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The housing affordability crisis hurts

The country is in the midst of a severe affordability crisis despite economic indicators being on the uptick. Who’s feeling the most pain?

Zeba Iqbal
May 20, 2020
Affordable Housing

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:

  • Approximately two in five American adults do not have $400 for an emergency or a surprise expense like a parking ticket or a repair bill. 
  • One in five adults is unable to pay their monthly bills.
  • One in three Americans do not have $5000 saved for retirement. 

Why is this the case? There are many complex reasons, but two main reasons are:

  • Gaps in Income and Wealth Inequality are Growing - Median wealth and income levels are growing comfortably for higher income families. while they are remaining almost stagnant for lower income families. 
Source: Pew Social Trends


Source: Pew Social Trends


Housing affordability 

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.

Source: Politifact, ATTOM, NLIHC

Limited supply of affordable rental housing 

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. 

First-time home buyers can’t find an entry point

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. 


Creative solutions to the housing affordability crisis

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 pre-development process is complex and full of inefficiencies. Builders Patch is simplifying the process, promoting efficiency and halving the time needed to break ground.
  • Modular and prefab housing startup Blokable’s goal is to build high quality, low-cost housing. 
  • End-to-end construction solution, Katerra is creating efficiencies and reducing costs for commercial real estate development.

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.