The Tremendous Opportunity in Affordable Housing
Household Growth Will Be Led by Minorities for at Least the Next 10 Years
The country needs affordable housing more than ever. In The State of the Nation’s Housing 2017, an exhaustive report from the Joint Center for Housing Studies of Harvard University, nearly 40 million Americans live in housing they cannot afford. Too much of their gross monthly income is dedicated to housing payments. More than 11 million people who rent pay half their income for housing and over 38 million households can’t afford their housing. These numbers are not only staggering but unsustainable.
Minorities will be the Driving Force
The study also peeled back several layers to forecast home buying trends and concludes household growth will be led by minorities for at least 10 years, reversing a longstanding trend. Again, according to the report, over the past 12 years, the black homeownership rate fell sharply to just 42.2 percent while the white homeownership rate climbed to 71.9 percent during that same period. The Asian and Hispanic populations narrowed the homeownership gap somewhat yet the black population didn’t see such a shift. This segment of the population will soon be the driving force in housing. The problem is the lack of affordable lending options and affordable housing to meet this market demand.
What’s Behind the Demand for Affordable Housing?
Housing prices continue to increase, however wages remain stagnant. This creates an affordability issue for most people interested in purchasing a home. The national average for a newly constructed home in the United States is just under $288,000. Yet over the past 16 years, the number of households earning less than $15,000 per year grew by an astonishing 37 percent. High income earners, making more than $150,000 was up 37 percent during that same period. Middle income earners by comparison only grew by 16 percent over 16 years. It’s the middle income population that needs affordable housing yet with builders aiming for the higher end market, such homes are harder to find.
Baby Boomers simply aren’t selling and that’s also putting a squeeze on the housing market. Historically, older generations would downsize to a smaller home with lower expenses and less maintenance. Downsizing isn’t as popular as it once was which means fewer homes are currently available for sale. As a result, according to the Pew Research Center, more U.S. households are renting than at any point in 50 years. There is a shortage of homes for sale on the market and a flood of rentals. With many of the world’s largest funds are also turning into foreclosed homes into single family rental there are far more options on the rental side.
Filling the Affordable Lending Gap
It’s clear there is a demand for housing that’s not being met and this provides an excellent opportunity for organizations like CDFIs service the market. A CDFI is a Community Development Financial Institution which serves local financing institutions supporting economically disadvantaged communities. DRI Fund is one such CDFI.
“Minorities will drive almost three quarters of household growth gains through 2025, with Hispanics alone accounting for a third. With cost-burdened households at an all-time high and home ownership rates at an all-time low, led by minorities, there is a tremendous opportunity for CDFIs to serve this market and create affordable lending options to increase homeownership opportunities” said a spokesman from DRIFund (DRIFund.com).
Traditional financing, while recovered from the 2008-2009 era, is still not always an option for minority borrowers. Tighter credit standards and the lack of affordable housing financing in such areas keeps many groups at bay in underserved markets. According to DRIFund, many Americans don’t fit into this standard underwriting box because of bruised credit from the recession or having alternative sources of income and credit history. CDFIs work in these underserved markets to assist those seeking financing who have less than perfect credit or no credit at all. There is an opportunity to develop new affordable lending options that will help get more folks into homes in the future.
“As a socially responsible investment firm, we feel that homeownership contributes to many positive social economic factors within a community. Therefore, it’s important to transition more people from renters to homeowners through creative lending programs that help people rebuild their credit so that they can then transition into mainstream financing” says DRIFund.
When there is financing available to those who previously could not get approved for a traditional mortgage, there is suddenly a positive ripple effect for the community. Property values turnaround, which then means more tax revenue for the community. Homeowners shop, eat and visit local businesses, boosting sales and overall community pride. As neighborhoods begin to rebuild, a better quality of life is available to residents of those communities.