Strong Foundations: Financial Security Starts with Affordable, Stable Housing a Research Primer
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STRONG FOUNDATIONS: FINANCIAL SECURITY STARTS WITH AFFORDABLE, STABLE HOUSING A RESEARCH PRIMER JANUARY 2020 About EPIC The Aspen Institute Financial Security Program’s (Aspen FSP) mission is to illuminate and solve the most critical financial challenges facing American households and to make financial security for all a top national priority. We aim for nothing less than a more inclusive economy with reduced wealth inequality and shared prosperity. We believe that transformational change requires innovation, trust, leadership, and entrepreneurial thinking. FSP galvanizes a diverse set of leaders across the public, private, and nonprofit sectors to solve the most critical financial challenges. We do this Acknowledgements through deep, deliberate private and public dialogues and by EPIC would like to thank Steve Holt of HoltSolutions, elevating evidence-based research and solutions that will Katherine Lucas McKay, and Genevieve Melford for strengthen the financial health and security of financially authoring this report, and EPIC’s Dyvonne Body for vulnerable Americans. To learn more, visit AspenFSP.org research assistance and data analysis. Additional thanks or follow @AspenFSP on Twitter. to our Aspen FSP colleagues: Karen Biddle Andres, Katie Bryan, Meghan Poljak, Ida Rademacher, Joanna Aspen FSP’s Expanding Prosperity Impact Collaborative Smith-Ramani, and Emy Urban, for their assistance, (EPIC) is a first-of-its-kind initiative in the field of consumer comments, and insights. We are grateful to our Advisory finance, designed to harness the knowledge of a wide Group members: Luke Apicella, George Carter III, Robert cross-section of experts working in applied, academic, Dietz, Stacey Epperson, Ingrid Gould Ellen, Mike Loftin, government, and industry settings toward the goal of Jeff Lubell, Alanna McCargo, Jud Murchie, Milton Pratt illuminating and solving critical dimensions of household Jr., Vincent Reina, Sherry Riva, Shamus Roller, Jenny financial insecurity. Schuetz, Kristin Siglin, Celia Smoot, Cindy Waldron, and Barry Zigas. This Primer would not be possible without EPIC deeply explores one issue at a time, focusing on the generous contributions of the more than 100 people challenges that are critical to Americans’ financial security who participated in an interview or expert convening but are under-recognized or poorly understood. EPIC (See Appendix 2) or responded to the expert survey (See uses an interdisciplinary approach designed to uncover Appendix 1). Finally, EPIC thanks our funders, Metlife new, unconventional ways of understanding the issue and Foundation, The Prudential Foundation, and the W.K. build consensus among decisionmakers and influencers Kellogg Foundation, for their generous support. representing a wide variety of sectors and industries. The ultimate goal of EPIC is to generate deeply informed The findings, analysis, and conclusions expressed in this analyses and build diverse expert networks that help report—as well as any errors—are EPIC’s alone and do stakeholders (1) understand and prioritize critical financial not necessarily represent the view of EPIC’s Advisory security issues, and (2) forge consensus and broad support Voice Design Collective LLC, Arlington, VA Group members, funders, or other participants in our to implement solutions that can improve the financial lives research process. of millions of people. DESIGN: STRONG FOUNDATIONS: FINANCIAL SECURITY STARTS WITH AFFORDABLE, STABLE HOUSING TABLE OF CONTENTS INTRODUCTION 2 SECTION 4: POLICY AND MARKET FOUNDATIONS OF HOUSING SECTION 1: HOUSING AFFORDABILITY AFFORDABILITY AND STABILITY 32 AND STABILITY IN THE UNITED STATES 4 Policies Shape the Housing Markets—Early How Housing Markets Work 5 Interventions and Inventions 33 Overview of US Households 7 A Painful Legacy of Racial Exclusion 35 Housing Policy Revolutions 36 Housing Affordability—Recent Trends 9 Market Revolutions 39 Housing Stability—Recent Trends 13 The Great Recession and its Aftermath 40 A Painful Legacy Endures 41 SECTION 2: WHO LACKS HOUSING AFFORDABILITY OR STABILITY? 