Housing, Recessions, Inequality and Policy Responses

By Devika Hazra, Ph.D. and Ellen Shiau, Ph.D.

Takeaways

  • Federal and state policies soften the effect of economic recessions.
  • State policies engage in meaningful policy innovation and can fill gaps in federal policy and offer additional protections even in resource-constrained environments.
  • Widespread protections and supports in 2020 that facilitated housing stability have been effective.
  • Speed, scale, and policy targeting are important for effective and efficient responses to economic recessions.
  • Ensure equitable support by automating implementation where possible and through public information.
  • Ensure equitable access to and benefits from homeownership across income, race, and ethnicity.
  • Policy innovation occurs in response to crises, which also can lead to the “normalization” of policies and their widespread use.

Introduction

Access to affordable housing and homeownership is a result of and contributes to income and wealth inequality. Housing affordability issues can threaten economic stability and hinder generational wealth building. Households are considered “cost-burdened” when they pay more than 30 percent of income toward housing, and “severely cost-burdened” when housing costs exceed half of their income. According to the California Budget & Policy Center, more than 4 in 10 households in the state experienced housing cost burden in 2017, and 1 in 5 households experienced severe housing cost burden.[1] The housing affordability crisis is especially acute for renters as more than half of renters were cost burdened in 2017 and more than 25 percent were severely cost burdened. Minority households comprised more than two-thirds of California households experiencing housing cost burden in 2017 with 45 percent of these households being Hispanic/Latino. Moreover, according to the 2023 U.S. Census, California’s homeownership rate was 55.8%, which is the second lowest in the nation, while the U.S. homeownership rate was 65.6%. According to the 2022 U.S. Census, among all California homeowners, approximately 51.6 percent are Non-Hispanic White, 25 percent are Hispanic/Latino, 16.1 percent are Asian and 3.9 percent are Black, although the California population residing in all occupied housing units (owned and rented) is 45 percent Non-Hispanic White, 30.4 percent Hispanic/Latino, 14.7 percent Asian and 6.1 percent Black.[2]

Income and wealth inequality distinguished by race and ethnicity has been a persistent problem in the state of California. Several factors contribute to income and wealth inequality in the United States, according to scholars, including the structure of the U.S. tax system,[3] changing technological demands and insufficient investment in education to meet the demand,[4] and the history of racist and discriminatory institutions, practices and policies that led to unequal access to higher education, employment and housing.[5]

Economic Shocks and Inequality

Economic shocks or unexpected events impacting people’s financial well-being—such as those resulting from economic recessions, natural disasters and pandemics—can exacerbate access to resources and stability. The unique characteristics of economic recessions are important and require tailored responses.[6] For example, the 2008 recession had distinct impacts on middle-wage, male, minority, and less-educated workers[7] and led to significant declines in housing values and high rates of residential foreclosures tied to predatory lending practices. Minority and lower-income homeowners were disproportionately affected by foreclosures because they were more likely to have been issued subprime mortgages.[8] While renters also experienced increased housing cost burden, housing policies were targeted at preventing residential foreclosures by assisting homeowners with underwater mortgages.[9]

In contrast, the 2020 recession stemming from the COVID-19 global pandemic has been compared to a natural disaster as opposed to a traditional recession. This recession had distinct impacts on low-wage, female, minority and less-educated workers as the pandemic had significant effects on industries that rely heavily on in-person activities and interactions, such as the food and beverage, hospitality, tourism, entertainment and retail industries.[10] Lower-income and minority renters were also disproportionately affected,[11] although housing hardship also increased particularly for minority homeowners.[12] Federal monetary policy that reduced interest rates among other market factors increased housing demand, which led to rising home prices.[13] Moreover, policies to support housing stability for both renters and homeowners were broader and larger than they were in previous recessions. Thus, unlike the 2008 recession, widespread residential foreclosures did not occur, although evidence suggests that lower-income and minority households were less able to take advantage of historically low interest rates to build housing wealth particularly through home mortgage refinancing.[14]

Comparing Policy Responses Across the 2008 and 2020 Recessions

Comparing federal and state policy responses to the 2008 and 2020 recessions provides useful insights and lessons that can be built upon as governments continue to consider their role in economic recoveries, how to respond to future economic shocks, and how to continue to address housing access and affordability. Policy interventions between the 2008 and 2020 recessions shared some similarities but also differed in significant ways. Federal responses in both recessions included expansions of the safety net—such as unemployment insurance, tax credits and cash payments to households—which softened the effect of recessions.

