The ongoing American housing crisis

David Coates - Professor of Anglo-American Studies, Wake Forest University, North Carolina

The lingering foreclosure crisis

The foreclosure crisis in the United States has eased, but it has not gone away. Even now there are still over 900,000 houses in some form of foreclosure, and more than five million mortgaged houses remain trapped in negative equity.  Those caught up in foreclosure still carry heavy financial burdens because of their earlier losses, and still find their return to house ownership impaired: indeed ‘less than one-third of families who lost their homes to foreclosure…in the past decade are likely to become homeowners again.’

With the wisdom of hindsight, it is clear that the public policy response to the original foreclosure crisis was woefully inadequate. The Obama Administration’s Home Affordable Modification Program initiative, that faced as many as four million troubled borrowers at the peak of the crisis, helped less than 900,000 of them re-negotiate their mortgages in its first six years of operation. In part this was because it handed the administration of its support for borrowers over to the very banks that had triggered the crisis, and which so far have rejected 72% of all the requests for help submitted to them.  As The New York Times correctly put it just recently ‘the promise of widespread relief for homeowners facing foreclosure has never been realized.’

The ongoing housing crisis

The more general housing crisis also lingers on. Indeed, for the millennial generation, that crisis is getting steadily worse. Housing finance in the US was effectively nationalized in 2009, and has remained so since.  So policy vehicles existed immediately after the crisis, and exist now, for imaginative public policies but they are not being used in that manner.  Instead they are being used to re-introduce conservative underwriting standards into housing markets made unstable prior to 2008 by their erosion.  In the US, we are back to a ‘20% deposit and no more than 30% of gross monthly income’ kind of housing finance regime.  With stagnant wages and low starting salaries for young workers in particular, that return to conservative underwriting standards effectively closes the door on house purchase for more and more members of both the millennial generation and of the generation (‘X’) that preceded it.

So even with record low mortgage interest rates, the demographic profile of home ownership in the United States continues to age. The home-ownership rate is now down to 63.7% from its 2004 peak of 69% – the result of the interplay of tougher underwriting standards, house prices rising roughly twice as fast as wages, lack of equity among potential buyers in their forties, and lack of deposits among cash-strapped 20 year olds.  The Urban Institute recently estimated that as many as 1.2 million would-be home-buyers are currently shut out of the US housing market because of tougher underwriting standards alone.

Problems in the rental sector

The result of this has been an ever greater number of people pushed into the rented-housing sector –particularly young adults ‘held back by problems pinning down a job, huge student debt burdens and difficulties saving for a big down-payment.’ This might not matter so much if the rental sector was working well, but it is not.  Instead, the crisis in home-ownership is now spreading into the rental sector. In a whole string of US cities, the cost of renting houses, flats or even rooms is currently rising at a rate faster than the incomes of most of those needing to rent them.  In the US, the number of single family home rentals increased by 3 million between 2006 and 2013, and almost half of those renters now have housing costs that take up more than 50 percent of their incomes.

This is a burden that falls particularly heavily on the young. A recent American study found that one in five millennials with children are currently impoverished, their finances drained by rent, student debt and childcare costs. Another report found that ‘higher rent costs are making the process of saving for a down-payment very, very difficult.’ And even getting into the rental sector in the United States is becoming harder for young adults, as demand for accommodation continues to outstrip supply.  The Pew Research Center recently found that while very young adults (18-24) are marginally less likely to be living with their parents now than in 2013, those aged 25-34 are more likely to still be there: one in six older millennial men currently living at home.

The inadequate provision of social housing

The federal government currently spends more than $270 billion a year in housing aid, the vast majority of which does not go to the poor. It goes in mortgage relief to already affluent homeowners.  The bit that does go to the poor – primarily through HUD programs on housing assistance (over $50 billion in 2009) – is invariably means tested, and beset by funding limits. Indeed in some cities, the waiting lists for housing assistance are now so long – up to several years – that housing authorities no longer add new families to the list because there is simply no prospect of newer families receiving a flat in the foreseeable future.  The parallel HUD-financed programs of urban renewal continue to be undermined as vehicles of social progress by the racially-structured nature of unemployment and incarceration, and by the associated white flight to America’s suburbs.  The result is a persisting and enormous gap in access to housing in the United States organized overwhelmingly on the basis of race.

The individual and combined consequence of these four ongoing problems is, what Angus Armstrong recently called when describing the UK housing market, a lack of ‘intergenerational fairness’ – and this is being experienced on both sides of the Atlantic. Members of the younger generations in the US and UK are having to spend significantly larger proportions of their increasingly limited incomes in order simply to access average quality housing.  And this intergenerational unfairness is not equally shared.  On the contrary, the distribution of the burden of the unfairness is itself unfair. It is not shared by social class even within the generation most exposed to it: children with affluent parents have access to family support when financing their housing that the children of less affluent parents do not.  And it is not shared by ethnicity: the burden of financing housing, and the barriers to access to adequate housing, fall heaviest on ethnic minority populations.

No progressive party or policy programme worthy of the name should allow any of this to continue unchallenged, which is why the absence of a housing crisis dimension to the current debate between Bernie Sanders and Hillary Clinton is so frustrating. When such a major social crisis and public policy failing is being ignored, no wonder that faith in the efficacy of the US political system is currently so low.

A fuller and more comparative analysis of housing problems and the young by David Coates can be read here.