Persistent supply issues could add to Americans' housing costs: JCHS

If current inventory shortages continue, rising costs will limit housing options for many American buyers and renters, according to a new Harvard Joint Center for Housing Studies report.

"To ensure that the market can produce homes that meet the diverse needs of the growing U.S. population, the public, private, and nonprofit sectors must address constraints on the development process," said Chris Herbert, managing director of the Joint Center for Housing Studies, in a press release. "And for the millions of families and individuals who struggle to find housing that fits their budget, public efforts will be necessary to close the gap between what they can afford and the cost of producing decent housing."

Housing costs, whether one makes a mortgage payment or a rent payment, continue to rise faster than income. That will lead to slowdown in household growth and housing demand, the Center's State of the Nation's Housing report said.

"As it is, the market has only produced enough homes to match the pace of household growth, let alone cover replacement and second-home demand and allow normal levels of vacancies," the report said.

The leading causes for the lack of construction activity were the years it took to absorb the excess supply of new homes created during the boom era and persistent labor shortages currently affecting the construction industry.

"The most significant factors, however, are rising land prices and regulatory constraints on development," said Herbert "These constraints, largely imposed at the local level, raise costs and limit the number of homes that can be built in places where demand is highest."

Still, the number of home owners rose sharply, even as the ratio of median sales price to median income went from 3.3 in 2011 to 4.1 last year. The peak of 4.7 occurred during the boom year of 2005.

Whether owning or renting, JCHS noted that in 2017, 31% or 37.8 million households were cost-burdened for housing, meaning they spent over 30% of their income on a residence. Nearly half of that group, 18.2 million households, were severely burdened and spent over 50% of their income on housing.

Affordability conditions vary for would-be buyers. The median sales price to median income ratio for San Jose, Calif., was 11 in 2018, while for Santa Cruz, Calif., it was 10.5. California accounted for 11 of the top 15 metro areas with the highest ratio, with two others in Hawaii.

At the other end of the table was Decatur, Ill., with a 1.7 ratio, followed by Johnstown, Pa., and Danville, Ill., at 1.8.

Of the nation's largest metro areas, New York had a 5.3 ratio, Los Angeles was at 9.4 and Chicago was at 3.6. The ratio for Dallas was 3.7 while for Houston it was 3.6.