However, the 2020 federal policy response was significantly swifter and larger in scale with a significant focus on residential housing stability through an eviction moratorium, mortgage forbearance requirements, and rent and mortgage subsidy programs. 2020 state policy responses also were more substantial given the stronger fiscal context and greater levels of federal funding. A number of federal and state policy responses were effective in softening the effect of both recessions, particularly policies that expanded the safety net, targeted those in need, and increased household liquidity, which helped to facilitate housing stability, although implementation challenges existed.[15] Useful policy takeaways surface when comparing the federal and state policy responses to the 2008 and 2020 recessions:

  • Federal and state policies soften the effect of economic recessions. Federal and state interventions can reduce the effects of economic recessions. Interventions—such as expanded unemployment insurance, tax credits and stimulus payments—can provide a vital safety net for households to support housing stability and meet basic needs even as they stimulate economic recovery. In the absence of interventions, levels of poverty likely would be higher, and economic recovery likely would be slower. However, as policy responses ended following both recessions, inequality and poverty rose again.[16]
  • State policies engage in meaningful policy innovation and can fill gaps in federal policy by offering additional protections even in resource-constrained environments. The state of California took important steps to address the economic crises in both 2008 and 2020. For example, in response to the 2020 recession, the state expanded state stimulus payments and tax credits to residents with Individual Taxpayer Identification Numbers to include benefits to undocumented residents. Even in constrained fiscal contexts, state mandates can offer greater protection to households, such as foreclosure prevention laws passed in 2008 and 2009 that were effective in preventing foreclosures.
  • Widespread protections and supports in 2020 that facilitated housing stability have been effective. Evidence suggests that mortgage forbearance, eviction moratoria and emergency rental assistance have facilitated housing stability; however, the long-term effects of the recession on housing stability, particularly for renters, remain to be seen as housing protections have expired.
  • Speed, scale, and policy targeting are important for effective response to economic recessions, ensures benefits accrue to those who need it, and to prevent fraud. To speed the delivery of benefits following 2020, eligibility requirements often were broad and required minimal documentation; however, some recipients may not have needed the benefits (e.g. Paycheck Protection Program and broadly distributed economic stimulus payments). Simple yet effective policy targeting as well as adequate administrative infrastructure are necessary to ensure the appropriate and efficient distribution of benefits.
  • Ensure programs and policies equitably support socially disadvantaged populations by automating implementation where possible and through public information. Populations who would have benefited from policies and programs did not take advantage of them as they often required awareness of the program and execution of processes to access benefits and protections. In contrast, federal student loan forbearance was automatic for eligible loans. Agencies should communicate eligibility requirements and how to access benefits to populations benefiting from policy with culturally responsive outreach and services to support participation.
  • Facilitate access to homeownership and housing wealth under varying fiscal contexts to ensure equitable access to and benefits from homeownership across income, race, and ethnicity. Evidence suggests that missed opportunities occurred in facilitating access to homeownership and housing wealth during the 2020 recession, particularly through inequitable access to mortgage refinancing by lower-income and minority homeowners during the COVID-19 pandemic. Some of these inequities resulted from loss of employment income that precluded qualifying for refinancing, and lender and homeowner behavior.
  • Policy innovation occurs in response to crises, which also can lead to the “normalization” of policies and their widespread use. Unprecedented events often call for unprecedented interventions; thus, crises often present the opportunity to engage in policy innovation that can have long-term benefits. In both the 2008 and 2020 recessions, new policy interventions were introduced or adopted on a large scale in response to crises. These responses included loss mitigation tools to prevent foreclosure following 2008 and the widespread use of mortgage forbearance following 2020.

CRB Nexus Guest Authors

Dr. Devika Hazra is an Associate Professor of Economics at California State University, Los Angeles who obtained her Ph.D. from Texas A&M University. Her research focuses on evaluating the unequal impacts of policies, ranging from monetary policy to public policy on various demographic groups. She also studies neighborhood segregation and the disparate impact of economic shocks on disadvantaged communities. Additionally, she conducts research on the effects of policies, programs and socioeconomic factors on violence against women and crimes against minorities. Dr. Hazra is a Fellow at the Faculty Research Fellows Program at the Centre for California Studies at Sacramento. In addition to that, she was the 2021-22 Cal State LA Provost’s Faculty Fellow as well as a recipient of the 2022-23 Haynes Foundation Faculty Fellowship. She is leading a program at Cal State LA, sponsored by a philanthropic grant from Bank of America, that focusses on removing barriers to employment for first generation college students. Previously, she has served as the co-director Financial Fitness Program at Cal State LA’s College of Business and Economics.

Dr. Ellen Shiau is an Associate Professor in Public Administration at the Department of Political Science at California State University, Los Angeles. Her expertise in urban politics and policy, neighborhoods, and policy analysis contribute to understanding socioeconomic inequality in the state of California. Her most recent research examines the effects of the 2008 and 2020 economic recessions on Los Angeles neighborhoods, and the impact of federal and state policy responses. Her previously published work includes a collaboration with renowned urban scholar Dr. Clarence Stone that included an analysis of the complex factors that shaped the nature and politics of neighborhood redevelopment in Los Angeles and an analysis of Mayor Antonio Villaraigosa’s policy initiatives in the City of Los Angeles. She also has used GIS analysis to examine patterns of crime in Los Angeles as a research fellow with the Pat Brown Institute for Public Affairs. Finally, Dr. Shiau has published work in the area of diversity and inclusion with particular attention to the ways in which Master of Public Administration programs support and advance diversity and inclusion in the public and non-profit sectors as well as civic engagement in relation to the City of Los Angeles’ Neighborhood Council system.

