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 county’s median household income.
The implication is that in 2013, a “typical” American family could afford around half of the available listings in their community, and likely in nearby communities too. That’s a lot of optionality. And it’s gone now.
As the astounding figure above shows, the share of affordable listings for typical Americans fell to less than 16% in 2023. Even more alarming: The number of affordable listings for “regular” people collapsed from around 1.4 million in 2020 (and in 2015 and 2016 for that matter) to a mere 353,000 this year.
That seems like a crisis to me. In their analysis, Redfin suggested things’ll surely improve in 2024. In addition to reducing monthly payments for would-be buyers, lower rates may also bring more resale inventory onto the market, thereby helping to alleviate the supply shortage that kept a floor under prices this year.
“Here’s hoping,” said legions of lower-income renters.
Speaking of renters, the pandemic housing distortions, as well as what I’ll call a wholesale rethink around the desirability of buying versus renting, is leading to what The Wall Street Journal described on December 22 as “The Rise of the Forever Renters.”
I highly recommend the linked piece. It’s a quick read and it’s not what you think — it’s not about lower-income Americans being driven into rentals because buying is unaffordable. Rather, it’s about people who have plenty of money choosing to rent for a variety of reasons. As a result of that dynamic, “renters who make below the median wage are left in the lurch as the rental market shifts to appeal to higher income tenants,” as the Journal‘s Rachel Wolfe and Veronica Dagher wrote.
The piece cites the same Harvard study I mentioned in “Ghost Town” in noting that the number of cheap rentals plunged by almost a quarter nationwide from 2012 to 2022. As one researcher in the Harvard initiative put it in remarks to the Journal, “Everything is shifting upwards”
Yes, “Everything is shifting upwards.” Including homelessness, which hit a new record in the 2023 point-in-time count (the snapshot the government uses to assess the state of homelessness in America).
There were more than 650,000 people across the country experiencing homelessness on the snapshot date this year.
In the above-mentioned “Ghost Town,” I also cited a Zillow study from a team that included Penn’s Dennis Culhane, one of America’s foremost authorities on homelessness.
The study showed that once the share of income spent on rent reaches 32%, community leaders can expect a “rapid” (as the study put it) increase in homelessness rates.
As it turns out, the 30% threshold isn’t just an old adage, and it’s not just a handy rule of thumb for mortgage bankers either. It’s an actual predictor of community-level homelessness.
Consider that statistic with everything said above. Just 16% of the housing market is affordable for Americans on the median income, where “affordable” uses the 30% threshold. And the shift in higher-income Americans’ attitudes towards renting is creating demand for high-end rentals, which are now commanding a greater and greater share of that market.
What does that seem to suggest about the likely trajectory of homelessness in America? Spoiler alert: Nothing good.
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.