Buying a home used to be a central aspect of the American dream, but recently it has become increasingly out of reach for most juvenile people.
My wife and I bought our first home in 1992, a compact 1,008 square foot ranch house in suburban Denver. We paid $69,500 for the house we lived in when two of our children were born. In 1997, my career in medical manufacturing really started to take off, so we sold the first house – for twice what we paid for it, $140,000, and paid $189,000 for the 4,800 square foot, gigantic barn of a house where we lived raised our family. When we bought our home in Alaska, we sold this property for a whopping $585,000.
As you can see, we emerged from these deals quite well. We had made many improvements to both homes, but most of the profit was due solely to the out-of-control real estate market in the Denver area. We were lucky enough to get in early and take advantage of the roller coaster ride.
Our children, however, were not so lucky. The two, who live in a compact town in Iowa, can afford houses, but the two who still live in the suburbs of Denver, where they grew up, aren’t so lucky — and they have plenty of company. According to a up-to-date report from Oxford Economics, the average American household needs to have a six-figure income to afford a single-family home. This is a disaster.
Oxford Economics announced this week that in 2024 a household will need an average annual income of $107,700 to afford a up-to-date single-family home, including property taxes and home insurance. That number was almost double what it was five years ago in 2019, at just $56,800.
The report added that only 36% of households earned enough to buy a home last quarter, a significant decline from the 59% of households that could afford a home in 2019.
“Housing affordability has fallen significantly in all major metropolitan areas over the past five years as home prices have skyrocketed and mortgage rates have nearly doubled,” the report concludes.
It is vital to note that prices are high because there is not enough supply. Yes, interest rates make a difference too, but housing starts do Trend downwards – This is the problem that needs to be addressed.
See related: The leader of the Republican Assembly is asking President-elect Trump to act as a “partner” in cleaning up California
Too much even for Gavin? California Governor Newsom opposes a bill that would give illegal immigrants up to $150,000 to buy homes
Our massive cities are becoming more and more unaffordable.
The least affordable cities included San Jose, San Francisco, Los Angeles, San Diego and Honolulu, where fewer than 15% of households were able to cover their respective housing costs. Of the 50 largest cities, the cheapest were in the Midwest and South, such as Cleveland, Louisville, Detroit, St. Louis, Oklahoma City and Memphis.
While there are some actions the federal government can take to lower mortgage rates, it is vital to note that most of this problem can be solved by increasing supply. Despite the rants of a certain former Democratic presidential candidate in our recent experience, this cannot be solved by throwing money at solving the problem. Housing costs can only be reduced in the long term by increasing the supply of housing. Supply and demand apply to real estate like anything else, and while we can’t actually create more land, we can produce more houses – and that requires reducing regulation and relaxing zoning laws in most, if not all, of the jurisdictions mentioned above. Make it easier for developers and builders to do their jobs and they will build. Increasing supply will reduce costs.
This needs to be done at the city, county and state levels. The question is this: Will some of the deep blue jurisdictions mentioned above do what needs to be done, despite their propensity for ever-increasing regulations, requirements and fees?
Unfortunately, that seems doubtful.
