The U.S. has an affordable housing crisis. Here’s why

Blame policy, demographics, and market forces

The United States is
an affordable


two-thirds of renters
nationwide say they can’t afford to buy
a home, and saving for that down payment isn’t going to get
easier anytime soon:
Home prices are rising at twice the rate of wage growth
According to research from the advocacy group
11 million Americans (roughly the population of New York
City and Chicago combined) spend more than half their paycheck on
rent. Harvard researchers found that in 2016, nearly half of
renters were
(defined as spending 30 percent or more of their
income on rent), compared with 20 percent in 1960.

The National Low Income Housing Coalition found
that a renter working 40 hours a week and earning minimum wage can
afford a two-bedroom apartment (i.e., not be cost-burdened) in
exactly zero counties nationwide. In other words, it isn’t

Even as the economy continues to grow and the housing market

rebounds from the Great Recession
, Americans face
widening inequality
, and, for many, an inability to
comfortably pay for housing
wage growth stagnates
housing costs continue to climb

The simple answer to the
rent being

“too damn high”
is, of course, to build more housing. But
the reality is significantly more complicated than simply
jump-starting construction. A variety of market forces, policy
decisions, and demographic changes have converged to make building
affordable housing a difficult, and politically fraught,

And how did a nation that prides itself on opportunity become
one in which a shortage of affordable housing options seems to have
no immediate solution and where so many renters and buyers

Here are the main factors driving up the cost of housing.

Demographic shifts have stymied access to affordable

Baby boomers—those aged 55 or older—are living longer and

more independently
than previous generations. They’re also
more likely than previous generations to be divorced and living
alone. This means less housing stock has been freed up by elderly
people dying or moving into assisted-living facilities. In some
cases, boomer homeowners are looking to trade down and
compete for entry-level homes
with other generations, putting
upward pressure on prices on homes in the lowest price tier.

The foreclosure crisis of 2008 hit Generation X hardest, and
many in and around middle age had their credit damaged and their
savings wiped. But after 10 years of repairing their credit in the
rental market, some Gen Xers have been keen to return to
homeownership. This has added demand in the housing market from an
age group that would historically already own homes. What’s more,
the continued presence of Gen Xers in the rental market is driving
down rental supply and driving up rents.

Millennials (defined as those born between 1981 and 1996), who
grew up in the shadow of the Great Recession, have had
a harder time finding jobs
and thus often
live with their parents for longer
. And with millennials born
in the 1980s now in their 30s, they are finding competition for
entry-level houses from the generations before them—including
older people who have already built up equity in existing homes. As
with Generation X, these millennials’ continued presence in the
rental market is driving up demand—and rental prices.

For millennials in their early 20s looking to move into their
first rental after college, the pressure on the rental supply from
older generations—and older millennials—is making it harder to
find an affordable place, leading to what might be a long-term
shift in young people
living with family well into their 20s

Affordable housing policy favors homeowners over
renters—and our tax deductions prove it

In 1965, the U.S. Department of Housing and Urban Development
(HUD) became a cabinet-level agency. The Johnson administration
used the department to implement a vision of America in which
federal welfare programs combated poverty and the impacts of racial
injustice; enthusiasm among progressive activists abounded.

But the change of vision didn’t carry over to Johnson’s
Republican successors. The Nixon administration put
a moratorium on the construction of public housing
, one that is
still in effect to this day; public housing can only be built to
replace existing units. Then, the Reagan administration
drastically cut HUD’s rental assistance programs
, which
advocates for affordable housing claim
made homelessness a permanent fixture of American life.

While subsequent administrations have swung the agency’s
priorities between promoting homeownership programs and assisting
poor renters by offering housing subsidies, the federal government
consistently subsidizes middle- and upper-middle-class homeowners
rather than low-income renters, seniors, and the disabled.

