Housing affordability: An American crisis
The lack of affordable housing in the U.S. is putting millions of people at the edge of crisis. Too many Americans are spending more than 50% of their income to keep a roof over their heads, experts say, and the crisis is costing the U.S. economy billions each year.
Marc H. Morial, President, National Urban League:
When I think of affordable housing, you know, you can think of it in a public policy dimension, but I think of it as a place that people call home. A place that people can love and cherish and take care of. And a place that people can pay for without going broke.
Vince Toye, Wells Fargo Community Lending and Investment:
When you have a teacher or policeman, someone who works EMT, where they make pretty good money, but still it’s very difficult for them to find a place to live where they’re not spending 50% or 60% of their income on housing.
Gary Acosta, Co-founder & CEO, National Association of Hispanic Real Estate Professionals:
People are spending a much greater percentage of their income on housing right now because of this crisis than probably ever before in history. Many families right now are challenged by making difficult choices, right? Do I pay my rent? Do I pay for my prescription medication? Maybe I can buy a little bit less than I really need and be able to get by. You know, food, how do I support my family? How do I feed my family? Can I cut corners there as well? So, it is not a great situation. It is a very difficult situation, and that situation doesn’t just impact housing itself, but how people sort of survive from an economic standpoint.
Keith Fairey, Enterprise Community Partners:
And we see far too many households, over 11 million renter households, severely cost burdened, paying more than 50% of their income for their housing costs. And that’s not sustainable for a family. That’s not sustainable for individuals. That puts people at the edge of crisis.
Cerita Battles, Wells Fargo Home Mortgage:
People want to live where they work, where they go to church, where they do different things, and we should have a choice as to where we should plant and build generational wealth.
Mark Vitner, Wells Fargo Senior Economist:
We have a huge affordability problem in America. It’s a legacy of the housing bust that does not seem to have gotten better. And it’s probably costing the U.S. economy one or two-tenths of a percentage point of growth each year. And on a $20 trillion economy, we’re talking, you know, billions of dollars of lost output.
We had a foreclosure crisis 10 years ago. Now we have a bit of an affordability crisis. Because while the market has come back, people are simply paying more to buy and to rent than ever before.
The crash in the marketplace really scaled back demand. Homebuilders got hurt really bad, so there was very little new construction that was taking place for about five or six years. At the same time, household formations didn’t slow down a whole lot. So we were adding about a million new households to the country every year. And there wasn’t housing being created to meet that new demand. And that sort of created the crisis that we’re in right now.
Income is not rising at the same pace as some of the cost for homes, and so therefore you have a gap.
One of the most confounding aspects of this economic recovery has been that homebuilding, the new supply of housing in the U.S. economy, has generally lagged behind the growth of households. And as a result, we’ve seen that home prices have been rising very rapidly. In most cases, they’ve been rising two to three times faster than incomes and about two times faster than inflation. That’s not sustainable, and it’s really worsened the affordability problem. And that’s why the affordability problem is so much greater than what people have traditionally thought about affordable housing. It’s not just folks that need some sort of assistance from the government. Housing has become less affordable for a wide segment of the population.
You’re starting to see a lot of millennials continue to live with their parents. You’re continuing to see baby boomers not move out of the bigger homes. You’re seeing multiple families live in the same home just because rents are up.
You have housing stock out there that’s not really aligned with the way these families are having to live right now. So it’s creating this extra density in communities. It’s also putting a lot of pressure on basic services in those communities as well. So there’s more people living in these communities than was intended to be. And so therefore, it’s creating issues in schools, and as I said, basic services, and all of that is creating challenges for communities as well.
It disproportionately affects people of color. It disproportionately affects those who are low income. I think it disproportionately effects the elderly.
The Hispanic community, for example, represents about 40%, 50% of all new households that are being formed in this country right now, so a substantial percentage of that. And if they can’t buy homes, you’re going to see that separation of wealth and that quality of life just become worse in this country.
Anyone who can afford, if they could afford to live close to where they work and have clean, affordable housing, only spend 35% of their income, I think most people would choose to do that. But a lot of times, the supply is just not there. So you have someone who may be working in San Francisco or L.A., where they have to live, have a tremendous commute. They could have an hour-and-a-half commute one way just to live somewhere where they can afford and have the type of housing they want or school systems that they want without paying nearly 50% of their income.
By our estimates, there’s about a million fewer homes turning over each year than there should be, given past norms with a growing economy.
There’s people that are actually benefiting from the situation, because they’re gaining in terms of home equity, but at the basic cost of the people who are not able to enter the marketplace.
