The rule of thumb for household budgeting is that no more than 30 percent of income should go toward housing; more constitutes a cost-burdened household and spending more than 50 percent a severely cost one. The Harvard Joint Center for Housing Studies, in concluding its report on The State of the Nation's Housing, estimates that 40.9 million households were cost-burdened in 2012, more than a third of U.S. families and individuals.  Despite a drop of 1.7 million between 2011 and 2012, these households had increased by 9 million in the previous 10 years and, more disheartening, 5.8 million of this increase were severely cost burdened households.

The 2012 decrease was virtually all on the homeowner rather than the renter side.  While more than a quarter of homeowners are considered cost-burdened and 10 percent severely so, cost burdened renters rose slightly in 2012, the sixth straight increase, to 20.6 million.  Nearly half of all renters are considered cost-burdened and 17 percent are in the severe category.
Among households with incomes below 15,000, the equivalent to full-time minimum wage employment, four out of five paid more than 30 percent of that income for housing and more than two-thirds paid over 50 percent.  There was little difference between renters and owners, especially in the severe category.

The incidence of severe cost burdens is particularly high among minority households; 27 percent of black, 24 percent of Hispanic, and 21 percent of Asian households were considered severely burdened whereas only 14 percent of white households fell into that group.



The numbers cost-burdened households among renters and owners have grown for different reasons.  For homeowners it has been the ups and downs of housing costs which spiked by 15 percent between 2001 and 2007 and then began a steep decline as interest rate and home prices fell.  By 2012 costs were nearly back to decade earlier levels but were offset by dwindling income levels.
For renters declining income has been the culprit.  Median rental costs rose 4 percent between 2001 to 2007 but income fell by 8 percent and then lost another 8 percent by 2011. While there were income gains in 2011-12 the net loss in income was 13 percent over 11 years while median rent ($880) rose 4 percent.



This often forces the low income to make housing choices between paying more than they can afford then severely limiting their food, clothing, medical care, and other critical expenditures or taking housing that may be in poor condition or located in areas of heavy crime and/or blight.  

A 2012 study found that the most cost-burdened households spent an average of 39 percent less on food and 65 percent less on healthcare than families living in affordable housing; these cuts were even steeper among residents in rural areas.  Members of households that opt for affordable if substandard housing might be exposed to rodents, allergens, toxins, or hazardous materials.

Having to struggle to meet housing costs has costs of its own.  Families tend to move often, disrupting routines, children's schooling, and social networks.  Among the lowest income families with children the mobility rate in 2011 was 43 percent, falling to 19 percent as income rises to 80 percent of an area's median.

In addition to growing number of low income households, the rising tide of cost burdens also reflects an inability of the private sector to provide affordable housing.  An Urban Institute analysis found that there were 8.2 million extremely low income households competing for 2.9 million affordable and available rental units in 2000, at ratio of 37 units per 100 households.  By 2012 those numbers were 11.5 million households and 3.3 million units or 29:100.  This brings the discussion to housing subsidies.

Federal rental subsidies are available to those earning less than 50 percent of an area's median income but eligibility is not a guarantee of help.   Eligible households increased by 21 percent between 2007 and 2011, from 15.9 million to 19.3 million, while the number receiving assistance increased by only 225,000 to 4.6 million in 2011.  During the same period the renters with worst case needs (severe costs burdens or severely inadequate housing) rose steadily from 50 to 58 percent.


The growing inadequacy of housing assistance programs, and especially the voucher program where most of the increase in aid has occurred, is largely the result of rising rent and falling incomes.  The average rent for a voucher assisted unit was $1,041 in 2012, up 13 percent from 2007. Over this period, federal spending per voucher-assisted unit (the gap between the rent and what the tenant can pay) rose 17 percent, from $600 to $705 per month.  As the cost of administering rental assistance continues to grow, the capacity to serve eligible households continues to diminish.

The last data available is for 2011.  Since then sequestration cut $3 billion from the HUD budget and HUD cut 5 percent from its payments to voucher program landlords and 4 percent from program administration.  As a result around 42,000 fewer households got vouchers in 2013 than in 2012.  The FY 2015 budget, if passed, would restore 5 percent to the program but this would do little to address the shortfall between assistance and the growing need.

