Five Reasons the United States is facing an Affordable Housing Crisis with no end in sight
The United States is in an affordable housing crisis that is worsening every year.
Harvard researchers found that in 2016, nearly half of renters were cost burdened -defined as spending 30 percent or more of their income on rent.
The National Low Income Housing Coalition found in 2018 that a renter working 40 hours a week and earning minimum wage can afford a typical two-bedroom apartment in exactly ZERO counties nationwide.
Nearly two-thirds of renters nationwide say they can not afford to buy a home, and the situation is made worse by the fact that rising rents are squeezing housing dwellers as well. Rents for professionally managed apartments went up 10% in third quarter of 2021 alone,
Home prices are rising at twice the rate of wage growth, and those price gains accelerated during the pandemic. The median selling price of a home in November 201 was $416,000, nearly 25% more than it was in February 2020.
So why can we simply not build more affordable housing to meet these increasing demands?
Here are five reasons:
1. Over the last 40 years federal policy has hindered the growth of public housing.
In the 1970s the Nixon Administration put a moratorium on the construction of public housing. The Reagan and Clinton administrations passed policies aimed at only building to replace existing public housing, and the Reagan administration drastically cut HUD’s rental assistance programs, while many cities like Chicago starting in the 1980s tore down tens of thousands of public housing units and replaced them with section 8 vouchers without replacing the physical housing that was demolished.
2. Rising costs of labor and materials mean affordable housing is more expensive to build every year.
According to the Bureau of Labor and Statistics, the price of raw materials has risen 23.9 percent since the 2008 financial crisis, and in 2021 the price of lumber fluctuated wildly to at time twice its 2008 costs. Aggregate construction costs rose 21% year over year in 2021.
Also the price of undeveloped land in and around urban centers where work is concentrated and demand is high has skyrocketed in the last two decades. In the last five years while a rebounding housing market has meant more housing starts and more apartment buildings breaking ground, a persistent labor shortage is driving up costs and cutting into the margins for these projects, adding to significant economic pressure for developers to focus on luxury units, which can turn a higher profit. in 2021 only one in five new homes were priced below $300,000.
3. Restrictive Zoning Codes are helping to suppress housing supply even as demand rises.
Whether by limiting the height of new buildings or deciding that large apartment buildings need a minimum number of parking spots, these restrictions make construction more difficult and more expensive.
4. The Rising Costs of Transportation
As rising rents and home prices push low- and middle income households farther from major urban centers – where the greatest number of jobs and the most robust public transit systems tend to be – lower housing costs in suburbs and exurbs get offset by increased spending on transportation.
For example in Phoenix, Arizona, the fastest growing major metro area in the past 5 years, and a city characterized by huge sprawl and a lack of a strong public transit system, Phoenix residents across income brackets spend nearly 5 percent of their earnings on housing and transportation.
Mobility rates for renters are also at an all-time low, half of what they were two decades ago. Because of the all-time high costs in both new and second hand cars, people cannot commute the distances necessary to reach many jobs, and because of the cost of housing close to these urban centers, they cannot move their either.
5. Higher Income households shut out of home ownership are driving up the cost of rentals.
Shut out of home ownership, many higher income households have turned to amenitized, upscale apartments and high end build-to-rent homes. Harvard research has found those making more than $75,000 a year are driving nearly 70% of total renter household growth. Research from Rentcafe have found high earning Millennials are behind a boom in “lifestyle renting” in cities such as Las Vegas, Phoenix and Indianapolis. In 2021 39% of all rental applications came from individuals earning more than $50,000, an all-time high.
Key Takeaways:
Because of inadequate government housing policies, restrictive zoning codes, rising costs of materials and transportation, and priced out higher income households driving up the cost of rents, the US Affordable Housing Crisis is not going away any time soon.
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