ECONOMIC REPORT OF THE PRESIDENT

and also was estimated in recent research to have held back current GDP
by almost 10 percent (Hsieh and Moretti 2015).
Land-use regulations may also make it more difficult for the
housing market to accommodate shifts in preferences due to changing
demographics, such as increased demand for modifications of existing
structures due to aging and increased demand for multifamily housing
due to higher levels of urbanization (Goodman et al. 2015). A number of
Administration initiatives, ranging from the Multifamily Risk-Sharing
Mortgage program to the Affirmatively Furthering Fair Housing rule, try
to facilitate the ability of housing supply to respond to housing demand.
Ensuring that zoning and other constraints do not prevent housing
supply from growing in high productivity areas will be an important
objective of Federal as well as State and local policymakers.
September 2015, while additional work is underway to further increase clarity
and transparency to encourage more lending to creditworthy borrowers.
Another phenomenon holding back homeownership that has less to
do with access to credit is that, in some areas, home prices and rents are rising
more quickly than either per capita personal income or wages. And real
median income for household heads aged 25-34 in 2014 remained modestly
below pre-recession levels. While homes are more affordable at the national
level, housing has become more expensive in many desirable cities like San
Jose, San Francisco, Los Angeles, San Diego, and New York (see Box 2-6).
Finally, inventories of existing homes available for sale have not recovered
fully and, by the end of 2015, were 7 percent below their average over
1997-2007.
Household formation showed some tentative signs of picking up in
recent years from the low pace prevailing since the recession. The number
of households continued to increase in 2015, albeit at a slower pace than in
2014. Most of the new households formed were among those between the
ages of 65 and 74 (Kolko 2015). This uptick contributed to a solid rise in
housing starts. Housing starts, including multifamily starts, were about 1.1
million units in 2015 (Figure 2-21). Nevertheless, starts remained well below
the 1.5-to-1.7 million rate that is consistent with long-term demographics
and the replacement of existing housing stock.7 Furthermore, because
homebuilding has been below that pace since the recession, pent-up demand
for housing may play a role in supporting further recovery in the housing
7 Demographics and historical trends would have predicted 1.2 to 1.4 million new households
formed each year requiring housing (Joint Center for Housing Studies 2015). Together with the
assumption that about 0.25 percent of the existing homes deteriorate and need to be replaced a
given year, this yields an underlying trend of 1.5 and 1.7 million housing starts per year.
The Year in Review and the Years Ahead | 89