Housing challenges remain despite strong economic recovery after the Great Recession, according to new USC report

October 8, 2020

New analysis of the years after the recession points to an incomplete recovery in the areas of rental and homeownership affordability, overcrowding and declining homeownership rates.

Contact: Jenesse Miller, jenessem@usc.edu or (213) 810-8554

A new USC analysis of a wide range of housing and economic measures provides evidence of a weaker recovery in Los Angeles County and California during the 12 years after the Great Recession, when compared to the rest of the United States.

“How well did Los Angeles and the Golden State recover from the damages of the Great Recession? Economy, good; housing, terrible,” said report author Dowell Myers, professor of policy, planning and demography at the USC Price School of Public Policy.

Myers and postdoctoral scholar Jung Ho Park traced annual trends from the peak of the early 2000s boom down to the bottom of the Great Recession’s severe housing and economic setbacks in 2010, and then back to the peak of recovery in 2019.

Their analysis finds rapid progress in many economic indicators for L.A., California and the United States, such as employment growth, unemployment and median household income. It also points to an incomplete recovery in the areas of rental and homeownership affordability, overcrowding and declining homeownership rates.

“By 2019, all of the key employment and income indicators had fully recovered in Los Angeles, California and the nation, even outperforming previous peaks last achieved in 2006 or 2007. In contrast, the record of progress in housing still falls well short of previous levels prior to the Great Recession,” Myers said.

Myers and Park observed that the recent release of 2019 American Community Survey data by the U.S. Census Bureau represents the last full year of the long revival in the wake of the Great Recession, now halted by the COVID-19 pandemic. By combining the new information with prior years of census data, they had a unique opportunity to analyze that economic recovery from start to finish. This long-term perspective is applied equally to housing and economic indicators.

“The new data is historically significant because the end of 2019 reflects the ‘peak’ or ‘end’ of the housing and economic recovery from the Great Recession, which has been cut short by COVID-19,” Myers said. “Looking at those years after the Great Recession, we considered the question: On which housing and economic measures do Los Angeles and California still need improvement? What has been left behind?”

Key findings on house values, homeownership and renting:

  • House values have risen to levels approaching their pre-recession peak in the U.S. overall but fell short by 11% to 13% in L.A. and California. While higher values are favorable for existing homeowners, the rising appreciation creates a crushing cost burden for new buyers. Rising home prices in California and L.A. have outpaced incomes and the ratio of median house value to median owner income was 6.0 in L.A. in 2019 — twice the burden in the nation.
  • Homeownership rates have continued to fall and are now 45.3% for all households in L.A. Homeownership rates are steadily declining among younger age groups, and the gap between homeownership at ages 65 and older and at ages 35-44 has widened to its greatest in 2019 — 64.1% versus 35.2%.
  • White households also are seeing sustained homeownership decline; Asian households in L.A. now surpass whites for the highest homeownership. Black and Latino homeownership remains the lowest, although there are signs of a struggling upturn.
  • On the rental side, rents rebounded rapidly and soared past their pre-recession peaks, but in California, those gains have outpaced incomes and affordability has suffered. Median rents in L.A. and California have risen at twice the national rate of increase, and in 2019 reached levels more than 20% above their peak before the Great Recession (in real dollars).
  • Affordability burdens remain extreme for renters, even though incomes of renters increased somewhat after 2014. The share of Los Angeles renters carrying “extreme” rent burden — where more than 50% of income is devoted to rent — was nearly one-third in 2019 and still above levels prior to the Great Recession.

Key findings on employment, household incomes, and poverty:

  • In general, the economy rebounded from the Great Recession in far better shape than the housing conditions of residents in L.A. and the Golden State.
  • Unemployment peaked during the Great Recession in 2010, when it reached 10.8% in the U.S., 12.8% in California and 12.4% in L.A. Unemployment fell to pre-recession levels by 2015, then improved to record lows in 2019.
  • The Great Recession had pulled household incomes below $60,000 by 2011, in both the United States and L.A., while California’s lows reached approximately $65,000 (all in 2019 dollars). After 2014, both L.A. and California as a whole enjoyed 5 years of unusually strong income gains, with L.A.’s median reaching $72,800 and the state reaching $80,400 in 2019 — well above the national median of $65,700.
  • Poverty rates also improved markedly after some delay following the recession. Poverty rose and stayed more persistently high than the abrupt rise and fall of unemployment. It reached its worst level in 2012 in California and L.A., followed by a sustained, high plateau until 2014. Poverty rates finally declined to a level in 2019 that was lower than before the recession.

The researchers say that given an economy that recovered so well, local leaders should wonder why didn’t housing opportunities follow along. In other words, how could there be such an incomplete recovery?

“Based on this analysis and our related ongoing research, we believe this incomplete housing recovery has to do with the fact that there’s such a dire shortage of housing in Los Angeles and California,” Myers said. “That housing shortage is driving up home prices, excluding younger buyers from homeownership and driving up rents. What is worrisome is that now we’re carrying these problems forward into the new cycle of recession and we’re starting from a deep housing deficit. This is the legacy of underperformance since the Great Recession.”

The authors say their findings should inform strategies that help the housing supply build on the next economic recovery to meet neglected needs in L.A. and California. The entire report can be found at https://sites.usc.edu/popdynamics/

Image via iStock