16 SECTION 5: DRIVERS OF HOUSING Housing Affordability Definitions and Metrics 17 UNAFFORDABILITY AND INSTABILITY 42 Housing Stability Definitions and Metrics 18 Four Key Dimensions of Unaffordability Populations Most Likely to Lack and Instability 43 Housing Affordability 20 Insufficient Supply of New and Existing Housing 43 Populations Most Likely to Experience Demand-Side Factors 45 Housing Instability 21 Racial/Ethnic Segregation and Discrimination 47 The Role of Place 22 Policy Environment for Renters 48 Housing Affordability and Stability in Rural Markets 23 SECTION 6: LOOKING FORWARD 50 Emerging Issues 51 SECTION 3: IMPACTS OF HOUSING Missing Data 51 UNAFFORDABILITY AND INSTABILITY 28 Unaffordability 29 CONCLUSION 52 Instability 29 A Record of Successful Interventions 30 Impacts on Other Stakeholders 30 Appendix 1: Methodology 53 Appendix 2: Advisory Group, Interviewees, and Convening Participants 54 Appendix 3: Different Measures of Housing Affordability 56 Appendix 4: Demographic Trends in Housing Cost Burdens 58 Endnotes 64 TODAY, MORE THAN 38 MILLION (1 IN 3) US HOUSEHOLDS, NEARLY 100 MILLION PEOPLE, LIVE IN HOUSING THAT IS NOT AFFORDABLE TO THEM INTRODUCTION Housing is the largest household expense for with the inevitability of the unexpected. Households’ most Americans. This is perhaps unsurprising, struggles with affordability and stability can negatively given housing’s central role in both the quality of our influence employment opportunities, earnings, mental daily lives and our sense of security and opportunity. and physical health, and children’s social and cognitive Affordable, stable housing is the platform upon which a development to long-lasting effect. family can build financial security and pursue the lives they want today and in the future. While the drivers of housing unaffordability and instability have deep roots in US history—reflecting Over the past two decades, troubling trends have centuries of policy choices and patterns of racial and emerged in families’ access to stable, affordable housing: socioeconomic exclusion—since 2000 economic trends incomes have grown sluggishly while home prices and have diverged from historical trends to exacerbate the rents grew rapidly; high-growth urban areas with good challenges and affect people farther up the economic jobs, the source of most national economic growth, have ladder. The long-term pattern of hand-in-hand growth chosen to build less housing than they need to keep up of home prices and household incomes has been replaced with new households; household formation has slowed, by housing costs rising faster than the general inflation as young adults “double up” or live with their parents far rate, outstripping the income growth rate every year.2 into adulthood; and homelessness is growing in most The foreclosure crisis pushed millions of homeowners major cities. into rental markets, yet apartment construction has not kept up even with population growth and many Today, more than 38 million (1 in 3) US households, foreclosed homes were acquired by investors and turned nearly 100 million people, live in housing that is not into rental properties, reducing the stock of homes affordable to them.1 Uncertainty about the security of available to prospective homeowners.3 Homeowners’ the roof over one’s head is an acute source of harm for a incomes have grown more than renters’, but not nearly smaller but still significant number. Paying too much for as much as home values, also in large part due to a housing leaves individuals and families less able to cope failure to construct what is required.4 The pressures 2 STRONG FOUNDATIONS: FINANCIAL SECURITY STARTS WITH AFFORDABLE, STABLE HOUSING on prices, availability, and stability play out differently Section 1 of the Primer reviews how housing markets across local markets due to land use and landlord- work and the state of housing affordability and stability tenant policies, economic conditions, and the nature in the United States today. Section 2 examines more of the housing stock. deeply the definitions of affordability and stability and the populations facing the greatest risks. Section Countering the disconcerting trends are reasons for 3 explores the impacts of rising unaffordability and optimism, including a track record of interventions with instability. Section 4 explores the historic policy and proven effectiveness. Policies to support widespread market foundations underlying housing affordability and access to credit, homeownership, and wealth-building stability, and Section 5 identifies the principal drivers have been incredibly successful for the white Americans of today’s housing landscape. Section 6 looks forward, for whom they were initially developed and harmful identifying emerging issues for further research. to those who were excluded due to racism and other prejudices. Housing assistance produces positive outcomes for those who receive it. Increased public attention to the underlying drivers is generating political interest in addressing the challenges. In recognition of the critical role these issues play in household financial security, EPIC is taking a hard look at housing affordability and stability to understand the meaning, scope, trends, impacts, manifestations, and drivers of these challenges. Affordability and stability (or lack thereof) are inextricably related and can have compounding effects, so we are addressing them together as interrelated challenges.