• Matias Soto

What Happened to Home Affordability?

Updated: Jun 15



Affordability gap and the American dream.


For many, the American dream includes finding the perfect home, located in a nice, safe neighborhood, surrounded by tall, beautiful trees. This picture of suburban America evokes past images of children riding their bicycles on streets and sidewalks around the neighborhood. With the typical empty lot for a game of baseball, and kids crowding around an ice cream truck to cool down during the hot summer months. Although life today widely differs from the 1960s, many homeowners still prefer to live in suburban communities with amenities such as pools, parks, walking trails, tennis courts, and golf courses, among others.


With the rise of larger metro areas, one may think that the picture of the typical suburban neighborhood is outdated. Data suggests otherwise. Regardless of the definition used to describe a suburb, between 60-80% of Americans reside in suburbs. Single-family homes account for three-quarters of suburban housing, compared to 40-50% in urban housing. The median income is also higher with $60,000 in suburbs and $45,000 in urban areas {1}. By those measures, one may think that the American suburban dream is still alive.


“Therefore, it is safe to assume that many families living in urban areas don’t have access to the same type of housing and communities that are part of the American dream.”

The American demographics have largely shifted since the 1960s, and so has life in suburbia. Today, only 19% of households in the U.S. are composed of married couples with children, in contrast to 44% in 1960 {2}. Similarly, only one-fifth of households in suburban areas are composed of married couples with children, and that number is significantly lower in urban areas {1}. Regarding any households with children under 18, the share is similar in both urban and suburban areas, about 22 percent {1}. Also, households where children live with a single-parent or another relative make a larger percentage of the population today (18% in 2020 vs 10% in 1960) {2}. One can conclude that these non-traditional households with children are more likely to live in urban areas than the traditional households composed of married couples with children. Suburban communities are mostly composed of single-person households and married couples without children {1}.


This difference in composition of family households might not appear important until one is reminded of the significant differences in household income between the urbanites and suburbanites. While households in suburban areas have a median income similar to the national median reported in 2018 ($61,937) {3}, and even higher for those in the outer suburban areas ($70,000), urban family households live with incomes well below the national median {1}. Therefore, it is safe to assume that many families living in urban areas don’t have access to the same type of housing and communities that are part of the American dream.


The affordability struggle is real.


The lack of housing affordability is supported by recent data that shows a gap between home prices and household income. The median home price in the U.S. for new housing is $326,400 {4}, and $271,700 as the median for all housing prices {5}. This is far outside the reach of many first-time and lower-income home buyers. According to recent studies, nearly 38 million households do not have access to affordable housing, which means they are cost burdened. The standard definition of housing cost burden is described as 30 percent or more of a household income on the cost of housing {6}. Additionally, 10 million renter households are severely cost burdened, defined by 50 percent or more of a household income spent on housing costs {7}.


Taking the median suburban household income of $60,000, a 30 percent housing cost burden line, 1.1% average tax rate {8}, and a 3.5% loan interest rate, the maximum affordable housing cost is $230,000 (includes PMI, homeowner’s insurance, and 3.5% down payment), which is below the median for all current housing and new construction prices. Buying a house at the median price for all housing requires 35% of the household income of a typical suburban family, which is obviously burdensome. Even more for an urban family, which would have to pay up to 47% of its income to buy home, close to the severe cost burden line. This type of household could afford a home price of about $175,000, under the same assumptions as above.


The problem of affordability has also been reported among millennials. 70% of those currently renting an apartment and who want to buy a home mentioned lack of affordability as the top reason for waiting to do so, according to an Apartment List Renter Survey. Similarly, among those that plan on “renting forever”, the top reason cited (69%) was also lack of affordability. Among those that plan on “renting forever”, only 40% cited a preference for renting due to the flexibility that it provides. Other answers mentioned were also related to financial concerns (“I prefer to avoid maintenance and other added costs” and “Buying a home is financially risky”).


Unlike baby boomers and Gen Xers who enjoyed affordable housing opportunities in their 30s due to the proliferation of suburbanization, many millennials witnessed the collapse of the housing market, followed by a quick growth in the cost of housing {9}. Historical data of housing sales for both new and existing homes, show an increase of only 7% in the inflation-adjusted cost from 1960 to 1980, a 15% increase from 1980 to 2000, but a 33% increase from 2000 to 2019, with current housing costs approaching those seen before the collapse of the housing bubble {5}. It is undeniable that housing costs today are stressing the pockets of many Americans, with no end in sight to this housing crisis.


The recent recession changed residential construction.


The peak in housing costs seen in 2006 was followed by a steep drop that reached its lowest point in 2011, using inflation-adjusted data. However, housing costs quickly recovered by 2019 to within 1% of the 2006 peak {5}. This recent uptick can be partially explained by the sluggish recovery of residential construction, which is in part due to weak household growth after the recession. However, even with household growth reaching expected levels again in 2016-2018, given the size and age composition of the population, new construction is still depressed relative to demand, with additions to supply just keeping pace with the number of new households, as shown from current vacancy rates and from comparing household growth to the construction of new units {6}.


“The combination of these factors has created a scenario in which almost one third of households in the U.S. cannot afford to buy a home without being financially burdened.”

Residential construction has obviously shifted its approach. Housing supply used to exceed household growth by an average of 30% since 1974. This is no longer the case since 2011, when housing costs reached its lowest point and residential construction no longer produced a surplus of housing. The lack of supply is even more prominent for the low-income household segment, due to labor shortages, and increasing costs of materials and land, making it less profitable to build for such market {5,6}. The combination of these factors has created a scenario in which almost one third of households in the U.S. cannot afford to buy a home without being financially burdened {10}.


