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In last week's blog post, we touched base on the concept of ramping up construction to increase the supply of housing options—thereby lowering prices and making housing more affordable. However, when we analyze this relationship using data provided by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, it’s evident that building more houses alone cannot solve the affordable housing crisis facing our nation.
Behind the numbers
Our analysis compares the total number of low-income units (as reported by state housing finance agencies) and the number of new privately-owned housing units authorized. In this article, we’ll take a look at this relationship on a national scale and will continue this series by exploring these trends on a state level in the following weeks.
There are several interesting conclusions reached through this analysis.
The impact of the Great Recession
Looking at both overall construction and the construction of low-income units, it’s clear that the Great Recession had a dramatic impact on the American housing market. From 2008 to 2009, the construction of units financed via LIHTC decreased by over 20.5% and general construction also declined by over 59%. This suggests that as the American economy as a whole began to flounder, both overall construction and low-income construction began to decrease, limiting the supply of houses available for Americans across the income spectrum.
From 2011 to 2012, when the Dow Jones finally returned to its pre-recession peak, housing starts (nationally) jumped by 55% despite a 17.5% decrease in LIHTC construction. Thus while housing starts eventually began to increase at a rate reminiscent of pre-crisis times, low-income construction continued to lag, leaving many Americans struggling to secure housing within their budget.
Zooming out
Looking at the overall rate of change for general construction and low-income housing from 1995 to 2017, we see that while construction may be increasing, it doesn’t equate to a larger supply of affordable housing.
More specifically, overall construction in the U.S. as a whole has increased by 56.5% from 1995 to 2017. However, the construction of units financed by LIHTC has declined by more than 49%. This suggests that while the supply of housing options is increasing, the number of these units earmarked specifically for lower- and middle-income Americans is actually falling.
Consequently, it appears that at least on a national-scale, building more houses alone is not a sufficient policy solution to the affordability crisis facing the U.S.
In the next article of this series,, we’ll look specifically at the relationship between housing starts and LIHTC financed housing on a state level in order to compare what works and what doesn’t.
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