Despite a Cooling Housing Market, Home Prices and Rents Remain High

The annual State of the Nation’s Housing report from the Harvard Joint Center for Housing Study (JCHS) highlights the growing housing affordability crisis, despite a slowdown in housing prices.

“Rent growth slowed over the past year, and home prices declined in a number of areas,” said Daniel McCue, a JCHS senior research associate, in a press release. “Nonetheless, housing costs remain well above pre-pandemic levels thanks to the substantial increases over the last few years.”

McCue noted that although home prices grew 1%, compared to 21% in 2022, they are still nearly 40% over pre-pandemic prices. Rent growth followed a similar pattern, with 4.5% growth in 2023 compared to 15% in 2022, but up 24% since the pandemic.

Higher interest rates have also eroded housing affordability in the past year, with payments on the median-priced home increasing from $2,500 to $3,000. As a result, mortgages originated to first-time home buyers dropped 22% in 2022, including a 40% year-over-year drop in the fourth quarter.

Inventory has also had an impact on home prices, as single-family housing starts dropped 10.8% last year. Although multifamily construction has remained strong, the JCHS report indicates that rising vacancy rates, along with higher interest rates and tighter lending standards, suggest a forthcoming slowdown in multifamily construction.

NAHB Chief Economist Robert Dietz highlighted the key factors contributing to these issues in a recent press release.

“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing – for-sale, for-rent, multifamily and single-family,” he stated. “By addressing supply chain issues, the skilled labor shortage, and reducing or eliminating inefficient regulatory policies such as exclusionary zoning, policymakers can play an important and much-needed role in the fight against inflation.”

Panelists during JCHS’ report release event also echoed these messages with a call not only to invest in housing and the skilled labor shortage, but to address burdensome regulations that may prevent or hinder development.

“Housing crises don’t just naturally happen,” stated California Sen. Scott Wiener. “The housing crisis in California was engineered because of layers of bad policy.”

“Housing is a crucial engine of economic growth, and investments in this important sector pay broader dividends,” Chris Herbert, JCHS managing director, noted. “As the pandemic highlighted, high-quality, stable, and affordable housing is foundational to widespread well-being and, as such, both merits and necessitates greater public attention.”

More details, including the full report, are available at jchs.harvard.edu.