A dignified response.


An increase in the rate of construction would help the nation meet the housing demands due to population growth and contribute to more affordable options. However, this may not be in the best interest of many construction companies that don’t want to see a repeat in the loss of business experienced in the recent economic recession. There must be a paradigm shift in residential construction. One in which affordable housing can be provided to those in need without forfeiting the ability of construction businesses to operate within safe financial margins.


“Not only should housing be affordable, but also dignified, which means durable, safe, functional, and even architecturally aesthetic.”

The first step in the response to this issue begins with a conviction in the essential worth and value of every human being. According to the organization Cultures of Dignity, dignity is the belief that all humans have equal worth and value. Everyone has dignity. Everyone has the same amount. It cannot be earned or lost.  Dignity is a given. It is an absolute. It is a non-negotiable right {11}. This should point to the resolution that dignified housing and communities, one in which families can interact, grow, thrive, and live safely, should be made available for everyone. Not only should housing be affordable, but also dignified, which means durable, safe, functional, and even architecturally aesthetic.


The second step in the paradigm shift is in the way business must operate to be able to provide affordable housing to the lowest-income segments of the population. No longer can businesses operate with the inefficiencies in labor scheduling, materials waste, and high-risk environments, and expect to be able to provide high-quality housing at a low cost. Offsite construction or prefabrication provides a solution to the current housing crisis. Housing components or entire structures can be produced in a controlled environment, which allows for safer working conditions (reduced risk), more repeatability in the fabrication process, and less scheduling issues due to weather events. Lower costs can be achieved by taking advantage of economies of scale and lean manufacturing methodologies. Depending on the method of fabrication, materials waste can also be reduced or eliminated. Additionally, automation can be added to the production lines to further increase quality, reduce fabrication times, and improve working conditions. Traditionally, homes built using prefabrication methods don’t usually have the highest quality of materials or follow the best industry practices. This is because offsite construction has largely remained a niche industry {12}, but this has been changing in recent years.


Today, many companies are changing the way prefabricated construction is done. Due to the economic housing difficulties outlined above, offsite construction practices could become more habitual in the entire residential construction industry. However, most of the major players in offsite construction are mostly focused on multi-family {13,14} or luxury housing {15} markets. In order to bring dignified, affordable housing to those in need, single-family home communities must be created across the country to allow families to thrive and fully live the American dream. At Integra Homes, we believe everyone deserves not only a space to live, but a home {16}. We are happy to partner with investors, developers, and organizations who desire to bring dignity and affordability to those in need.

Partner with us today:

Email: hello@3spacemakers.com

Web: www.integra.homes

ENDNOTES

1. Florida, R. How Should We Define the Suburbs? CityLab(2019). Available at: https://www.citylab.com/life/2019/06/suburbs-definition-census-data-way-of-life/591343/.

2. Vanorman, A. & Jacobsen, L. A. U.S. Household Composition Shifts as the Population Grows Older; More Young Adults Live With Parents. (2020). Available at: https://www.prb.org/u-s-household-composition-shifts-as-the-population-grows-older-more-young-adults-live-with-parents/.

3. Guzman, G. G. Household Income: 2018. Am. Community Surv. Briefs(2019).

4. U.S. Census Bureau. Highlights of Annual 2018 Characteristics of New Housing. (2018).

5. PK. Historical Home Prices: Monthly Median Value in the US from 1953-2019. DQYDJ(2019). Available at: https://dqydj.com/historical-home-prices/.

6. Joint Center for Housing Studies of Harvard University. The state of the nation’s housing. (2019).

7. Abu-Khalaf, A. New Reflections on Affordable Housing Design, Policy and Production: Overcoming Barriers to Bringing Off-Site Construction to Scale.Enterprise(2019).

8. Stebbins, S. & Sauter, M. B. How much are property taxes across the US? Differences can be in the thousands of dollars. USA Today(2020). Available at: https://www.usatoday.com/story/money/2020/03/03/states-with-the-highest-and-lowest-property-taxes/111375916/.

9. Warnock, R. 2019 Millennial Homeownership Report: More Millennials Are Preparing For A Life of Renting. (2019). Available at: https://www.apartmentlist.com/rentonomics/2019-millennial-homeownership-report/.

10. Duffin, E. Number of households in the U.S. from 1960 to 2019. Statista(2019). Available at: https://www.statista.com/statistics/183635/number-of-households-in-the-us/.

11. Cultures of Dignity. What Is Dignity? (2020). Available at: https://culturesofdignity.com/what-is-dignity/.

12. de Laubier, R., Burfeind, A., Arnold, S., Witthöft, S. & Wunder, M. The Offsite Revolution in Construction. Boston Consulting Group(2019). Available at: https://www.bcg.com/publications/2019/offsite-revolution-construction.aspx.

13. Katerra. Products Overview. (2020). Available at: https://www.katerra.com/products/.

14. Skanska. Homes. (2020). Available at: https://group.skanska.com/projects/homes/?country=United+States&sortorder=PublishedDate.

15. Revolution Precrafted. Home. (2020). Available at: https://revolutionprecrafted.com/.

16. Integra Homes. Home. (2020). Available at: https://www.integra.homes/.

27 views

© 2020 Integra Homes, A 3Space Makers, LLC Company

13618 Poplar Circle, Suite 303

Conroe, Texas 77304

936.776.4191

  • Facebook
  • Twitter
  • Instagram
  • Pinterest