Friday, August 18, 2017

Who Owns Rental Properties, and is it Changing?

by Hyojung Lee
Postdoctoral Fellow
Institutional investors own a growing share of the nation's 22.5 million rental properties and a majority of the 47.5 million units contained in those properties, according to the US Census Bureau's recently released 2015 Rental Housing Survey (RHFS). The changes are notable because virtually all of the household growth since the financial crisis has occurred in rental units, with more than half of the growth occurring in single-family rental units.

According to the RHFS, individual investors were the biggest group in the rental housing market in 2015, accounting for 74.4 percent, or 16.7 million rental properties, followed by limited liability partnerships (LLPs), limited partnerships (LPs), or limited liability companies (LLCs) (14.8 percent); trustees for estates (4.1 percent); and nonprofit organizations (1.6 percent) (Table 1). However, because the share of rental properties owned by individual investors tends to decrease with the property size, individual investors owned less than half (47.8 percent) of rental units, followed by LLPs, LPs, or LLCs (33.2 percent), trustees for estates (3.3 percent), real estate corporations (3.3 percent), and nonprofit organizations (3.2 percent).


Source: Rental Housing Finance Survey, 2015.

When combined with data from the 2012 RHFS and the 2001 Residential Finance Survey (RFS), the new data also show that the number and share of rental properties owned by institutional investors increased for all types of properties between 2001 and 2015 (Figure 1). For example, while about a third of properties with 5 to 24 units were owned by non-individual investors in 2001, that share soared to 47 percent in 2012 and about two-thirds in 2015. Similarly, about 66.1 percent of properties with 25 to 49 units were owned by institutional entities in 2001, which rose to 77 percent in 2012 and about 81 percent in 2015.


Source: Residential Finance Survey, 2001; Rental Housing Finance Survey, 2012 and 2015.
Note: The condominiums and mobile homes the 2001 RFS were excluded as they are excluded in the 2012 and 2015 RHFS. Single-family units were not counted in the 2012 RHFS.

While individual investors (often called "mom-and-pop landlords") still owned about three-quarters of all single-family rental properties in 2015, the share of those properties owned by institutional investors rose from 17.3 percent in 2001 to 24.5 percent in 2015. However, during this time, many individual landlords reportedly created their own LLCs and transferred ownership of their property to protect themselves from liabilities and take advantage of tax benefits. As a result, the figures for single-family rentals may understate the number of mom-and-pop landlords.

Finally, the 2015 RHFS also provides useful information about when these changes occurred. Overall, non-individual investors accounted for about 16 percent of rental properties acquired from 1980 to 2004. That changed dramatically in the years after the financial crisis. Non-individual investors bought 28 percent of rental properties sold between 2010 and 2012 and 49.3 percent sold between 2013 and 2015 (Figure 2). Moreover, this shift was particularly pronounced for properties with 1 to 4 units (compared to those with 5 or more units).


Source: Rental Housing Finance Survey, 2015.

Despite potential implications for both renters and the broader housing market, there have been relatively few studies assessing the impacts of changing ownership patterns for rental properties. However, some research suggest that the changes are more than just paperwork. Illustratively, a 2016 discussion paper published by the Federal Reserve Bank of Atlanta reported that large corporate landlords and private equity investors of single-family rental homes in Fulton county, Georgia were far more likely to file eviction notices than small landlords in the county. Hopefully, the changes documented in the 2015 RHFS will spur additional research on how ownership patters affect such key issues as rental affordability, housing instability, and the upkeep of rental units.

Friday, August 11, 2017

Pay for Success: Opportunities and Challenges in Housing and Economic Development

by David Luberoff
Senior Associate
Director
Pay for Success (PFS) initiatives have received widespread attention in the United States over the past several years. These outcomes-based projects – which generally do not pay service providers and government entities until and unless they achieve certain agreed upon outcomes – hold great promise in a variety of fields, including housing and community development, notes Omar Carrillo Tinajero in a new working paper jointly published by NeighborWorks® America and the Joint Center for Housing Studies. In the paper, Carrillo, a 2016 Edward M. Gramlich Fellow, notes that PFS projects may offer important opportunities to break down funding silos, devise innovative new ways to address pressing problems, and compel providers to focus on the results of an intervention. However, he adds, “because their complexity makes them at present difficult to structure and finance, PFS projects are likely to be useful only in limited circumstances, which means the PFS model should therefore be used judiciously and carefully.” Moreover, he notes, “the interest in and discussion about PFS projects has highlighted approaches that could be carried out by the public sector without the structure of PFS arrangements.”

To better understand how this approach could be used to address housing and community development issues, Carrillo examines three projects: 
  • The Denver Supportive Housing Social Impact Bond Initiative, which focused on providing supportive housing for individuals who are both frequently in jail and often go to emergency medical services in Denver.
  • The Chronic Homelessness PFS Initiative, which aims to provide 500 units of permanent supportive housing for up to 800 of the 1,600 people currently experiencing homelessness in Massachusetts.
  • Project Welcome Home, an initiative in Santa Clara County, California focused on providing housing and supportive services for 150-200 chronically homeless individuals in the Silicon Valley over six years.
In the paper, Carrillo reviews the goals of each initiative and describes the metrics that will be used to decide whether and how much providers will be paid.  He also offers detailed descriptions about how each initiative was organized, funded, and evaluated.

