The role developers and builders of new homes play as housing [un]affordability spirals into a new red zone is today’s question.
Not leading the witness here. Just asking the question.
Maybe the role is simple free-market economics. As builders increase the supply of homes in the below $200,000 range in more locations–no mean feat, mind you–the new blended statistics will show prices drifting and shifting down from the nearly $300,000s we’ve been seeing new homes average in at for the past few years.
The biggest inhibitor in most metro areas of any magnitude to the development of market-rate housing that those metro areas’ “workforces” can afford is landuse restrictions, costs, fees, etc.
Here, Trulia pulls data for almost 100 metro areas, looking at the median list price of homes in each market, compared with the median wages across four occupational areas, doctors, first responders, teachers, and restaurant workers. The Trulia data filter reveals that on a national basis, American workers’ typical earnings clock in at $37,040, while the median list price for homes is $254,900. Put together, this means that a typical household would need to spend 42% of its income on mortgage payments alone on a typically priced home.
Here’s some topline findings from Trulia’s analysis by senior economist Cheryl Young:
- Restaurant workers faced the greatest challenges to affording a home. Receiving the lowest reported wages among the occupations examined, which hovered just above $20,000 a year, restaurant workers could afford less than 10% of the available homes in 56 of 93 major metros.
- Seven of least affordable markets for teachers were in the coastal California metros such as San Francisco, Los Angeles and San Diego. Austin, Texas, Denver, and Honolulu round out the top 10. Where a teacher’s salary goes furthest was in the Rust Belt where teachers could afford at least 75% of for-sale homes in Dayton, Ohio, Akron, Ohio, Detroit, El Paso, Texas, Syracuse, N.Y., Little Rock, Ark. and Toledo, Ohio.
- Beyond the San Francisco Bay Area, first responders, such as police officers and firefighters struggle to find homes they can afford in high priced Southern California markets of Orange County, Calif. and San Diego. Less expensive markets where first responders are paid less, such as Raleigh, N.C., Madison, Wis. and Nashville also pose challenges to home buying.
- Doctors,[2] the highest wage earners of any group examined here, find at least 50% of the housing in each market affordable in all but San Francisco where this percentage is just 41.57%. In Dayton, Ohio, Toledo, Ohio, El Paso, Texas, Columbia, S.C. and Little Rock, Ark., doctors get their pick of the lot as they can afford to buy 99% of listed homes.
To be fair, there are two problems with median incomes as a basis for understanding affordability and homeownership attainability in markets. One is that this measure does not reflect reality that many households have two incomes, not one, to draw into the mix, so the wages of a teacher or a first responder by themselves don’t always show what that household–if it has more than one earner–is capable of.
The other problem is a negative. Incomes at any level are stressed to an increasing degree by three factors that are growing faster than any other part of a household expense budget: housing costs, education, and health.
As the monthly costs associated with these three areas spiral, median household wages become less and less meaningful as a benchmark to look at loan-to-value, the capability of saving for a down payment, the ability to cover for monthly housing expenses beyond the mortgage, like insurance, taxes, interests, energy costs, travel, etc.
Added all together, the real pocketbooks of real people are literally being “priced out” of many metro areas.
So, the question comes back. Do builders and developers have a role in what is currently an affordability problem and, in the future, may be an affordability crisis, particularly as regards housing for essential human resources, the people we need to help keep metro areas safe, and healthy, and educated, etc.?
The answer may come in two forms, probably both affirmative. One might be a heavier hand of policy. As Wall Street Journal reporter Laura Kusisto writes, inclusionary zoning has taken on renewed appeal among municipalities waking up to their deficits and deficiencies in housing provisions for their essential workforces. Kusisto notes:
Cities have responded to the housing crunch among low- and middle-income workers by requiring developers to set aside a portion of units in new construction for low- and middle-income households. But such requirements often represent a tiny fraction of the demand for moderately priced housing.
The other, of course, is more free-market driven. Is there a business model as yet untried that would lead to a new supply of housing attainable, accessible, and affordable to essential but not highly-paid workers?
I don’t think we know the answer to that one yet. What’s clear is that the most significant social and economic issue of our time is that even as the economy’s trajectory keeps on adding slowly to the ranks of those who can attain homeownership, it is creating simultaneously a larger and larger group of people whom homeownership and economic mobility are leaving behind.
Home builders and residential developers may not have to answer for that phenomenon now, but sooner or later, the trend will materially impact housing’s and real estate’s business model of creating value on properties by filling the need for shelter.