When you look particularly at the affordable housing stock, we’re actually losing some of that stock. And some of the most precious stock that have some of the greatest public investment. Let’s start with thinking about public housing. Not only is that distressed in many communities, with great amounts of deferred maintenance, but it also is, in some cases, becoming lost.
We’re living in an age now where we’ve got to be creative in our thought process. We’ve got to be creative in how we think about communities and what they should look like.
We need more supply. We need more housing. We have to make it easier and more profitable for builders to build homes. If we do that, we’ll get more housing. That’ll help bring down the cost.
If you want builders to build more affordable housing, you have to make the economics work for them. We can do some of that with federal housing policy, maybe with tax policy. I think states can contribute to incentivizing builders in a way that makes it work for them. But the economics have to work, and that’s a challenge right now that builders are dealing with across the country.
We have to build it smart, we have to build it right, and it has to be affordable for all. Now, does that mean we have to subsidize it? Well, we’ve been subsidizing housing since the beginning of time. We subsidize homeownership through the mortgage interest deduction. We subsidize affordable rental through all sorts of low-income housing tax credits, loan guarantee programs, and also, if you will, demand-side or consumer-side subsidies like the Section 8 certificate. We subsidize the rental housing market. We have to put some of the same interventions into a new generation of affordable housing. Why can’t we create a Section 8 certificate that someone can use for a down payment, or a Section 8 certificate that one can use to pay a portion of their mortgage? We need new tools.
That will require legislative action. In some cases, that will require going to voters for more resources. And the exciting thing that we see on the state and local level is a lot of action there. The city of Minneapolis city council just approved eliminating single-family zoning in the whole city. And say, well, why would you do that? What the new zoning change does, it allows them to create rental units on property, and go up to, at minimum, a three-unit zoning. It also allows people to be stabilized in their homes if they want to stay in their homes long term. And it also opens up new pathways to homeownership for minorities and other marginalized groups who haven’t had those pathways in cities.
We want to revitalize cities like Detroit. And success stories like we’ve seen in Pittsburgh, I think, can actually create models for how we need to do this across the country. Because I think if we create a situation to where 90% of the population is residing in a half a dozen cities in the next generation, that’s not going to be an ideal situation by any means. So we’ve got to revitalize those cities as well, that’s part of the, I think, equation.
I think that we ought to have ownership as a central tenet of our housing policy and as our domestic economic policy, because this is how people build wealth.
I think we have to do a better job of educating the general population about what some of their options are. And those that do have the opportunity and the means to be able to purchase a home or be able to find a stable rental environment for them, they need to be armed with the information to make good choices as well. Because when people are desperate, they tend to make bad choices.
When you hear affordable housing in a neighborhood, some are, “Well, I don’t want that, because that’s going to bring my property value down.” Or has that negative connotation. I think that’s just not the case.
I think banks have to continue to strive to underwrite loans in a fashion that’s fair, even, and nondiscriminatory. I think banks also should double down on their investments in housing counseling and financial education to help people become prepared. I also think banks have to diversify those who are making the decisions in the bank. More people of color, more women in positions of responsibility.
Lenders need to think long and hard about how willing a community is to come up with a sustainable solution to the affordable housing problem. A lot of cities and a lot of counties need to figure out what they can do to make their zoning processes easier and what they can do to speed up the permitting process.
I think there’s also gaps out there in terms of credit access. So you have folks that are underbanked out there, haven’t established enough credit, or maybe just don’t understand how the credit process works well. You also have a lot of entrepreneurs, as we said before, in the Hispanic community. So, self-employed borrowers right now are having a real difficult time acquiring mortgages, and we need products that address that situation intelligently. We don’t want to go back to where we were in 2007 and 2008, where we were basically giving mortgages to anybody that could fog a mirror, essentially. But we have to get more creative in the way that we can predict successful homeowners in terms of credit worthiness.
I think that what we see working amongst developers today and in communities is mixed-income housing. Housing where you have people of all incomes working, rather owning or renting and living side by side. I think that’s the future.
I mean, I think the things that work is when you have collaboration between the various stakeholders in those communities working together, having a plan in place, trying to make a difference.
It’s going to require collaboration from the private sector, from the public sector, from the nonprofit sector, from states and local municipalities, and the federal government. So those are folks that don’t typically work real well together, at least not historically. So, we do need strong leadership, I think, coming from Washington, D.C., and from Sacramento and from the Capitol and whatnot that are really educating the public that this is a crisis that affects everybody, not just a handful of people that are out there sort of being challenged by this problem directly.
Meet the experts
This video has been updated to include Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals.