Thursday, October 31, 2013

Fertility Rates and Age Structures – The Underpinnings of Replacement Fertility in the U.S.

by George Masnick
The U.S. fertility rate is at near replacement level, where a woman bears two children over her lifetime (just enough to ‘replace’ herself and her partner).  The Total Fertility Rate (TFR), which is how many children the average woman in the U.S. will have if she survives through the reproductive ages and bears children at each age at rates U.S. women are currently experiencing, is just below this level.  Replacement fertility leads to a “pillar” like age structure, where the base of the pillar (children) contains about the same number of people per five-year age group as the middle of the pillar (parents).  For the U.S., that number is currently about 20 million (Exhibit 1).

This situation can be contrasted with fertility rates and age structures in most other industrialized countries.  Below-replacement fertility in much of Europe and in a number of Asian countries has created “mushroom cloud” shaped age structures where the numbers of children are just fractions of the size of the parents’ generations.  In Germany, for example, the 0-4 and 5-9 age groups are only about half the size of the 40-44 and 45-49 age groups (Exhibit 1).  Age structures for other countries with TFRs of 1.6 or less are broadly similar to Germany’s (Table 1).  Such an imbalance in age structures has the potential to create enormous problems for these societies in areas such as institutional stability (e.g. schools), labor force succession, housing market dynamics, and old-age social security.  Shrinking class sizes, workforce shortages, declining demand for larger homes that prevent older households from downsizing, and payroll tax collections that are insufficient to pay for retirement benefits are all consequences of long periods of below-replacement fertility.

So why is the U.S. such an outlier compared to other industrialized countries in having experienced recent near replacement-level fertility and a relatively healthy age structure?  And, is the U.S. likely to retain this advantage in the future?  The answers to these questions point to the importance of immigration in shaping the present demography of the U.S., and to uncertainty about future levels of immigration and the role it will play in the future.

Decomposing the U.S. age structure into immigrants (first generation), the children of immigrants born in the U.S. (second generation), and third or higher generations (parents born in the U.S.), illustrates the importance of immigration in both backfilling the smaller baby bust cohorts born between the mid-1960s and mid-1980s and in increasing the cohort size of children born here in the past 20 years (Exhibit 2).  According to a recent Pew Research Center report, immigrant fertility rates are about 50 percent higher than native-born rates.    While in 2010, only 17 percent of women of reproductive age were immigrants, immigrant women bore a quarter of all children born in the 2000s. Replacement level fertility in the 2000s was achieved by above-replacement immigrant fertility counter balancing below-replacement native fertility.

The future stability of the age structure of the U.S. will depend on levels of immigration and on fertility trends of both the native born and of immigrants.  The Pew report cited above documents how dramatically fertility rates have fallen since the Great Recession, with the largest percentage declines occurring among immigrants.  Between 2007 and 2010 the number of births per 1,000 women age 15-44 (the General Fertility Rate) fell for native-born women by 6 percent while for foreign-born women the decline was 14 percent. Whether fertility declines have been mostly driven by high unemployment and low wages and so will rebound with an improving economy is too soon to tell.  Any rebound could still leave fertility levels below the replacement rate.  But in any case, it is unlikely that U.S. women will soon adopt the very low levels of childbearing that characterize much of the developed world.  The influence on fertility of “pro-family” fundamentalist religions in the U.S. and the not-unrelated political hostility to birth control and abortion in many parts of the country continue to support higher levels of U.S. childbearing. 

However, the size and composition of future streams of immigration are very much in question.  Immigration reform has been slow to gain traction in the U.S. Congress, and the outcome of any new legislation on future immigration levels remains uncertain.  More to the point, perhaps, is the fact that several important sending countries are undergoing fundamental transformations in both their economies and demographics that will diminish their propensities to send immigrants.  For example, Mexico accounts for about 30 percent of all foreign-born living in the U.S., and immigration from Mexico has long been a safety valve to release excess population growth in that country.  But Mexico has reduced its fertility by over one-half since 1985, with much of the reduction occurring in the past decade.  In the future, as long as Mexico’s economy continues to prosper, we can expect fewer will need to leave Mexico to find work.  Similar transformations are occurring in other sending countries such as India and China. Age structures in these countries have begun to transform from “pyramid” to “pillar” shapes.

Before closing, I want to say a few words about one industrialized country, Sweden, which has succeeded in maintaining near replacement fertility without depending on high fertility immigrants.  There are indeed immigrants to Sweden who are needed to fill certain jobs, but they mostly come from other low fertility countries in Europe, especially the Balkans, and the immigrants retain the low fertility of their countries of origin.  Sweden has a long history of low native-born fertility going back to the 1970s, and has gradually adopted strong social policies to encourage its citizens to voluntarily become parents, including generous maternity/paternity leaves, significant health care and housing benefits, and low-cost, high quality, and readily available daycare. But even with such strong pro-natalist policies, Sweden can barely keep its fertility at near-replacement levels.

We should be thankful that our recent history of high-fertility immigration has helped create an age structure that will lead to far fewer problems in the near future compared to those facing other industrialized countries.  Whether we continue to retain this advantage will depend on future levels of both immigration and fertility (of both the native-born and the newly arrived).  To avoid the U.S. moving toward a mushroom cloud like age structure, absent widespread pro-natalist programs and policies as in the case of Sweden, the depressed immigration levels and declining fertility trends of recent years will need to be reversed.  

Wednesday, October 23, 2013

The Role of Investors in Acquiring Foreclosed Properties in Boston

by Irene Lew and Rocio Sanchez-Moyano
Research Assistants
In the fall of 2011, a meeting of researchers, policy makers, and practitioners convened by the What Works Collaborative highlighted the dearth of research examining the role of private investors in purchasing foreclosed properties in lower-income neighborhoods heavily impacted by the foreclosure crisis. To address this void, the collaborative funded a series of case studies in four market areas across the US that represented a range of market conditions: Atlanta, Boston, Cleveland, and Las Vegas. The case study for Boston, which was just released, focuses on the activity of investors in the city of Boston and other communities located in Suffolk County, Massachusetts.  (Note: the Atlanta case study was published earlier this year; Cleveland and Las Vegas are not yet published.)

The Boston study entailed an examination of data from The Warren Group, a third-party-vendor, on real estate transactions in Suffolk County from 2007 to 2012, as well as interviews with government officials, non-profit organizations, lenders, real estate brokers, and investors in foreclosed properties. Excluding government and nonprofit organizations, investors were identified in the transaction data either as those who had acquired more than one foreclosed property over the period or those who had purchased a foreclosed property under a corporate or legal name. Key findings from the report include:
  • Investors accounted for a large share – 44 percent – of transactions between 2007 and 2012.
  • In all, a total of 437 unique investors were identified.  Most of these investors can be classified as “mom and pop investors” who bought only one or two properties, but 33 investors each purchased 10 or more properties and accounted for more than 50 percent of all investor purchases. (Click table to enlarge.)

Note: Percentages do not sum to 100 due to rounding.
Source: Authors’ calculations of data from the Warren Group.

  • While private investors operating on a national scale have received substantial media attention in the last year, in Suffolk County the largest investors had overwhelmingly local roots: 18 were based in Suffolk County and only two were headquartered out of state.
  • Large investors were somewhat more likely to invest in highly distressed neighborhoods (35 percent of their foreclosure acquisitions, compared to 31 percent of the acquisitions of all foreclosure investors), and the majority of purchases were small multifamily buildings (2-4 units) or condos. Alan Mallach has defined a typology of investors in homes in distressed neighborhoods, with a key distinction being between those who seek to make their profit by quickly flipping properties to other buyers and those who seek to profit by holding onto properties for rental income. The study found that in Suffolk County a buy-and-hold strategy was most often pursued by large investors, supported by the healthy demand for rental housing in Boston. Although a few investors did turn over a majority of their purchases in a fairly short time, others who held onto most of their properties also sold a portion of their acquisitions when the right opportunity arose.  Overall, 66 percent of foreclosures purchased by large investors between 2007 and 2012 were still owned by these entities as of February 2013. 
  • Cash was the most common form of financing, but hard-money loans from investor-affiliated lenders and mortgages from small community banks played an important role (Figure 1).

Note: Includes all legal variations of the same lender. Some investor-affiliated lenders have multiple iterations. Mortgages include only primary-lien purchase-money loans, as identified by the authors.
Source: Authors’ calculations of data from the Warren Group.

  • Given the significant presence of large investors in more distressed neighborhoods, this study primarily focused on the activities of these investors. However, based on anecdotal information, small investors face more challenges than large investors in distressed property acquisition, rehabilitation, and management due to more limited financial resources. 
The primary motivation for this study was to gain a better understanding of the extent and nature of investor activity in acquiring foreclosed properties in Suffolk County in order to determine the impact investors are having on the neighborhoods where foreclosures have been common.  In the end, it can be difficult to predict the long-term impacts of investor activity.  On the one hand, investors have channeled a significant amount of capital into distressed neighborhoods, which may have helped absorb the high volume of foreclosed properties and stabilized conditions in those communities.  Our research team found that predatory flipping and irresponsible rental property management in Boston was rare.

