- The Washington Times - Wednesday, June 22, 2016

The number of families looking to buy a home is likely to increase in the next 10 years, but financial restraints may keep them in the rental market, according to a new report by the Harvard University Joint Center for Housing Studies.

Released Wednesday, the annual report found an unprecedented downtrend in home ownership over the last decade, with only 63.7 percent of Americans owning their own home in 2015. Part of the problem is that millennials are choosing to delay marriage, said Christopher Herbert, the center’s managing director.

“Much of the reason why household recovery has lagged is because we haven’t been forming households, much of it has been young people not moving out of their parent’s basements,” Mr. Herbert said.

As millennials enter their 30s, experts say an increase in family formation is likely — but an increase in home ownership is not guaranteed.

While income growth has picked up, young adults still make 9 percent to 18 percent less money than experienced at previous peaks. According to U.S. Census data, those between the ages of 25 to 34 who still live at home increased to 22 percent in 2014 and was especially pronounced in expensive metropolitan areas, such as New York, Los Angeles and Philadelphia.

About 83 percent of Americans expect to own homes in the future, according to a 2015 Demand Institute Survey. But achieving home ownership could still be only a dream for many.

“Tight mortgage credit, the decade-long falloff in incomes that is only now ending, and a limited supply of homes for sale are all keeping households — especially first-time buyers on the sidelines,” Mr. Herbert said in the report.

Single-family homes that were foreclosed during the 2008 housing crisis have “rematerialized” on the market as lucrative rentals, providing a limited supply of homes, said Stuart Miller, CEO of Lennar Corp., a residential construction company.

This sidelining is apparent in the proportion of homeowners who are first-time buyers. At present, only 30 percent of the housing market is occupied by new buyers, while experts say, historically these numbers have been at least 10 percentage points higher.

Robust rental demands are a driving force in the construction sector, as 36.4 percent of U.S. households opted to rent last year — the largest share since the late 1960s.

While many turn to rentals as more affordable alternatives to home ownership, low vacancy rates and high demand continue to drive up rents. The report notes that the overwhelming majority of new housing is intended for the “upper end of the market.”

For typical renters earning $35,000 a year, this presents a widening gap between market-rate rents and the rent they can afford.

Mr. Miller says builders have no choice but to play to the “high end of the rental market” if they want to draw a profit.

According to the National Association of Home Builders, government regulations account for 25 percent of the cost of a new single-family home. Building restrictions and strict requirements imposed by the federal government have made affordable housing financially “unfeasible” in rental construction as well, said Mr. Miller.

Diane Yentel, president and CEO of the National Low Income Housing Coalition, said the solution to providing affordable housing rests with the federal government, but it may be as simple as reorganizing existing funds.

About three-quarters of the $200 billion used to help Americans buy and rent homes each year subsidizes purchases by higher income homeowners through tax deductions, leaving an insufficient amount of money to support housing for low-income Americans, Miss Yentel said.

“The problem isn’t that we don’t have solutions, but rather that we aren’t funding solutions at the scale that we need. This is a multibillion problem and the solutions are going to cost as much,” she said.

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