The Housing Crisis in America: Numbers and Impact
(A brief synopsis of the housing crisis afflicting tens of millions of Americans, and threatening to become even worse as governmental subsidies and constraints are removed. This is the problem identified; for one solution, see the post on EquiShare in the Economics section.)
The description of the current state of affordable housing in America as a “crisis” is in some ways problematic. The term suggests that the inability of tens of millions of U.S. households to pay for adequate housing has occurred as a response to a present day event; nothing could be further from the truth. The problem has been emerging, evolving in plain sight, for more than a generation. It is only now -- in the shadow of the pandemic and the resulting economic disruption -- that we are fully acknowledging its urgency.
Simple numbers tell a complex story. The persistent rise in housing costs has captured attention, of course, but not in the necessary context of incomes that have risen only nominally. It is this -- the comparison of housing costs to earned income -- that is most relevant; had incomes risen in similar percentages, affordability might not be so difficult. A look at the 30 year period from 1985 to 2015 graphically illustrates the issue.
For the purposes of this example, let’s assume a 7.5% average interest rate for a mortgage. We’ll also assume 5% downpayment, well within parameters using an FHA program based mortgage. For affordability, we’ll use the 35% of income suggested as a sustainable maximum by HUD; for consistency, we’ll calculate all of the numbers in 2019 dollars.
In 1985, the average household could afford a house costing $195,000, or over two and a half times the median house cost. The vast majority of working households were well able to afford a good home in almost every market.
1985 Median Income: $ 52,709
1985 Median Housing: $ 82,800
In 2000, the average household could afford a house costing $230,000. This was still above the median housing cost, but it became a challenge in higher value areas such as the coastal cities and urban areas. We begin to see significant cracks in housing security for families across the country.
2000 Median Income: $ 62,512
2000 Median Housing: $ 172,900
In 2015, the average household could afford a house costing $225,000. This represented only 75% of the median house price; housing in urban areas and coastal cities became well beyond the capacity of working families to afford.
2015 Median Income: $ 60,987
2015 Median Housing: $ 302,500
In the present day, the median housing price in America has ballooned to $375,000 in 2021 dollars. Median household income (also unadjusted) is about $68,400, suggesting that the average household can afford a home costing approx. $250,000, or 67% of the median cost. In order to afford to buy a median priced home, the household income would need to be just over $100,000, a figure reached by only 34% of households. Figures relating to many urban and coastal areas are tangibly worse.
Beyond just the exclusion of a major portion of Americans from the ability to own the property that they stand on, the impacts on the persistent cycles of poverty, the expanding homeless populations, the struggles of low and even middle income families to provide stability and security, all are demonstrable by-products of this growing disparity.
That lack of affordable housing has had multiple impacts on the largest U.S. industry, and relates directly to the pervasive cycles of poverty that afflict 13.7% of Americans, about 45 million men, women and children of all races and ethnicities. As more and more households are precluded from home ownership, the demand for rental properties increases proportionately. The combination of increased demand and higher sale valuations has spiked rental prices in a similar fashion to purchase levels, extending the lack of rent affordability to all sectors of the real estate market.
As households find that the funds needed for housing consume greater amounts of their income, compromises on other purchases, and stability regarding location and lifestyle are the first casualties. Estimates prior to the pandemic suggest that well over 40% of all renters are “rent-burdened”, meaning that they spend greater than 35% of their income on housing costs; almost half of those are “severely rent-burdened”, or find themselves using more than half their income for their living quarters.
Instability has a number of costs for households, and for the neighborhoods and communities that are afflicted. The average household stays approximately 8 years in a home that they own, versus just over 2 years (27 months) in a home that they rent. The effect of such rapid turnover on communities and on the households themselves is well documented.
The affordable housing crisis is urgent and everywhere, afflicting such disparate groups as those at the poverty line, low-to-moderate income households, essential workers and municipal employees, and well into the professional classes. Solutions born of government largesse are dead ends, inevitably meeting fatal obstruction as unprecedented national debts limit the ability (and will) of the political class to respond.
The implications of a systemic failure to address and at least partially resolve the resultant impacts are knowable and dire. In the absence of government capabilities, the solutions will come from the market itself, and demand that they are economically sustainable, beneficial to all of the stakeholders and executable within existing infrastructures.
EquiShare Homes, Inc. is one offered response, one that makes sense in all regards and can be provided quickly and efficiently in the current economies. For information on EquiShare Homes, Inc., please contact me either through comments here or directly at gary@equisharehomes.com. Thank you.
