The country is in the midst of a severe affordability crisis despite economic indicators being on the uptick. Who’s feeling the most pain?
As we enter a new decade, consumer confidence indicators are high. Wages are increasing, and economic fundamentals are looking good for the most part. However, these indicators don’t tell the whole story. The country is in the midst of a Great Affordability Crisis.
One in three US households is “financially fragile.” Today:
Why is this the case? There are many complex reasons, but two main reasons are:
Along with increasing inequality, and out of control costs, housing supply has not kept pace with demand. There is a shortage of new residential construction, particularly at the middle and lower income levels.
According to Robert Dietz, chief economist for the National Association of Home Builders, new residential construction is constrained due to the "five L’s": labor, lots, lumber, lending, and laws. Essentially, labor is limited, land is in short supply, lumber prices are up, lending conditions are tight and the regulatory constraints are restrictive.
As a result, housing prices are soaring and families are being squeezed everywhere; and in particular on the two coasts in the Bay Area, Seattle, and Boston. Two demographic groups that are feeling the impacts most acutely are low-income rental households and first time home buyers.
The supply of affordable housing for low-income households is limited. Per NLIHC’s report “Out of Reach”, only 37 affordable rental homes are available for every 100 extremely low-income households. This shortage is most keenly felt in large high-cost metros such as Los Angeles, New York, San Francisco, and Seattle. Nationally, NLIHC’s report, The Gap estimates indicate a shortage of 7 million affordable rental homes in the US.
The American Dream of owning a home is slipping away for many Americans. The housing affordability crisis is turning the US into a country of renters. The current homeownership rate of 65% is below its pre-recession peak of nearly 70%. As a result, approximately 3.5 million younger families have to keep renting (also expensive) because they are priced out of the entry home market.
What can be done to break the vicious housing affordability cycle? The obvious answer is making more housing available, both by building more housing and by making homes more affordable. Doing this will require more rent subsidies, mortgage interest deductions and tax credits, as well as zoning and land-use reforms to promote development.
And it will require creative and innovative technology-enabled solutions to build faster, and at a lower cost. For example:
The housing affordability crisis is a complex issue with no easy solutions. This crisis impacts multiple socioeconomic and demographic groups, in different ways. Easing the pain of housing affordability will require thoughtful, far-reaching and multifaceted solutions.