Affordable Housing Crisis Spreading to Middle Class

affordable housing crisisAffordable housing crisis used to conjure up images of impoverished, low-income families crowded into public slums or “projects.” But in many large cities across the United States and the world, the affordable housing crisis has inched up to envelop the middle class.  Limited housing inventory is the culprit with a short supply continuing to bump home prices in many markets, according to the National Association of Realtors  (NAR) 2016 member profile.

A variety of reasons behind the affordable housing crisis

Depending on who you consult, affordable housing is either a problem for middle-class families because of limited supply, they don’t qualify for low mortgage rates, or they are being priced out of the market.

There’s pressure to subsidize the middle class, especially in places like New York and California. Finding affordable homes for the new poor – formerly middle class – also is on the public agenda in places such as Boston, Seattle, and Austin.

Across the board, modest income increases have not kept pace with rising home prices of 4 to 5 percent a year, said Keith Gumbinger, vice president of mortgage data firm HSH.com. Those factors combined with limited housing inventory and rising mortgage rates make affordability difficult, he said.

“If you were going to buy a home last summer the monthly payment for the same home has increased $75 to 100 a month, depending on your mortgage.” For example, the difference between a payment on a $200,000 mortgage at 3.5 percent, the rate last summer, and the current rate of 4.25 percent is $85.79 per month, he said.

Marginal borrowers who had just enough to buy the lowest priced homes in the marketplace face fierce competition for the same limited inventory, Gumbinger said.

He suggests agents advise their clients in this predicament to:

  • Increase their income or wait for more inventory to become available. If mortgage rates increase, the demand may decrease, causing prices to drop.
  • Move further from the higher priced areas to the center of the city or suburbs
  • Consider a different type of property. If you wanted a single-family home, consider a townhome or condo, which tend to be cheaper. There’s a lot of new development of multi-family units. “Maybe you can’t get what you want, but you can get what you need.”
  • Learn about Fannie Mae, FHA, and other government assistance programs, which may help subsidize a down payment or provide a housing grant.
  • Seek credit counseling to improve credit for more favorable mortgage rates
  • Be patient. It may take a year or more for a potential homebuyer to better align themselves with the changing market.

The impact of location on the affordable housing crisis

The crisis is particularly pronounced in California, where “housing supply is the issue creating problems for affordable housing,” said Christopher Thornberg, founding partner of Beacon Economics and the director of the UC Riverside School of Business Administration Center for Economic Forecasting and Development.

A middle-class family in Texas, making $65,000 to $70,000 a year, should be able to find a pretty nice place, he said. But not in California. He blames government building restrictions for making it hard for builders to increase the inventory. “Our injuries are self-inflicted.”

In 2006, 38 percent of middle-class households in California used more than 30 percent of their income to cover rent. Ten years later, in 2016, that figure rose to 53 percent, Thornberg wrote in an article last year about the state’s middle-class housing affordability. “The national figure, as a point of comparison, is 31 percent. It is even worse for those who have borrowed to buy a home. Over two-thirds of middle-class households with a mortgage are cost-burdened in California compared to 40 percent in the nation overall.”

The issue is forcing middle-income California families to make tough decisions about where they can afford to live or to move to more affordable states such as Texas or Florida, Thornberg said.

Among U.S. cities, San Francisco saw the largest surge in property values, according to The Wealth Report of 2016, a global study by London-based property consultancy Knight Frank. San Francisco ranked 7th among the world’s cities, with Miami at no. 14; Los Angeles, 22; and Boston, 27.

The least affordable homes in the nation are in California, according to HSH.com:

  • San Francisco: Homes cost more than $3,500 a month and require a salary of more than $150,000
  • San Diego: More than $2,500 a month for a home and a salary of more than $105,000.
  • Los Angeles: More than $2,300 a month and $100,000 salary.

In comparison, Pittsburgh tops the list of U.S. cities with the most affordable housing. The monthly cost of a home there is $756, available with a minimum salary of $32,390,  HSH.com reports. Cleveland, Cincinnati, St. Louis, and Detroit round out the list of the top 5 most affordable metros. Orlando is no. 10 with a monthly cost of $1,152 and a minimum salary of $49,382.

Some signs of improvement across the globe

Despite the struggle to find reasonably priced homes in some metros, housing affordability may be showing signs of improvement, according to a recent analysis of American Community Survey data by the Terner Center for Housing Innovation at the University of California, Berkeley. About 34 percent of households were cost-burdened in 2015, spending more than 30 percent of their incomes on housing costs. That’s down from a year earlier, when it was about 35 percent and when it peaked in 2010 at 38 percent.

An even greater percent of renters – 49 percent – were cost burdened in 2015 compared to 50 percent a year earlier. Those are the lowest percentages since 2008, the Terner Center reported. Multi-unit rentals were the fastest-growing housing type in 2015.

The United States is among the most affordable areas as far as housing as reported by the Organization for Economic Co-operation and Development (OECD), which measures housing prices against incomes. Least affordable are Belgium, New Zealand, Canada, Australia, and France while the United States comes in fourth after South Korea, Japan, and Germany on the most affordable list.

Developers across the globe are responding to the needs of consumers when planning new projects. In Dubai, for instance, developers felt the need to cater to a broader range of consumer income levels with new development, according to the Knight Frank’s 2017 report Global Cities: The Future of Real Estate in the World’s Leading Cities. “A comparable review of the current market supply of residential product versus upcoming projects reveals that developers are reducing the size of apartments to make them more affordable.”

To learn more about Affordable Housing Opportunities for Low-Moderate Income Buyers, consider taking McKissock’s course on the subject, Affordable Housing Opportunities for Low-Moderate Income Buyers.

Article by Roni Robbins. Roni Robbins is a 30-year journalist with business, environmental, and real estate specialties. She wrote real estate articles for Mother Nature Network, the Daily Report, and Atlanta Journal-Constitution. She also reported for the New York Daily News, WebMD, and Adweek with stories picked up by the Huffington Post, Forbes, USA Today, and CNN. Find out more about Roni here.

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