The Alarming Reality of Home Prices: A Call to Action
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Understanding the Crisis of Homeownership
It's no secret that the homeownership system in our country is fundamentally flawed. Each passing year, homes become increasingly unaffordable, with prices climbing and supply failing to meet demand. We're nearing a critical point where the quality of life for younger generations will deteriorate, leading to broader issues such as declining birth rates, sluggish economic growth, and a general sense of discontent.
When a homeowner sells their property at an appreciated value, the new buyer is forced to allocate a larger share of their income just to maintain a similar standard of living. This cycle can lead to a point where newer generations find themselves in dire straits.
Historically, home prices have tended to rise annually, barring significant crises like the one witnessed in 2008. Meanwhile, wages have not kept pace, resulting in families having to devote a larger portion of their earnings to essential expenses. With the burdens of student loans and home purchasing, little remains to support children, cover other bills, or enjoy leisure activities.
We're on the brink of a breaking point regarding home prices. In essence, our economic structure relies on younger generations financing the comforts and excesses of the older demographic.
To illustrate, consider purchasing a home for $300,000, only to be told it’s now worth $350,000 the following year. Nothing has fundamentally changed about the property; however, the first buyer benefits from a perceived gain while the second must borrow that amount at prevailing interest rates.
Let's analyze a scenario: Family A buys a home in 1980 for approximately $175,000 (adjusted for inflation). Today, that property sells for $325,000, yielding a profit of $150,000 and an 86% increase in value.
Over the last two years alone, the median price for American homes has surged by 28%, driven by pandemic-related demand and enduring demographic shifts that have ignited bidding wars among buyers. In contrast, median incomes during the same timeframe increased from $53,000 to $68,000—a mere $15,000 or a 28% rise.
The data indicates that this issue is worsening with each generation. Economic disparities between renters and homeowners are stark, with older Americans generally enjoying a considerably higher net worth, mainly due to rising home values.
For instance, individuals under 35 have an average net worth of $76,340, compared to $1,215,920 for those nearing retirement. Homeowners boast an average net worth of $1,099,070—over ten times that of non-homeowners, whose average is just $95,560. This illustrates that homeownership is vital for building substantial wealth.
The Supply Dilemma
A primary factor contributing to soaring home prices is the imbalance between supply and demand. In many American cities, constructing affordable housing is either prohibitively difficult or outright illegal. Many zoning laws mandate spacious yards and disallow the division of properties into separate units.
As property values rise, so too does the net worth of the owners. This creates a strong incentive for individuals and communities to resist new developments. Consequently, cities often become unaffordable because the housing framework is designed to generate high-cost housing, even when the need for affordable options is urgent. Those advocating for affordable housing are typically individuals desperate for shelter, while political influence tends to rest with existing homeowners.
From the post-WWII era until the 1970s, housing was more accessible for families. Developers could build upward, convert properties into multiple units, and add townhomes and duplexes. However, changes in the 1970s led to a slowdown in new construction. Though cities continued to grow, the housing market did not keep pace, resulting in escalating prices—a legacy we still grapple with today.
According to a Harvard study, in 1970, a low-skilled worker relocating from a low-income to a high-income state retained 79% of their salary after covering housing costs. By 2010, that figure had plummeted to just 36%. Economists express concerns regarding the future of home affordability, noting that for the first time in U.S. history, moving to pursue better opportunities may no longer be viable for unskilled workers.
As the U.S. economy recovers, the inequalities exacerbated by the COVID-19 pandemic remain glaring. Households that navigated the crisis without financial distress are acquiring the limited homes available, further driving up prices and excluding lower-income buyers from homeownership. Meanwhile, millions of families that lost income during the pandemic find themselves struggling to keep up with housing payments, teetering on the edge of eviction or foreclosure. A disproportionate number of these vulnerable households comprise low-income renters and people of color.
What Lies Ahead for Prospective Homeowners?
Those fortunate enough to relocate to areas with greater opportunities benefit from better schools, enhanced social services, and improved job prospects. Unfortunately, many young individuals face prohibitive home prices that discourage mobility. The Census Bureau reported in 2016 that young people were less likely to have changed their residence over the past year than at any point since 1963.
The dilemma is stark: they can either move to urban areas with ample job prospects but high rents or relocate to low-rent areas with scant employment opportunities above minimum wage. The potential for upward mobility seems to be dwindling, leaving those unable to afford relocation trapped in their current situations.
Homebuyers increasingly rely on familial assistance to navigate the housing market. Those lacking such support find themselves in dire circumstances. A Buzzfeed article highlighted various strategies Millennials use to finance their homes, including:
- Inheritance
- Special state and federal first-time homeowner programs
- Living with family rent-free
- Borrowing against 401(k) plans
Conclusion
For generations, homeownership has been the principal avenue for families to build wealth and secure their retirements. Yet, we now face a long-standing crisis characterized by rapidly rising home prices and stagnant incomes. The current generation has less disposable income than any before it, complicating family life and threatening the overall economy.
Unless Americans and policymakers confront this issue seriously, we risk facing significant economic challenges and increased social unrest in the years to come.
Innovative Solutions for the Housing Crisis
Here are four innovative ideas that could help address America's housing crisis:
- Rethinking zoning laws to promote affordable housing development.
- Implementing community land trusts to stabilize housing costs.
- Expanding access to first-time homebuyer programs.
- Advocating for public investment in affordable housing initiatives.
It's crucial to consider why Millennials are facing the most daunting financial future of any generation since the Great Depression.
How Communities Are Rethinking Zoning to Improve Housing Affordability and Access to Opportunity
I appreciate your time in reading this piece! Your feedback is welcome in the comments, and discussions are encouraged. Until next time, you can find more of my work on my blog and LinkedIn.
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This video titled "Will this scare potential homebuyers away?" explores the fears and anxieties potential homebuyers face in today's market.
The second video, "THEY'RE DESPERATE TO KEEP HOME PRICES HIGH FOREVER!" discusses the motivations behind the ongoing push to maintain inflated home prices.