Exploring 2023's Housing Trends and Challenges

In 2023, the housing market witnessed declines in home sales, construction, and the rate of home price appreciation. Rental markets also saw reduced growth and increased vacancy rates. Despite the slowdown, home prices and rents stayed elevated compared with prepandemic levels. Millions, including a disproportionate number of people of color, have been priced out of homeownership or were burdened by housing costs.

The latest State of the Nation’s Housing report from the Joint Center for Housing Studies at Harvard University presents a comprehensive analysis of 2023’s housing landscape. Drawing from several national, publicly available datasets, including the US Census Bureau, the US Department of Housing and Urban Development, Freddie Mac, and others, the report underscores the persistent challenges faced by renters and homeowners alike.

Key findings

Cooling housing markets: Both the for-sale and rental housing markets are cooling, as evidenced by declining home sales, construction levels, and rent growth. Home prices and rents, however, remain elevated from prepandemic levels.

1. In January 2023, home prices declined for the seventh consecutive month, with a 0.2 percent dip. On an annual basis, February saw a modest 2.0 percent year-over-year increase, significantly lower than the peak growth of 20.8 percent in March 2022. Nevertheless, national home prices remain near record highs.
2. Between the beginning of 2020 and early 2023, nominal home prices rose an astounding 37.5 percent, helping to push up the median sales price for existing homes from $283,000 just before the pandemic to $375,400 in March 2023.
3. While asking rents in the professionally managed apartment sector had moderated last year, they rose 23.9 percent between the beginning of 2020 and 2023.
4. Single-family homebuilding dropped significantly in 2022, with a 10.8 percent decline in housing starts from the year earlier. The decline, especially pronounced for lower-priced homes, is attributed to rising construction costs, limited lot availability, and regulatory barriers, exacerbating the housing shortfall.
5. Multifamily construction surged from 474,000 units in 2021 to 547,000 units in 2022, the highest since the mid-1980s, and 960,000 units were under construction as of March 2023. However, rising rental vacancy rates, reaching 6.4 percent in the first quarter of 2023, combined with higher interest rates and tightening lending standards, suggest a potential slowdown in multifamily starts in coming years.
6. The robust multifamily pipeline, primarily targeting the higher-cost market, may limit rent growth for expensive units but offer less relief for lower-income renters.

Affordability challenges: Millions of households, especially people of color, face housing cost burdens, pricing them out of homeownership or leaving them without shelter.

1. From 2019 to 2021, cost-burdened renters (those spending more than 30 percent of their income on housing) rose by 1.2 million to a record 21.6 million households. Among them, 11.6 million were severely burdened, allocating more than 50 percent of their income to housing.
2. Homeowners facing cost burdens increased by 2.3 million to 19.0 million, including 8.7 million who were severely cost burdened in 2021.
3. The median household income increased from $60,200 in 2011 to $70,200 in 2021, showing substantial gains, especially among people of color, contributing to a reduction in racial inequalities. However, notable income disparities persist, with white households having a median income of $78,000, compared with $57,900 for Hispanic households and $48,100 for Black households.

Demographic drivers: Despite substantial gains in household growth in 2022, the factors driving this growth are showing signs of slowdown. Regional differences in housing costs, along with more people working remotely, are causing people to move within the country, changing where housing is in demand.

1. The number of US households grew by 1.6 million in 2022, driven by millennial households who were able to afford living independently after benefiting from the financial conditions in late 2020 and 2021, including the federal stimulus and the suspension of student loan payments.
2. Household growth is expected to slow down because of exceptionally low native population growth and uncertain immigration influenced by politics.
3. With population growth slowing, domestic migration becomes a key driver of household growth. In 2022, it was the primary source of population growth in 20 states and in most growing counties.
4. Pandemic-driven mobility patterns persisted in 2022, with continued migration to lower-cost, lower-density areas. Urban counties saw population outflows, while suburbs, small metropolitan areas, and warm-climate states experienced gains. Remote work and other factors, such as affordable housing availability and age, played a role in this shift.

Policy implications

The authors provided several policy recommendations stemming from the trends identified:

• Address the national housing shortage: Explore alternative construction techniques, such as off-site and modular construction; encourage the adoption of accessory dwelling units in areas with limited land and address local zoning policies and regulatory barriers to diversify housing types.
• Expand federal assistance shortcomings: Expand subsidy programs; review and enhance the effectiveness of tenant-based assistance programs like housing choice vouchers; and strengthen the Low-Income Housing Tax Credit program while addressing challenges in preserving the public housing stock to make housing more affordable for low-income renters.
• Leverage existing resources to mitigate the loss of pandemic housing resources: Urgently address the impending end of pandemic-era housing programs to prevent a surge in homelessness by considering the extension and enhancement of Emergency Rental Assistance and Homeowner Assistance Fund programs and leveraging general fiscal recovery funds at state and local levels to meet ongoing housing needs.
• Invest in aging housing stock: Allocate resources to repair and modify the housing stock, particularly for households with low incomes; support programs like the Older Adult Homes Modification Program to enhance accessibility for aging populations; and explore tax credits and incentives for energy-efficient upgrades to address climate change and reduce greenhouse gas emissions.
• Invest in strategies to address climate change: Explore long-term strategies to reduce disaster risks, including land-use planning, building code enhancements, and mitigation efforts that raise awareness and prevent future losses. This response can also increase federal and state commitments to support high-risk communities in adapting to climate change.
• Address persistent racial inequities and segregation: Invest in communities of color to address racial inequities, taking care to avoid displacing residents, and support initiatives promoting diversity in the real estate industry and equitable zoning and planning at the federal, state, and local levels. Additionally, advocate for the implementation of the proposed Affirmatively Furthering Fair Housing rule to proactively promote inclusive communities.