Take, for instance, the mortgage-interest deduction (MID), which
was established in 1913, along with the federal income tax, and has
survived numerous updates to tax law thanks to the powerful real
estate lobby. The MID lets homeowners deduct interest payments on a
mortgage from their federal income taxes. The Joint Committee on
Taxation predicts that in 2019, the MID will
cost the federal government $27.4 billion
in lost revenue. The
MID largely favors middle-class and wealthy homeowners, and its
annual federal expenditure dwarfs what the government pays for
rental subsidies and public housing.

Prior to
the Trump administration’s tax bill
, Rep. Keith Ellison
(D-MN) floated legislation to lower the cap on the MID from $1
million to $500,000, and to use the savings to fund affordable
housing programs.
Trump’s tax bill also lowered the MID cap,
but did not
appropriate the resulting savings to affordable housing.

Trump’s proposed budgets for each year of his term included
dramatic cuts
to rental- and project-based assistance programs
administered by HUD. But
the budget ultimately signed for the first three fiscal years

of his term gave HUD a funding boost (the budget for fiscal year
2020 has not been finalized). The threat of cuts to affordable
housing programs puts advocates on the defensive. Instead of
fighting to expand these programs, advocates have to hold the
ground they already have.

The low-income housing tax credit (LIHTC),
a public-private
partnership program created by the Reagan administration’s 1986
tax law, is the largest source of new affordable housing in the
country. However, the Trump administration’s tax bill lowered the
value of these tax credits—and thus the number of affordable
housing units it creates each year—by lowering the corporate
income tax.

Rising costs of labor and materials mean affordable housing
is expensive to build

Home builders, like any manufacturer, charge a premium on top of
the base cost of their labor and of raw materials. The Bureau of
Labor Statistics tracks the price of such raw materials with its
producer price index, which has risen 20.2 percent since the 2008
financial crisis; while the index has fluctuated some in the last
year, it remains at elevated levels.

The price of lumber alone has fluctuated wildly in recent years,
at times reaching more than twice the cost of what it was in 2008,

according to a monthly lumber price index from Random Lengths
Lumber can represent anywhere from 5 to 10 percent of the cost of
building a home, and the rise in lumber prices is in part a result
of a decades-long trade dispute between the United States and
Canada. A third of the lumber used in residential construction
comes from our northern neighbors, and that
supply has been devastated by mountain pine beetles,
which can
kill a tree within 48 hours, and by wildfires.
With Trump engaging in a war of words with Canada over trade,

there is a looming possibility that prices will continue to

Another factor is the increased price of undeveloped land in and
around urban centers, where work is concentrated and demand is
high. Many home builders and developers have focused on the
high-end (and higher profit margin)
luxury housing market
, which means home builders are
constructing fewer entry-level and starter homes. When such starter
homes are built, their prices are ultimately bid up because demand
far exceeds supply.

While the
rebounding housing market
has meant more housing starts and
more apartment buildings breaking ground, a persistent labor
shortage is driving up costs and cutting into margins for these
projects, adding to significant economic pressure for developers to
focus on luxury units. These units can turn a higher profit, but
are built at the expense of affordable housing, rather than in
addition to it.

According to a 2018 survey by the
National Association of Home Builders
, 84 percent of the
organization’s members believe the cost and availability of labor
is their biggest issue, even with the industry adding roughly
256,000 new construction jobs over the last year, per the Bureau of Labor
. This leads to competitive bidding for specialists
like home framers, electricians, plumbers, masons, carpenters, and
HVAC installers.

Construction has always been a boom-and-bust industry, but the
sector never fully
recovered from the Great Recession
. Factors like persistently
low unemployment, efforts to
ramp up deportations
and curtail immigration (immigrants make
25 percent of the sector’s workforce
), and the construction
industry’s growth over the last few years have converged to keep
contractors and developers from getting ahead of rising demand.

Major natural disasters and storms
don’t help, either
: Hurricanes Irma and Harvey each created
increased regional demand for builders. Earlier this spring,

nearly 250,000 construction jobs
remained unfilled across the
country. According to a BuildZoom analysis, the job market is

tightest in high-cost markets
, which generally have the
greatest need for affordable housing.

