Rising housing costs are burdening millions of low-income homeowners, a growing trend that was one of the main storylines from this year’s State of the Nation’s Housing report from the Joint Center for Housing Studies of Harvard University, where I am a senior research associate. Record-high home prices and stubbornly high interest rates that have priced out all but the highest-income households looking to become homeowners have garnered most of the headlines. Less noted is that rising costs are also putting pressure on a growing number of existing low-income homeowners who have few avenues to turn to for help and whose ability to keep their homes is in jeopardy.
Heading into 2023, even before the recent surge in interest rates, the number of homeowners reporting cost burdens (paying more than 30 percent of income on housing) was already rising sharply, raising concerns about housing insecurity for the lowest-income households. Between 2019 and 2022—the latest year for which cost burden data is available—the number of homeowners reporting being cost burdened rose by a remarkable 3 million, to a total of 19.7 million households. The majority of this increase was among households earning less than $30,000 per year, whose burden rate is now above 70 percent (Figure 1, above). And within this group the largest growth in burdens was among those aged 65 and over reflecting that, by and large, these are not new homeowners who have jumped in over their heads; rather, these are long-time homeowners with limited or fixed incomes that do not rise with rising costs.
Indeed, even those owners who have locked-in fixed mortgage payments at the low interest rates of 2020 and 2021 are not shielded from the other variable costs of homeownership that have risen sharply over the past couple of years. Home insurance costs and property tax bills, for example, are surging. According to policygenius.com, home insurance premiums were up 21 percent over the past year upon renewal, with even higher increases in states more prone to weather-related natural disasters, like Florida, where premiums were up by 35 percent. Property taxes, too, have risen an average of 4.1 percent nationwide in 2023, according to ATTOM, a real estate data company. While this may sound like a modest rate of increase, the average annual property tax bill is $4,000, and these payments can consume a significant portion of income for those earning $30,000 or less.
On top of all this, two years of pandemic-related inflationary increases have pushed up the cost of routine maintenance and repairs necessitated by an aging housing supply; the median home is a record 64 years old. Last year, the Federal Reserve Bank of Philadelphia put out a study estimating that nationwide, the owner-occupied housing stock needed $97.9 billion in repairs, a significant increase over their pre-pandemic estimate. These costs threaten the already fragile finances of many more low-income households, while unmet maintenance and repair needs put their health and safety at risk.
Despite these pressures, people who are already homeowners may not evoke sufficient concern from policymakers relative to other groups since many of them are benefiting from homeownership. The property taxes they struggle with are rising in part because of increased home values, which benefits existing homeowners, if it in a less immediate way. The average homeowner gained nearly $200,000 in home equity over the past four years, according to my tabulations of Corelogic data. However, there are a number of reasons why policy makers should nonetheless take steps to support lower-income homeowners. Most notably, homeowners have not benefited from these gains equally, and accessing that equity can be costly or disruptive, requiring a homeowner to either sell their home (and find another similar home that is less expensive), take out a home equity loan or possibly a reverse mortgage, or refinance at today’s interest rates.
And equity gains have not fully insulated homeowners from those rising tax bills and insurance payments. Older adults with low incomes are especially feeling the pain. Remarkably, even among those without a mortgage, fully 57 percent of homeowners over age 65 with incomes below $30,000 are cost burdened—reflecting the high cost of property taxes and insurance. Adding a mortgage payment on top of those costs increases the burden rate to a sky-high 95 percent of homeowners in this group.
Rising costs and housing burdens among lower-income older adults underscore an essential need in the housing world that often fails to get adequate attention—the need to help lower-income homeowners not lose their homes. While the importance of sustaining homeownership is widely recognized, lower-income homeowners burdened by housing costs still have few places to go for immediate help paying their bills.
For a time the COVID-19 pandemic heightened awareness of the struggles of lower-income homeowners, resulting in substantial but temporary assistance programs to help keep financially strained homeowners up to date on their mortgages and securely housed. According to the U.S. Treasury, the nearly $10 billion Homeowner Assistance Fund (HAF) for homeowners at risk of foreclosure helped about 500,000 households stay in their homes through December 2023, in addition to those stabilized through lengthy forbearances. However, HAF is now closed in most states, leaving fewer avenues for help.
