The Astounding Decline Of The Affordable American Home. And What It Means
10 years ago, roughly half of homes for sale in America were affordable for a family on the median income.
Think about that for a minute. If you can't wrap your mind around it, you aren't alone: It's almost unfathomable today.
The figure comes from Redfin. Their methodology (describe here by Lily Katz) is straightforward. They take listings from dozens of the country's largest metropolitan areas and calculate the share for which the monthly mortgage payment would be 30% or less of the relevant
My PhD dissertation, completed in the fall of 1970, was a study of affordable housing in three classes, 750-950 sq’ 2BR apartments, 960 sq’ single family dwellings (the smallest sized then qualifying for an FHA loan), and 970 sq’ “mobile homes, newly qualified for FHA loan coverage. My goal was to see if I could classify those who occupied each of these types of low-income housing to a distinctive group of residents. I was, in fact, successful in that I was able to create a multi-variate equation consisting of just ten variables, the values of which could tell a developer just how many of each of these homes would be needed to supply a given market. My model was not only easy to use, but in blind tests, made no errors in predicting who would likely live in each type of dwelling. I thought these results would be easy to publish. I was wrong. Nobody in the academic or commercial worlds was even remotely interested in how best to house those in the low income segment of the population. As an aside, the year I finished my study, the mobile home industry delivered what was to become its high-watermark of 600,000 units nationally and half of all new dwellings completed in the community I studied, Columbus, Ohio, were apartments. No one wants to build actual affordable housing.
Why was that? Is there just not enough profit to be made in affordable housing with current or, in your study, past government incentives?
Tangentially, there seem to be so few smaller (2 bed / 1 bath) (3 bed / 1.5 bath) houses available to buy or rent in general. I’m unsure if it’s development, zoning, lack of profit in those structures, or just demand (nobody wants them except me).
Sad but true, sir. You might add in the efforts from private equity and hedge funds to buy out independent mobile home parks and then raise the monthly lease costs to unaffordable levels. (In line with our Dear Leader’s comment above.)
That said, a number of people have made egregious fortunes from government funding programs designed to right the balance a bit.
I don’t know how or even if this can be moderated.
Developer has a piece of land, wants to maximize profit, is never going to choose to build affordable housing, absent regulatory mandate or very large subsidy.
In my city, a mandate exists in the form of inclusionary housing. Some percent of units in a new apartment building of 20 or more units must be affordable. Developers rushed tens of thousands of units through permitting to beat the effective date of the mandate, then sat on those grandfathered permits. Others started building 19 unit buildings, sometimes multiple such separated by a four foot walkway. The city staff and attorneys who wrote the regulations either didn’t understand development or were bad at their jobs, because the loopholes were abundant.
The only affordable housing being built here is subsidized, and that doesn’t mean the government chips in 10% or 30% of the cost. Developers won’t do it unless the government pays the great majority of the cost, and even then only a small group of affordable housing developers will do it. The resulting buildings are regulated affordable for a period – 20 years I think? It is still profitable, yes the tenants pay half of market rent, but the government paid three-quarters of development costs, so the ROI is just fine and after the regulated period, the low income tenants are all booted and the buildings renovated for market rate tenants.
Private development cannot solve the affordable housing shortage, no matter how much the developers pretend it can. “Just roll back these fees, eliminate those building codes and land use rules, and we’ll build lots of affordable housing!” Policymakers are (charitably) totally ignorant about the economics of development, or (realistically) enjoying all those campaign contributions, so they do as they’re told, and lo & behold, no affordable housing gets built. Or maybe a couple of new units in a development are priced affordably, everyone gets a photo-op, and in a couple years those units are quietly repriced to market.
Let’s see – housing now unaffordable, healthcare costs still rising, auto sales tipping over and biotech research projects being shelved while corporate profit margins continue to relentlessly rise.
Real life results, as opposed to the output from those sacred econometric models that were used to support cranking up interest rates.
Blame it all on Mckinsey.
https://www.theatlantic.com/ideas/archive/2020/02/how-mckinsey-destroyed-middle-class/605878/
Lots of good and true comments here. There really is no solution to the affordable housing problem. We could build affordable housing. Just where nobody wants to live. We have plenty of cheap land and available materials to build homes. The government could take the money budgeted for the homeless and build as many homes as needed, but most of them would probably end up being empty because they are not where people would choose to live or be nowhere near where they could make a living. (the homes obviously couldn’t be build where people want to live for the prices that people could afford to pay or we wouldn’t have a problem in the first place.) There are too many people who want or need to live in a small area and that’s a big part of the problem. All attempts to distort the supply/demand dynamic like subsidized housing just won’t work like it doesn’t for any other market.