The initiatives, he writes, “are promising, especially as they promote an emphasis on outcomes and begin to streamline services from various government sources.” However, he also cautions that “it is not immediately obvious that their benefits outweigh their costs,” particularly the extensive time and resources needed to develop and oversee the initiatives. He adds that it may be possible for the public-sector to adopt many PFS approaches (particularly their focus on outcomes, and the need for better data systems to measure those outcomes) without developing the complex structures and systems needed to establish and oversee an effective PFS.

“Though PFS sounds promising,” he concludes, “putting a project together can entail logistical difficulties and substantial transaction costs. Because of these challenges, the PFS model should be used judiciously. In particular, it could be a promising strategy for situations in which addressing problems requires coordination of a variety of disparate sources of public funding which, for various reasons, are difficult to use in a coordinated fashion.”

However, he adds, “we should not lose sight of the overall problem that PFS programs address: the need to provide services to as many people as possible, in the most effective way possible. It seems difficult to conceive of increased funding for these much-needed resources from the federal government, and state and local governments will continue to find themselves pressed for solutions to deliver evidence-based services. The PFS movement has pushed public-sector entities to focus more heavily on outcomes and, in doing so, to consider more multi-pronged approaches for addressing key issues.”


Monday, August 7, 2017

Significant Improvements in Energy Efficiency Characteristics of the US Housing Stock

by Elizabeth
La Jeunesse

Research Analyst
Compared to 2009, single-family homes built before 1980 are now better insulated, have relatively newer heating equipment, and are more likely to have undergone an energy audit. These and other energy-related characteristics of the owner-occupied stock, shown in Table 1, are consistent with the expanding size of the home improvement industry over the past few years, with particular growth in energy-sensitive projects. Homeowners' annual spending for related projects—including roofing, siding, windows/doors, insulation and HVAC—expanded from $50 billion to nearly $70 billion over 2009-2015.



The transformation of the existing US housing stock toward greater energy efficiency also reflects a wave of energy-related incentives for HVAC and building envelope upgrades put in place following the rise of energy prices in the mid-2000s. At the federal level, one of the biggest initiatives was the Obama administration’s American Recovery and Reinvestment Act of 2009, which extended and strengthened tax credits for energy improvements to existing homes, including insulation, windows, roofs, water heaters, furnaces, boilers, heat pumps, and central air conditioners.

Despite recent progress, there is room for growth. As of 2015, 17 percent of single-family homes built prior to 1980 were still reported to have ‘poor insulation’, and only 11 percent had received an energy audit. By comparison, a recent profile of newly constructed homes (built after 2009) showed only 1 percent of residents reporting ‘poor insulation’—an impressively low share. Moreover, nearly 90 percent of new homes come with double- or triple-pane windows. Bringing older homes up to this higher standard will require significant investments to the existing stock.
At the same time, only 5 percent of new homes have smart thermostats—a relatively inexpensive but potentially high-payoff upgrade—and a similar share have energy-saving tankless water heaters. These lower shares suggest room for growth in energy-efficient technologies in new and old homes alike.
Renewable technologies, particularly solar energy, are also showing signs of growth. As of 2015, nearly 6 percent of recently built homes reported on-site solar generation, a relatively small share, but nearly triple the incidence in older homes. Thanks to the Consolidated Appropriations Act of 2016, US taxpayers can still claim a credit of up to 30 percent of expenditures for photovoltaic and solar thermal technologies placed in service in their homes. Several US states also now provide consumers with credits for net excess energy generation, further increasing the payoff for installing renewable energy systems.
With recent declines in energy prices, however, there is some question of whether homeowners still have strong incentives to pursue energy-efficiency improvements. Since 2015, the consumer price index for energy has hovered around 10 percent below its average for the prior ten years (2005-2014). If this trend continues, further progress in energy-related improvements will probably depend even more on consumer preferences and finances, in addition to changing building and product codes, and evolving industry standards. 
Data used in this analysis comes from a newly released 2015 Energy Information Administration survey that tracks the energy-related characteristics of all US residential units. Further results detailing energy consumption intensity (or usage per square foot) will be released in 2018, enabling deeper analysis into the evolution of energy efficiency in US homes.

Monday, July 31, 2017

Why is Moving to a New Home Worse for African-American and Hispanic Children than for White Children?

by Kristin Perkins
Postdoctoral Fellow
Compared to children who do not move to a new home, children who move are more likely to do worse in school, have more physical and mental health problems, and are more likely to be delinquent and use alcohol and drugs. In recent research that uses detailed data from the Project on Human Development in Chicago Neighborhoods, I find that African-American and Hispanic children showed more signs of anxiety and depression after they moved. I also find that, on average, Hispanic children demonstrated more aggressive behavior after they moved (Figure 1). White children in this sample, however, did not appear to be negatively affected by a move.
Figure 1.  



