The housing affordability crisis
Recently there was a news article explaining how "buying a home is now twice as affordable as renting".
Which sounds great until you dig into the data.
You see, home prices are increasing at 13 times the rate of wages.
Wages climbed by 1.3 percent from the second quarter of 2012 to the second quarter of 2014, compared to a 17 percent increase in home prices around that time, according to a new report from RealtyTrac...
Using localized earnings data, RealtyTrac also found that 76 percent of housing markets posted increases in home prices that exceeded the wage growth there during that time frame..
How is it possible that the price of a commodity (i.e. housing) can increase so much faster than the ability of people to afford it?
Enter the investor.In many markets, the housing recovery has "largely been driven over the last two years by buyers who are not as constrained by incomes -- namely the institutional investors coming in and buying up properties as rentals, and international buyers coming in and buying, often with cash," Daren Blomquist, vice president at RealtyTrac and author of the report, said in an interview.
In other words, inequality is driving this trend. The wealthy see housing as an investment, while the working class see it as a necessity. Blackstone alone owns 150,000 homes that it bought in order to rent to working people.
It's not a coincidence. Housing is one of the most heavily, taxpayer subsidized sectors of the economy. The public benefits fall disproportionately upon the wealthy, while the poorest are left out almost entirely.
The rational decision would be to stop publicly subsidizing an asset class with disproportionately high prices that is causing general suffering amongst the working class. But politics dictate that this won't happen.
The homeownership rate has dropped to a 20-year low in America.
Much of that can be attributed to the lack of good jobs for Millenials, which has led to a drop in household formations among the young.
All the factors for delayed household creation contribute to the ultimate problem millennials face: A lack of income. College attendance, living at home and not getting married can all be directly correlated to millennials having trouble finding decent paying jobs...
According to the work of the individuals at NDR, it appears household formations from the millennials is about 3 million formations behind previous generations’ rate-of-structure.
Well, that's OK because the poor and middle class can always rent, right? Wrong.
Rents are outpacing wages and its going to continue to get worse.
According to Zillow, monthly rents have grown at roughly twice the pace of wages in the U.S. since 2000. That means Americans are having to spend a greater share of their income on rent - about 30%, versus 25% in the past. And this problem isn't likely to go away anytime soon. Zillow surveyed a number of economists and real estate experts who all said they expected rental affordability to continue to "deteriorate for the next two years."
Instead of renting becoming a stepping stone to home ownership, it has now become a barrier.
Wealthy investors are buying up huge blocks of homes at foreclosure prices, and then renting them back to the working stiffs that often got foreclosed on, but at jacked up rents.
In many cities, the middle class is being forced out of the city and into long commutes. In extreme cases like the San Francisco Bay Area, there has been an outright middle-class exodus.
To put this into perspective, let's examine the minimum-wage worker and how market-rate rents work.
In Maryland, a minimum wage earner would have to work 135 hours per week to afford a two-bedroom apartment, the equivalent of more than three full-time jobs.
In case that wasn't clear, three full-time jobs means 24-hour a day workdays. As you might imagine, the rent affordability crisis one of the elements leading to ever increasing homelessness.
While this is strictly a class issue, there are racial elements as well.
More than a year ago Shaun Donovan, U.S. Secretary of Housing and Urban Development, warned that we were entering "the worst rental affordability crisis that this country has known." Despite what seemed at the time to be hyperbole, things have only gotten worse.
Comments
Great article, gjohnsit
Finding affordable housing in the LA area --where I live--is almost impossible. But you can buy $1 million dollar homes by the bucket load...and the Asians are turning Hollywood, and other quaint neighborhoods, into high-rise condo/eclectic versions of Hong Kong...and all because of that hopey, changey thing...
praenomen
Excellent as always
One of the reasons I really enjoy your diaries is that you provide so much good source material in them. The graphics in this diary say it all. What we have done to our youth is just criminal. We have suppressed wages, enormous student debt, a huge lack of living wage jobs, and housing costs that are rising faster than incomes.
Do I hear the sound of guillotines being constructed?
“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy
Ditto to the 'kudos' above, gjohnsit. Thanks! ;-) N/T
Everyone thinks they have the best dog, and none of them are wrong.
excellent!
one thing that might be interesting to know, though statistics on it are probably (intentionally) unavailable, would be how many homes the banks have off the market that are foreclosed or in the foreclosure process and sitting empty. i would suspect that the stats would demonstrate that the housing market is being extensively manipulated and that there is the sort of collusion between banks that might qualify for anti-trust litigation.
I was wondering the same thing
Recently I went on Zillow to see where houses were for sale in Tallahassee. Zillow color codes the bank foreclosures separately from the normal houses for sale. What struck me was the number of houses that popped up as bank foreclosures. Tallahassee traditionally has been a fairly stable area economically and was not as badly affected during the foreclosure crisis as a lot of other areas in Florida, particularly coastal communities and the central Florida area around Disney World.
As a land use planner, I would often go through the property appraiser's records to check owner occupancy in areas that were being affected by a propose land use change using owner occupancy as an indicator of neighborhood stability. Generally the neighborhoods that have a high rate of owner occupancy are more stable than those will a large number of absentee landlords. If what I saw on Zillow is correct, it was shocking to see just how many homes were listed as being foreclosures, many of them in middle income neighborhoods that traditionally had been very stable. I had expected to see foreclosures in newer neighborhoods where people may have bought above their income levels, but not in some of these more established traditional middle class neighborhoods. This is anecdotal, but it did indicate to me the hollowing out of the middle class even in a town where much of the employment had been traditionally stable due to a high number of government and university employees.
Do I hear the sound of guillotines being constructed?
“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy
what you may have been seeing...
... is the effect of home equity loans/second mortgages. a lot of people borrowed against equity in their homes that turned out to be an illusion created by the bankster-driven housing bubble. lots of those folks found themselves "underwater" (owing more money on their home than it was worth) as the bubble deflated, thus unable to extricate themselves from a mountain of unsecured debt.