BLOG

What Is the State of Affordable Housing in the US?

Currently, the state of affordable housing in the U.S. is grim, according to a report from the Joint Center for Housing Studies at Harvard University. The rule of thumb for affordable housing has long been the percent of income spent, with around 30 percent considered a good average, leaving a robust amount of disposable income for other necessities. But almost 50 percent of renters spent more than 30 percent of their income on housing costs, meaning they are considered cost burdened.

temp-post-image

Housing Costs Have Outpaced Earnings

While there isn’t a single culprit, the costs of housing vis-à-vis earnings is certainly a main cause. Since 1960, renters have risen, on average, 61 percent, but the earnings of renters over the same period has only inched ahead at 5 percent.

Homeowners are in a similar boat. Homeowners earn, on average, 50 percent more than they did in 1960, but home prices have climbed 112 percent.

In some places in the country, of course, home prices have climbed more than that. Skyrocketing prices affect people with the lowest incomes, of course. In both Los Angeles, California and Orlando, Florida, for example, there are an estimated 17 homes for rent for every 100 families with extremely low income. The end result is rising homelessness.

The Harvard study is not the only one to indicate a crisis in affordability. ATTOM Data Solutions recently released its U.S. Home Affordability Report for the third quarter of 2018. The report indicates that homes were, on average, at the most unaffordable level in the third quarter of 2008, in the midst of the Great Recession.

temp-post-image

The Future: Continued Challenges?

The affordability crisis is not solely due to the widening disparities between income and real estate prices. Some other causes are construction and demand trends. The Harvard report points out that, for rentals on the higher end, vacancy rates have risen, but they have dropped for lower cost rentals. That indicates that builders may be responding to demand, and simply building more higher-end units, while letting lower-end ones languish or remain the same.

Construction of single-family homes has lessened because of climbing construction costs, land shortages, and demand and personal preference trends.

These trends are driven, at least in part, by demographics. Two large generational cohorts, the Baby Boomers and the Millennials, play a role.

Senior citizens 65 years old and older (of which the Baby Boomers are a part) currently make up a large proportion of homeowners. They are living longer and an increasing number plan to age in place. That means they won’t be moving out of their homes.

As a result, their homes will not become vacant until their deaths. The corollary? They won’t be contributing to an increase in available housing and may continue to drive up housing prices in areas close to hospitals and other amenities desirable to senior citizens.

Millennials have an opposite set of issues. They are moving into the housing market at lower rates than past generations at the same age. Rising housing costs have impacted their abilities to purchase first homes. As a result, the rates of homeownership in the 25- to 34-year-old cohort are lower than the rates reported three decades ago.

While rising housing costs are a central factor here, though, there are other issues impacting housing affordability for Millennials. Many more Millennials have student loan debt than previous generations, and the debt burden may make it harder to obtain first-time mortgages.

What’s the solution? Shaun Donovan, a former secretary of Housing and Urban Development, believes that land use regulations and outdated zoning are to blame. He recommends that governments zone for affordable housing and increase public transportation options so that lower-income people have access to work in areas where opportunities may be higher.