Outlook is bleak for poor renters, first-time buyers, Harvard study finds

October 14, 1990

Housing affordability problems of first-time homebuyers and low- and moderate-income renters will not fade away in the 1990s, according to "The State of the Nation's Housing 1990," the third in a series of annual reports by the Joint Center for Housing Studies of Harvard University.

The report states that rents nationwide have stabilized at record high levels, although rents paid by the poor continue to rise.

Among all poverty level renters, 68.1 percent paid more than half of their income for rent in 1987, without a guarantee of decent living conditions. More than a third of poor households live in structurally inadequate housing.

Despite the continued housing problems of the poor, housing assistance efforts lag. Of the 7 million poor renter households counted in 1987, only 2.3 million received housing assistance, and another 1.5 million received income assistance, but no housing assistance.

The remaining 3.2 million poor renters faced the rising rent burdens unassisted. "The poor households that receive neither housing assistance nor income assistance face a quality/cost trade-off," explained William Apgar, co-author of the report.

"Without federal housing assistance, these households can either devote large shares of their meager incomes to secure adequate housing, or they can pay less but live in units of marginal quality. Even this choice is vanishing, as low-cost units rapidly disappear from the inventory due to abandonment or upgrading for higher income tenants."

High housing costs also make it difficult for low- and moderate income families to buy a first home.

The ability of young households to buy homes has improved somewhat since the early 1980s, but homeowner costs as a percent of potential first-time buyer income still remain well above levels recorded 20 years ago.

"Lack of income and wealth particularly limit access to homeownership by black households," said Denise DiPasquale, another co-author of the report.

"Even with a 10 percent down payment mortgage, only 20 percent of white renters and 4 percent of black renters have the income and wealth to purchase a typical starter

home," she added.

Ms. DiPasquale says that many young renters delay becoming homeowners because they lack the cash needed for the down payment or the income required to qualify for a mortgage. As a result, they are locked out of a primary savings vehicle.

"These potential buyers face a Catch-22: they lack the savings and wealth to secure a home, the very asset that has proven to be the best source of wealth accumulation for the vast majority of American house holds," she observed.

Looking to the future, the report sees little reason for the much-discussed sustained housing price decline to materialize. "Housing prices may fluctuate over time, but those who forecast an impending nationwide housing market crash are misreading the likely trends of the 1990," said Mr. Apgar. Household growth will slow in the decade ahead, he says, but it will not result in an actual decrease in either the total number of households or overall housing demand.

Gains in household income and wealth will add further to housing demand. "Combined with continued high housing construction costs, growing housing demand implies that persistent declines in home prices are unlikely on a national basis," he concluded.

"Since a substantial share of national wealth is tied up in home equity, the forecast stability of home prices is good news for the nation's 55 million home owners," Ms. DiPasquale noted.

By analyzing nine representative markets over a 15-year period, the study provides clear examples of how equity in a home grows over time. Even in markets where house price inflation has been relatively modest, homeowners have reaped substantial increases in equity.

Noting that homeownership and the associated equity buildup are major components in the financial security of elderly Americans, the study calls for continued efforts to expand homeownership opportunities among black households, young households, or others with limited financial resources.

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