More than 190,000 units of privately owned subsidized housing may be lost each year over the next decade, nearly half of the subsidized stock of 4.8 million,  as contracts or restrictions on affordability expire.  Of those an estimated 596,000 have contracts for project based rental assistance and owners have the option of converting the units to market rate rents.  Those in desirable areas with strong rental demand are particularly likely to do so.  Owners may have been further discouraged from staying in the program by the proposed $171 million in cuts from Section 8 assistance in the 2015 budget and by HUD's attempt to mitigate the impact of sequestration by offering short term extensions to expiring contracts in 2013.



The Low Income Historical Tax Credit Program (LIHTC) supported construction of nearly 1.3 million units and rehab of another 783,000 since 1987 and between now and 2024 nearly 1.2 million of these units will reach the end of their compliance period.  While historically most LIHTC owners chose to remain affordable, this requires renewed contracts and subsidies. The units most at risk of loss are those with for-profit owners located in high-cost housing markets.  Many renewing units also will need new funding for maintenance and rehabilitation.

A bright spot in the housing picture is the decline of the homeless population which fell 4 percent from 633,782 in 2012 to 610,042 in 2013.  Homelessness, except for a small uptick in 2010, has gone down steadily since 2007 for all risk groups - 11 percent among individuals in families, 12 percent for the chronically homeless, and 6 percent among veterans.  The improvement is virtually all within the unsheltered homeless (living on the street, in cars, etc.) while the sheltered population remains stable at just under 400,000.

One reason for the reduction in homelessness has been the attention and money devoted to providing stable permanent housing.  Funding for homeless assistance increased 34 percent between FY2007 and FY2013, contributing to the creation of over 95,000 new permanent beds.  There has also been increased funding for healthcare for those with complex medical, mental health, and substance abuse issues.

These improvements however have not been universal.  Fifteen states and the District of Columbia have seen increases of more than 10 percent in homelessness between 2007 and 2013.  Especially worrisome is the increase in homeless families in New York, up a third, and Massachusetts with an 80 percent increase which may be attributable to cuts in rental subsidies under sequestration.  

Another challenge is the issue of neighborhood distress growing out of the housing crash which was especially severe in lower income and minority neighborhoods.  Housing prices are estimated to have dropped 26 percent between 2006 and 2013 in predominantly minority neighborhoods, more than three times the loss of value in white areas.  High poverty neighborhoods were similarly affected, falling 20 percent compared to 14 percent in low poverty neighborhoods.

These steep price declines reflect the soaring pre-crash prices in minority neighborhoods and to a lesser extent low-income ones.  A correction was in order but the loss of wealth has been devastating both for those who bought during the boom and those who refinanced at inflated values.   Even after the recent run-up in home prices the share of negative equity in minority and high-poverty neighborhoods remained at an elevated 27 percent in 2013, nearly double that in white and low-poverty areas, putting these neighborhoods at higher risk of default and with little chance of refinancing or ability to sell.  That inability limits the inventory of for purchase by other low-income buyers.  The Center says policymakers should consider the level of distress in these neighborhoods as they contemplate ending loan modification and refinancing programs for underwater owners.

Despite all of the gloom of this and the other housing topics profiled in The State of the Nation's Housing, the Joint Center says both the housing recovery and growth in the broader economy are likely to continue at a modest pace while many challenges remain.  Key among them is the need by tens of millions of Americans to spend so much of their income to obtain housing while still living in substandard buildings and neighborhoods.  Nearly a quarter of all renter households earn less than $15,000 a year meaning affordable rent is under $400 a month.  The private sector is simply unable to supply an adequate number of such housing without subsidies and that help is increasingly curtailed by the rapid growth of eligible households, the rising cost of providing subsidies, and overall cutbacks in government spending.  

In addition to reconsidering support for disadvantaged households, policymakers should continue assistance to homeowners in areas with high concentrations of negative equity.  Another challenge is the stalled reform of the mortgage market.  As a significant factor in the sluggish rate of home buying is the inability of younger Americans to buy, addressing their weak financial position and giving them opportunities to secure financing underpins the future growth of the own-occupied housing market.