On the other hand, there is concern that investors who acquire foreclosed properties may not maintain them to the same degree as owner-occupants.  In interviews, investors reported that due to factors such as the high market values of the primarily multifamily housing stock in Boston and the increased competition to attract tenants with Housing Choice Vouchers, they routinely undertook a fair amount of investment in properties they acquired. In fact, the median time to resale among properties resold by investors is about six months, which suggests that investors are likely to make some improvements to the properties before they are resold.  However, in the view of many nonprofit advocates, these market-driven property improvements are not enough to ensure the long-term affordability and sustainability of these units. The discrepancy in these points of view reflects the motivation of many investors to undertake improvements up to the point that a decent return on these investments is likely, while community groups have broader goals of providing high-quality affordable housing and developing properties that have a positive impact on the surrounding community. Other advocates worry about investor decisions to increase rents that may displace low-income individuals and families who are no longer able to afford these units, and whether investors are crowding out potential owner-occupants looking to buy in these neighborhoods.

Nonprofits partnering with city officials and investors have been working to alleviate these concerns.  One nonprofit organization’s partnership with the City of Chelsea to track code violations in investor-owned properties has led to improved accountability and code compliance among investor owners.  Other groups have recognized the value of leveraging investors’ support networks and informational advantages, with some partnering successfully with local investors on the acquisition and rehabilitation of foreclosed properties. One example is the Coalition to Occupy Homes in Foreclosure (COHIF), a group of nonprofits working with the City of Boston, the state of Massachusetts, and others that are looking to acquire 30 foreclosed or at-risk homes over two years.

The Boston case study—along with other studies conducted by research teams in Atlanta, Cleveland, and Las Vegas—made an initial attempt to fill in the gaps of knowledge regarding investor activity in these central urban neighborhoods.  The vast majority of investors across the four case study areas operated on a rather small scale, with a sizeable share of foreclosed properties acquired by “mom and pop” investors who purchased one or two properties. For the most part, even “large” investors in these communities were defined as those buying 10 properties, over a 4 to 6 year period, with few purchasing more than 100 properties. While these studies have shed some light on the extent and nature of investor activity, there is a need for more systematic research that can address the concern of whether investors are worse stewards of foreclosed properties than owner-occupants, as well as better determine their long-term impact on the health and stability of distressed neighborhoods.

Thursday, October 17, 2013

Home Improvement Upturn Expected to Begin Tapering in 2014

by Abbe Will
Research Analyst
The home remodeling market continues to improve, with strong gains expected for the remainder of 2013 and the beginning of 2014, according to our latest Leading Indicator of Remodeling Activity (LIRA).  While the LIRA continues to project annual improvement spending increasing at a double-digit pace in the near term, a slowdown of this growth can be expected by the middle of 2014.

The soft patch that homebuilding has seen in recent months, coupled with rising financing costs, is expected to be reflected as slower growth in home improvement spending beginning around the middle of next year. However, even with this projected tapering, remodeling activity should remain at healthy levels.

In the near term, homeowner spending on improvements is expected to see its strongest growth since the height of the housing boom.  Existing home sales are still growing at a double-digit pace, and rising house prices are helping homeowners rebuild equity lost during the housing crash. (Click chart to enlarge.)

For more information about the LIRA, including how it is calculated, visit the Joint Center website.

Tuesday, October 8, 2013

Terwilliger: "Feds Should Focus Less on Subsidizing Homeowners; More on Helping Low-Income Renters and Low-Wealth Owners"

by Kerry Donahue
There are few people with more experience in housing than J. Ronald Terwilliger, chairman emeritus of Trammell Crow Residential and this year’s presenter of the John T. Dunlop Lecture.

A graduate of the Harvard Business School, Mr. Terwilliger returned to Cambridge last week to present his vision of a more balanced federal housing policy.

Before a standing-room-only audience at the Harvard Graduate School of Design, Mr. Terwilliger urged Washington policymakers to abandon “prevailing orthodoxies” and re-direct the $200 billion the federal government spends annually on housing to support those families with the greatest needs.  As Mr. Terwilliger explained, we are at an inflection point in our nation’s history that requires federal housing policy to “focus less on subsidizing higher-income homeowners and more on helping lower-income renters as well as low-wealth homeowners.”  He specifically cited the mortgage interest deduction as in need of reform because it disproportionately benefits the wealthiest Americans. 

Mr. Terwilliger’s remarks were entitled Housing America’s Increasingly Diverse Population.  Central to his call for a more balanced housing policy is the fact that America’s demographics are dramatically changing:  Our nation is becoming older and more racially and ethnically diverse.  At the same time, many of our nation’s young adults, the 62 million echo boomers, are beginning to form households for the first time. As Mr. Terwilliger argued, these trends will challenge housing policymakers to develop new, more effective strategies, including ways to increase the supply of affordable rental housing to meet the rising demand in the marketplace.

It was wonderful to hear Mr. Terwilliger’s evocation of John Dunlop, a man who served presidents of both political parties and spent a lifetime bridging differences.  At a time when our nation’s politics seem so broken, we can no doubt use more men and women like Professor Dunlop in Washington. 

We thank the National Housing Endowment for supporting the Dunlop Lecture.  Click the video below to watch Ron Terwilliger's speech. We welcome your comments and responses.