is a pretty fundamental shift, and one that I think is a reason for concern.”
Herbert says that homeownership, a key building block of middle-class wealth over the course of the 20th century, is now at its lowest level since the late 1960s and continuing to drop.
“We have not yet come close to finding a bottom in the homeownership rate.”
Listen to HKS PolicyCast’s interview with Christopher Herbert
Although surging property values may lead some in Boston to conclude that the culprit has been high prices, Herbert says that nationwide, the costs of buying a home are as competitive with rent as they have been “going back many years.”
It stands to reason that this should result in fewer renters and more potential buyers, but it turns out the opposite is happening. Herbert says renter households are growing faster than at “any time in the last half-century,” and “renters are spending record levels of income on their monthly housing cost.”
“It used to be that this rental burden issue was primarily concentrated at the low end,” he explains, “but if you live now in those places like New York, or Boston, or San Francisco, and you’re making between, say, $30,000 and $75,000 a year in income, we’re finding more and more of those households are facing these rent burdens, which is both making it difficult for them to afford what else they need now, and difficult to save for buying a home.”
While Herbert believes there is a demand for homeownership, it has been stymied by a combination of factors, including difficulty accessing mortgage credit and the fact that adjusted for inflation, wages are at the same level as 20 years ago.
“[What’s] often overlooked,” he says, “is the fact that median household incomes are back, in real terms, to where they were in 1995. Up to now, we haven’t really had employment growth reach the point where we’ve seen pressure on wages.”
Further confounding the issues: a collection of demographic and economic trends that has changed how the next generation of potential home buyers have approached the market. Not only have millennials been slow to enter the housing market, as the Globe recently reported, but they’ve also been pushing off other big life decisions, like getting married or having children.
Some of these trends stretch back decades, but for millennials, the impact of the recession was particularly acute as they struggled to establish careers and save for the future. Herbert expressed particular concern about student debt burdens.
“The share of young people who are carrying student debt is about twice of what it was 12 years ago,” he explains. “It’s gone from about 20 percent to 40 percent. The average amount of debt they’re carrying has also doubled, from about $15,000 to $30,000 . . . I think for a number of millennials, that issue of the rise in student debt is going to be significant.”
In the interview Herbert also discusses the 80 percent of low-income households that pay more than they can afford for rent, and he discusses novel ways communities can address the problem.
If you’d like to learn more, you can read the 2015 State of the Nation’s Housing Report at the Harvard Joint Center for Housing Studies website.