Why might moving be worse for African-American and Hispanic children than it is for white children? Perhaps non-white children are more likely to be exposed to violence or have fewer social supports in their homes and neighborhoods, which would make them more susceptible to the disruptive effects of a move? Neither of those factors, however, explained the negative effect of moving for African-American and Hispanic children (as measured by the Child Behavior Checklist, well-established scales that are frequently used as indicators of child behavior). A variety of other factors, such as being renters instead of homeowners and, for Hispanic children, their immigration history, also failed to explain the differences.

Another factor could be the differences between the types of neighborhoods that people are leaving and those they are entering. In general, most of the children in my sample whose families left their neighborhoods moved to a new neighborhood with similar characteristics. This is consistent with other research showing that it is uncommon for families to move to new neighborhoods that are radically different (in terms of poverty level and other characteristics) from the neighborhoods they are leaving. Given this, it's not surprising that among those moving to similar (or worse) neighborhoods, African-American and Hispanic children showed more signs of anxiety and depression, on average, after they moved.

I do, however, have suggestive findings that indicate that African-American children who moved to much better neighborhoods, within or beyond the city of Chicago, did not experience increases in anxiety and depression, unlike African-American children who moved to similar or worse neighborhoods. This finding is consistent with research on the Moving to Opportunity program showing better outcomes in some domains for children who moved from neighborhoods characterized by concentrated poverty to lower poverty neighborhoods.

These and similar findings from other studies of residential mobility and neighborhood effects have several possible implications for policymakers. The data suggest that the children most likely to experience negative effects of moves seem to be similar to children that Matthew Desmond's work on evictions shows are more likely to experience forced moves. If this is the case, the findings underscore the importance of efforts to prevent and reduce evictions and other forced moves.

The findings also suggest that policymakers pursuing programs that aim to improve neighborhood contexts by relocating families need to acknowledge the potential disruptive effects of residential mobility that could undermine the benefits of those moves. If further research confirm the suggestive results showing that the disruptive effects of residential mobility may differ depending on the characteristics of the destination neighborhood, then mobility programs should be designed to focus on efforts to move families to more advantaged neighborhoods.

Beyond mobility programs, policymakers might consider the extent to which other programs and policies unintentionally increase the number of moves that children make and thus increase the possibility of negative outcomes. As one example, it would be useful to determine if the Housing Choice Voucher Program's time limits for finding a unit to rent with a voucher unnecessarily result in temporary moves before a household finds a permanent unit.

Taken as a whole, such measures could potentially reduce negative outcomes among African-American and Hispanic children whose families have to move, particularly those who have to move frequently.

Monday, July 24, 2017

We're Finally Building More Small Homes, but Construction Remains at Historically Low Levels

by Alexander Hermann
Research Assistant
Census data released last month show that after years of stagnation, construction of smaller homes grew appreciably in 2016. New completions for homes under 1,800 square feet increased nearly 20 percent in 2016 to 163,000 units, the first significant growth since 2004 and the largest rise since the data series began in 1999.

This growth is significant because many first-time and lower-income homebuyers hope to purchase smaller homes, which are generally less expensive than larger ones. Moreover, historically-low levels of home construction over the last decade have led to declining inventories, decreasing vacancy rates, and increasing prices, as discussed in our latest State of the Nation's Housing report (Figure 1).


Even with the uptick in 2016, though, small-home construction remains 65 percent below the 464,000 units completed annually between 1999 and 2006, and comprises a much smaller share of newly-built housing than in the past. In 2016, small homes were 22 percent of single-family completions, well below their 37 percent market-share in 1999. In contrast, the share of large homes built grew from 17 percent in 1999 to 30 percent in 2016, while moderately-sized homes, which have consistently been the largest share of the market, have annually been 43-to-48 percent of all new single-family homes.

Construction of condos and townhouses, possible alternatives to smaller single-family housing, also remains low. Builders of multifamily properties continue to focus on the rental market where demand remains strong. Consequently, only 28,000 condos were started in 2016, a modest increase from the 26,000 starts in 2015 but much lower than the 53,000 starts averaged annually in the 1990s (Figure 2). Similarly, townhouse starts grew from 86,000 units in 2015 to 98,000 units in 2016. While this is more than double the number of starts from 2009 and comparable to the 95,000 units started annually in the 1990s, it is less than half the number started in 2005.



The low levels of new construction have resulted in historically-low housing inventories, especially entry-level housing. According to data from CoreLogic, the supply of modestly-priced homes – those selling for 75-to-100 percent of the area's median list price – was below three months at the end of 2016, about half of the six months that generally represents a balanced market (Figure 3). Indeed, according to data compiled by Zillow, only a quarter of the homes for sale at the end of last year were in the bottom one-third of area homes by price, while half were in the top one-third.



Increased demand for entry-level housing and the corresponding uptick in smaller housing construction have already contributed to the growing number of first-time homebuyers in 2016. According to the National Association of Realtors, first-time homebuyers comprised 35 percent of home sales in 2016, up from 32 percent in 2015 but still below long-term historical rates, which are close to 40 percent of all buyers. Looking forward, increases in the supply of smaller homes, townhouses, and possibly condos could help address the growing demand for lower priced homes for first-time and low-income homebuyers.