It’s one thing to say the country is shy, say, five million housing units. But it’s another thing entirely to pinpoint exactly where the deficits are.
“To understand the nation’s challenges in housing supply, one needs to drill down into individual markets, looking at not only the many geographic areas that make up the national market but also the discrete parts of the market within each area.” says a new research report from Moody’s Analytics, the Reinvestment Fund and Policy Map.
“Only then can one begin to determine,” it continues, “the balance between housing supply and demand, how imbalances are affecting house prices and rents, and what policy response makes sense.”
The research quantifies the shortfall of homes for rent and sale at the census tract level — a small, relatively permanently defined geographic area within a county used by the U.S. Census Bureau to collect and analyze population and housing unit data.
The analysis shows that the nation faces a much deeper shortfall in rental housing than in homes to purchase: “While there are certainly markets that struggle with an adequate supply of homes to purchase, particularly entry-level homes, the majority of shortfalls across the nation are in rental markets,” it finds.
The data shows that the regions suffering the most acute shortages are in the Southeast, the industrial Midwest, and parts of the Southwest. California and the upper Midwest have a modest shortage, but the only states with even a small surplus are Alaska and North Dakota.
Drilling down further, the data shows that well over three-fourths of the nation’s metropolitan areas are suffering a housing shortage, with spots like Newark, N.J., Cincinnati, Little Rock, Ark., and San Bernardino, Calif. suffering most acutely.
But the researchers didn’t stop there. When broken down by tract income, “a still more telling pattern begins to emerge,” they find.
The study calculated the shortfall for census tracts in four income groups:
- Those in which the average income is less than half the city’s median income, which it labeled “low income”;
- Those in which the average income is between half and 100% of the median, which is labeled “moderate income”;
- Those in which the average income is between 100% and 120% of the median, labeled “middle income”; and
- Those in which the average income is more than 120% of the median, labeled “high income.”
Comparing each income group’s share of the overall shortage against its share of the housing stock to rent and to own shows the most extreme rental shortfall to be in middle-income census tracts, a more modest one in moderate-income census tracts, parity in low-income tracts, and a surplus in high-income tracts.
Owner-occupied housing is more balanced across income tracts, the study reports, although there is something of a surplus in lower-income tracts and a shortage in higher-income tracts.
When considering city size, the picture comes into even greater focus. In cities with more than 1 million people, there are meaningful shortfalls in rental homes in all but tracts in the high-income bracket — where there is an extraordinarily large surplus — and a shortfall of homes for purchase in middle-income tracts.
Smaller and medium-size cities have more balanced markets overall, with manifest shortfalls in homes to rent only in modest- and middle-income tracts, a shortfall in homes for sale only in high-income tracts, and no notable surpluses.
Dialing In Closer
When applying the analysis to an individual city, the trends “become even more intuitive,” according to the report. In Philadelphia, for instance, there are meaningful shortfalls in rental housing across the city. The shortfalls are most pronounced in middle-income areas in the northeast section of the city and lower-income areas in north central, west, and southwest Philadelphia.
Yet there is not a meaningful shortfall in the overall rental supply of the city as a whole, because the local deficits are largely canceled out by the oversupply in the wealthier neighborhoods closer to the center of downtown and the developing areas along the Delaware River.
The data for Raleigh, N.C. tells a similar story. While the city’s aggregate numbers suggest a balanced rental market, a closer look shows that the city has a significant shortfall of rentals in tracts with more modest incomes in the south and east, along with a significant oversupply of units in the north and west.
“Our analysis shows that the imbalance between the nation’s housing demand, and supply is much more localized than the national numbers and public dialogue suggest,” the researchers conclude. “Housing supply is not fungible across geographies, so assessments based on national statistics tell us little about the state of the nation’s housing supply.”
“It follows from this that policies based on national aggregations are almost inevitably misguided,” the analysis continues.
For instance, while opening public lands for development in remote parts of the West may increase supply enough to close the gap at a national level, at least nominally, it would leave untouched the vast majority of local shortfalls driving the availability and affordability crises.
“The same would be true of subsidies designed to build more housing generally; unless targeted for the markets and market segments that need them, much of the subsidy will flow into the segments that do not,” notes the analysis.
The study urges policymakers to focus on the supply of housing in modest- and middle-income communities, where the shortfalls are most prevalent and tend to be deepest.
“With subsidies already providing some support for housing in low-income communities and the market in most places adequately serving upper-income communities, those in between are falling through the cracks,” it says. “That is not to say that many low-income communities are not facing a shortfall, especially when affordability is considered, but the shortage in so-called workforce housing is deeper and more widespread.”
