Illustrated figures representing different ethnicities stand around a cluster of houses.
Illustration by Lanette Behiry/Real Estate News

Homeownership, affordability gaps persist as prices remain high 

Harvard's annual housing report found little change in the racial homeownership gap as prices rise and supply stagnates, but federal programs may help.

June 23, 2023
3 minutes

Key points:

  • The State of the Nation's Housing report found that small gains in Black and Hispanic homeownership may be short-lived.
  • Federal programs providing information and resources for prospective homeowners can help, said HUD's deputy secretary during a panel discussion.
  • Elevated interest rates are not just an issue for homebuyers. Construction companies are finding it more difficult to get financing to build more housing units.

Early in the pandemic, the persistently wide racial homeownership gap appeared to be narrowing slightly. But affordability issues are threatening to make that progress short-lived.

That's one of the conclusions coming out of the latest State of the Nation's Housing report released by Harvard University's Joint Center for Housing Studies. The annual report takes a broad look at the U.S. housing market, including price trends, demographic shifts, and construction and inventory levels.

The report found that homeownership has been on the rise for all racial and ethnic groups since bottoming out in 2016, and between 2019 and 2022, the gap between Black and white homeownership narrowed by 2 percentage points. But it also noted that the gain was relative: Black homeownership rates were near the lowest they had been in decades, so the improvement was more like taking one step forward after taking two steps back. 

Federal programs aim to make homeownership more accessible 

It's an issue that has the attention of the federal government, which is working on measures to increase homeownership. One area of focus is providing more education for prospective homeowners, said Adrianne Todman, U.S. Deputy Secretary of Housing and Urban Development. 

Todman shared some details of these federal programs during a panel discussion on June 21 that also included Rachel Heller, CEO of Citizens' Housing and Planning Association; Chris Herbert, Managing Director of the Harvard Joint Center for Housing Studies; and Clark Ivory, CEO of Ivory Homes.

"Many people don't have access to information, particularly first-time homeowners," Todman said, noting that resources like down payment assistance programs can boost homeownership rates, but only if buyers know how to take advantage of them. "So we are trying to find solutions… [to address those] barriers, and we think that is working."

While governmental initiatives may be helping, many federal and local pandemic-era assistance programs have ended or are winding down at a time when elevated interest rates and home prices are creating additional barriers to homeownership. The likely result is that housing will remain prohibitively costly for millions of households, said Hebert.

Affordability gap is widening

As home prices rise, a disproportionate percentage of Black and Hispanic households are facing affordability challenges. According to the report, while the number of white renter households who could afford mortgage payments dropped by 30% between March 2022 and March 2023, it fell 39% for Black renter households and 37% for Hispanics.

Heller emphasized that the time to take action is now, pointing to the "astonishing" homeownership gap and the significant jump in home prices over the past few years. Prices are up 37.5% since the beginning of 2020, the report found, and more than 2.4 million potential homebuyers have been priced out. The report noted that the "large and ongoing housing shortfall" has restricted supply, contributing to rising prices.

"So it's clear that we need more homes for the health of our communities," Heller said. "Is this the moment that we ask ourselves 'what do we want for our future?'"

High costs hampering construction of more housing stock

Getting more housing supply into the market continues to have its set of challenges, including rising material prices as well as permitting and regulatory costs, said Ivory. His company, which focuses on multifamily projects, has only one-third of the typical number of projects in the pipeline right now.

"All of these things are headwinds, but probably the largest headwind is the rise of interest rates," Ivory said, adding that he expects multifamily construction to be weakened considerably in the next 18 months because few deals are happening right now.

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