Housing Supply and Prices
The nation’s housing stock grew by 1.7 percent through the second quarter of 2008, adding a half-million each of owner- and renter-occupied units as well as more that 1.25 million vacant units. The rental vacancy rate of 10.0 percent in the second quarter was up from 9.5 percent a year earlier. Although rental vacancy rates remain above historical averages, many local rental markets have very little housing that extremely low-income renters can afford without HUD program assistance. Newly constructed apartments tend not to be affordable: those completed in the first quarter of 2008 had median asking rent of $ 1,111, up 16 percent from a year earlier.
Among single family homes, declining home prices (largely attributed to the mortgage crisis), and additions to the housing stock have made home ownership slightly more affordable in FY 2008, after a decade of rising home prices. In September 2008, the median sales price of an existing home was 8.8 percent less than a year prior. This was partially due to a more restrictive credit market and a drop-off of investor purchases that reduced demand for new homes. As a result, sales of new homes in September were 33.1 percent below last year’s volume. Sales of existing homes, however, began to recover, with 7.8 percent more homes sold in September compared with a year earlier, and with the inventory of existing homes for sale shrinking by 2.4 percent over the same period.
To reduce the surplus of new single-family homes, developers continued to slow construction of single family homes in FY 2008, after record level activity during 2005 and 2006. Seasonally adjusted annual rates for single family building permits during the second quarter of 2008 were 40 percent lower than a year earlier.
Household Incomes and Affordability
Affordable rental housing remains a challenging issue for the U.S. The most recent data show that in 2005, 5.99 million very low-income renter households had “worst case needs,” either by having severe rent burdens (91 percent), severely inadequate units (4.4 percent), or both (4.3 percent). This was primarily due to the insufficient supply of rental units affordable to households with extremely low-incomes.
However, the “housing opportunity index,” (HOI) calculated by the National Association of Home Builders and Wells Fargo showed an improvement in housing affordability for single family owner-occupied homes. HOI represents the percentage of homes that are affordable to a median income family in a metro area. The index improved to 55.0 percent in the second quarter of 2008, a jump of 11.9 points from a year earlier, and implying that over half of homes sold were affordable to median income families. Nevertheless, the index value of 63.7 percent recorded in 2002 and 2003 was substantially better, because both home prices and interest rates were lower then.
As a result, home ownership remains out of reach for many low and moderate income families. Given the nation’s record level foreclosures and defaults, the demand for affordable rental housing is likely to increase further. However, limited federal resources for housing assistance constrain HUD’s ability to provide access to more affordable housing. Substantial increases in voucher costs and utilization have strained HUD’s Section 8 program resources.
Residential energy costs are often overlooked as a factor affecting housing affordability.
According to the Joint Center for Housing Studies, 2.5 million extremely low-income households spent more than 30 percent of their incomes on home energy in 2003. From the end of 2002 to September 2008, housing “fuels and utilities” prices have increased by 58 percent. High energy prices pose a risk to HUD’s public housing and Section 8 programs, which cover utility costs as part of gross rents.
FY 2008 PERFORMANCE AND ACCOUNTABILITY REPORT
The unemployment rate is an indication of shocks to household income that may make housing unaffordable. Due to a waning economy and an unstable housing market, the unemployment rate increased to 6.1 percent at the end of FY 2008, up from 4.7 percent a year earlier. According to the Bureau of Labor Statistics, FY 2008 closed with a net loss of 519,000 jobs, following gains in the first quarter.
The industries with the greatest numbers of unemployed persons are construction, manufacturing, and professional business services. The manufacturing sector currently accounts for 9.7 percent of total non-farm employment, but is expected to shrink to 8.2 percent by 2014. Communities that continue to rely on manufacturing employment may be adversely affected by this trend, although such losses sometimes are compensated by economic transformation and gains in new skills accrued by manufactured workers. These macroeconomic trends can affect HUD’s success in strengthening communities.
At the local level, unemployment can indicate workforce skill gaps, or spatial mismatches between unemployed workers and available jobs that are exacerbated by insufficient transportation options. Many older communities also face fiscal pressures as they struggle to provide quality services, attract employers, and manage the deterioration of housing stock, especially as real estate values decline eroding the property tax base. Rural communities often face additional challenges because of the changing structure of the farming industry, underinvestment, weak infrastructure, limited services, and few community institutions.
For individuals in marginal housing situations or challenged by personal issues, loss of employment can quickly lead to homelessness. Along with the availability of low-cost housing, personal issues such as domestic violence, substance abuse, mental illness, disabilities, and lack of education and job skills can lead one to become homeless.