With pandemic-era federal assistance programs closed or ending, the small number of programs that still offer direct assistance to homeowners may need to adapt to growing need. Most commonly these programs are aimed at supporting utility payments, recognizing that energy costs are a large part of housing cost burdens. Indeed, at last measure in 2020, 33.6 million households faced energy insecurity, which is the inability to pay for basic household energy needs. The low-income housing energy assistance program (LIHEAP) is one of the few ongoing federal programs that offer low-income homeowners direct assistance with energy costs. However, states in the Northeast and Midwest generally limit this assistance to paying heating bills in the wintertime, while only states in the South and West also offer these funds to defray costs of air conditioning in the summer. With climate change raising the number of extreme heat days in states of the Midwest and Northeast, extending the benefit to summer months could provide both financial and health benefits to low-income homeowners.
While immediate financial help for burdened owners remain a challenge, in the longer term, lower-income homeowners may find increasing amounts of help lowering their bills through programs that offer assistance with energy efficiency upgrades, which bring down energy costs. Low-income homeowners are likely to benefit from home energy retrofits because they’re more likely to live in older, less energy-efficient homes that are relatively expensive to heat and cool. Recent evaluations of energy retrofit programs have shown that the most effective of them have been successful at reducing home energy consumption by over 50 percent.
In fact, there has been a notable increase in the amount of funding for home energy retrofits. The Inflation Reduction Act (IRA) marked one of the largest federal investments in energy efficiency improvements. The Act authorized the EPA to create and implement the Greenhouse Gas Reduction Fund, a historic $27 billion investment with several clean energy goals, including investments that lower energy costs for low-income households. The legislation provided $8.8 billion for household rebates and tax credits, expanded existing tax credit programs, and committed an additional $1 billion for energy and water efficiency improvements in HUD-assisted housing. These new programs coming out of the IRA will enhance efforts of ongoing programs such as the Weatherization Assistance Program at the Department of Energy, which is aimed at reducing total residential energy expenditures of low-income households by increasing the energy efficiency of their homes.
Homeowners having difficulty paying their ongoing monthly bills may not be able to even consider the costs of additional maintenance and repairs that may be crucial to their health and wellbeing, even though deferring these actions may lead to more costly repairs in the future. Low-income homeowners may also get help paying for costly home repairs in the form of favorable financing programs or grants. State housing finance agency mortgage revenue bonds support state and local programs across the country that offer below-market financing options for low-income homeowners for home repairs and improvements. Assistance is currently capped at $15,000 per applicant, but the Affordable Housing Bond Enhancement Act seeks to raise the cap to $50,000. Qualifying low-income residents in rural areas can benefit from Housing Preservation Grants and home repair grants from the USDA, which provide grants for the repair or rehabilitation of housing.
States and local areas are taking steps to help reduce property tax costs for low-income homeowners. States implement property tax relief through circuit breaker programs available to some households that limit property tax payments to no more than a certain percent of household incomes. Local jurisdictions can also offer property tax exemptions either to homeowners as a whole or to particular financially strained groups to reduce the tax burden. These steps can make a big difference for low-income homeowners, but are up against the municipalities’ need to maintain revenues to cover rising costs for public services. Declining tax revenues from commercial properties are also adding more pressure on residences to make up the shortfall.
Attention at the state and local level to reduce tax and insurance costs for lower income homeowners is a positive sign. The growing availability of federal programs aimed at lowering energy costs, too, is a positive outcome that can also benefit the environment. But the sharp rise in cost burdens among lower-income homeowners is a troubling sign, because resources to provide immediate assistance to those most behind on their current mortgage bills remain limited. Although delinquency rates remain low for now, the Great Recession in the 2000s showed how these rates can rise quickly and necessitate action to avoid dragging down the broader economy. Being ready with ongoing assistance programs to address homeowner cost burdens before they reach crisis proportions may avoid the need for more costly large-scale interventions that have been necessary in the past.
Homeownership has long been both a path and an aspiration for people of all incomes to achieve both personal and economic security and stability for themselves and their families. But stabilizing low-income homeowners is crucial to make this a reality for them. The results of the State of the Nation’s Housing report remind us that the pressures on this large group are building, and that attention must be paid to make sure the assistance available matches what is needed.
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The complexity of the federal energy efficiency programs make it difficult for non-profit, government and utility partners to push the funds out to those in need. Look at the Community Services Block Grant program as a method for this work going forward. The Community Action Network could assist or work with their local partners like Land Banks.
Local money is best because of the flexibility.