In the long term, members of the industry worry about a pipeline
problem: The average age of those in the building trades hovers
in the mid-40s
, and many industry and union leaders are
struggling to attract younger workers and potential apprentices to

job training programs
. Without significant investment in
education and workforce training, the labor shortage will continue
to be a drain on the housing industry’s growth.

Affordable housing suffers from a national “not in my
backyard” problem

Restrictive zoning codes are often an effective tool in the
fight against new construction and, frequently, densification,
helping to suppress housing supply even as demand rises. Whether by
limiting the height of new buildings or deciding that large
apartment buildings need a
minimum number of parking spots
, these restrictions make
construction more difficult and more expensive. California cities
like Los Angeles and San Francisco are known for impeding new
construction through these methods, which has led to
the state’s severe housing shortage

The rapid rise of these types of regulations—and the
corresponding “not in my backyard,” or “NIMBY,” sentiments
among residents and landowners—has increased property values,
added to the cost of housing, and made it
harder for workers to chase opportunity by moving into fast-growing
with high concentrations of open jobs. Though it’s
great for
current homeowners
, who see the value of their houses rise
thanks to a lack of supply, such restrictive practices hurt the
wider economy. A
study published last year
by the University of Chicago’s
Booth School of Business, for example, estimates that the U.S.
economy is 14 percent smaller as a result of constraints on housing

Obama administration proposal
to cut back on such regulations
summarized the situation well:

Too many of the communities with the most dynamic growth have
pulled up those ladders behind them — often
unintentionally — by creating conditions that make it
impossible for families to find affordable housing in the same
communities where they can find jobs.

Efforts advanced by pro-development, or YIMBY (“yes in my
backyard”), groups to push back against these rules include
streamlining permitting processes, eliminating
parking requirements
(which add to the cost of new
construction), encouraging transit-oriented
, and changing zoning laws to allow for more
high-density projects.
Inclusionary zoning
policies, which require developers to
include a certain number of affordable units within a larger
market-rate development, have also been enacted in cities like New

Ultimately, advocates across the spectrum feel local control
only entrenches established power, and that state and federal
governments should promote more policies that create affordable
housing. One of the most famous of these proposals,
California’s SB 50
, which is currently being debated in the
state legislature, would allow for more dense housing development
near transit hubs across the state, regardless of local rules.

Affordable housing is a transportation issue, too

The “affordability” of housing isn’t all about the housing
itself: As rising rents and home prices push low- and middle-income
from major urban centers—where the greatest number of
jobs and the most robust public transit systems tend to be—lower
housing costs in suburbs and exurbs get offset by increased
spending on transportation.

Much of this sprawl can be
to zoning choices made at the city level that have
created expensive downtown business districts. This means
middle-class workers living outside of the city center must rely on
inconsistent public transit systems or long car commutes. A 2016
Brookings Institute
found that communities of color and high-poverty
neighborhoods saw the highest decline in job proximity between 2000
and 2012.

Take, for example,
Phoenix, Arizona
, a city characterized by sprawl and its lack
of a strong public transit system. Phoenix residents across income
brackets spend
nearly 50 percent of their earnings on housing and

In other words, there’s more to consider than just the rent. A

from Harvard’s Joint Center on Housing Studies
examined household expenditures at varying income levels and showed
that as housing costs decreased, the share of income spent on
by up to five times.

And that’s not to mention
increased time spent commuting to and from work
, which eats
into leisure and sleep. Among the working poor, who already feel
burdened by an ever-growing affordability crisis and stagnant
wages, this can be a tradeoff that’s hard to stomach.

Transit access underscores how the affordability crisis, and the
increasing distance between affordable homes and good jobs, warps
so many aspects of how and where we live. As with public policy and
labor and materials shortages, transportation is another aspect of
this multifaceted crisis and will need to be taken into account in
the hunt for a lasting solution.

Source: FS – All – Architecture 10
The U.S. has an affordable housing crisis. Here’s why