[1] Kimberlin, S. (2019). California’s Housing Affordability Crisis Hits Renters and Households with the Lowest Incomes the Hardest. Issue Brief. California Budget & Policy Center. 

[2] U.S. Census 2022 American Community Survey 5-Year Estimates Demographic Characteristics for Occupied Housing Units

[3] Piketty, T., & Saez, E. (2014). Inequality in the long run. In Science (Vol. 344, Issue 6186).

[4] Lemieux, T. (2006). Postsecondary education and increasing wage inequality. American Economic Review, 96(2), 195-199.

Goldin, C., & Katz, L. F. (2010). The race between education and technology. Harvard University Press.

Autor, D. H. (2014). Skills, education, and the rise of earnings inequality among the “other 99 percent”. Science, 344(6186), 843-851.

[5] Hutchful, E. (2018). The Racial Wealth Gap: What California Can Do About a Long-Standing Obstacle to Shared Prosperity. California Budget & Policy Center.

[6] Fazzari, S. M., & Needler, E. (2021). US employment inequality in the Great Recession and the COVID-19 pandemic. European Journal of Economics and Economic Policies: Intervention, 18(2).

[7] Hoynes, H., Miller, D. L., & Schaller, J. (2012). Who Suffers During Recessions? Journal of Economic Perspectives, 26(3), 27–48. https://doi.org/10.1257/jep.26.3.27

Jaimovich, N., & Siu, H. E. (2020). Job polarization and jobless recoveries. Review of Economics and Statistics, 102(1).

Cortes, G. M., & Forsythe, E. (2022). Heterogeneous Labor Market Impacts of the COVID-19 Pandemic. ILR Review.

[8] Foster, T. B., & Kleit, R. G. (2015). The Changing Relationship Between Housing and Inequality, 1980–2010. Housing Policy Debate, 25(1).

[9] Colburn, G., & Allen, R. (2018). Rent burden and the Great Recession in the USA. Urban Studies, 55(1).

[10]Bartik, A. W., Bertrand, M., Lin, F., Rothstein, J., & Unrath, M. (2020). Measuring the labor market at the onset of the COVID-19 Crisis. Brookings Papers on Economic Activity, 2020(Special Edition).

Shibata, I. (2021). The distributional impact of recessions: The global financial crisis and the COVID-19 pandemic recession. Journal of Economics and Business, 115.

[11]Goodman, L., & Magder, D. (2020). Avoiding a COVID-19 Disaster for Renters and the Housing Market. Urban Institute.

Grinstein-Weiss, M., Chun, Y., Roll, S., & Jabbari, J. (2021). Do racial and ethnic disparities in savings and job loss during COVID-19 explain disparities in housing hardships? A moderated mediation analysis. The ANNALS of the American Academy of Political and Social Science, 698(1), 68-87.

Kneebone, E., & Reid, C. (2020). “COVID-19 and California’s Vulnerable Renters.” Terner Center for Housing Innovation, UC Berkeley.

[12] Grinstein-Weiss, M., Chun, Y., Roll, S., & Jabbari, J. (2021). Do racial and ethnic disparities in savings and job loss during COVID-19 explain disparities in housing hardships? A moderated mediation analysis. The ANNALS of the American Academy of Political and Social Science, 698(1), 68-87.

[13] Zhao, Y. (2021). US Housing Market During COVID-19: Aggregate and Distributional Evidence. SSRN Electronic Journal.

Afxentiou, D., Harris, P., & Kutasovic, P. (2022). The COVID-19 Housing Boom: Is a 2007–2009-Type Crisis on the Horizon? Journal of Risk and Financial Management, 15(8), 371.

[14] Agarwal, S., Kiefer, H., Kiefer, L. C., Medina, P. C., & Chomsisengphet, S. (2021). Refinancing Inequality during the COVID-19 Pandemic. SSRN Electronic Journal.

Gerardi, K., Loewenstein, L., & Willen, P. S. (2021). Evaluating the Benefits of a Streamlined Refinance Program. Housing Policy Debate, 31(1).

Gerardi, K., Lambie-Hanson, L., & Willen, P. (2022). Lessons Learned from Mortgage Borrower Policies and Outcomes during the COVID-19 Pandemic. Federal Reserve Bank of Boston Current Policy Perspectives.

[15] Hazra, D., & Shiau, E. (2022). Economic Recessions and Inequality: A Review of the Effects of Recessions and Policy Responses. A Report for the Center for California Studies.

[16] Shrider, E. A. & Creamer, J. (2023). Poverty in the United States: 2022. U.S. Census Bureau.