Trust Article

The High Cost of Putting a Roof Over Your Head

A record housing shortage and skyrocketing rents and home prices mean millions of Americans now struggle to afford housing

May 29, 2024 By: Daniel LeDuc Read time:

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The High Cost of Putting a Roof Over Your Head

Sarah Beatty has been selling real estate in Washington, D.C., and its suburbs for nearly two decades. She gets to know her clients—“the people in my car,” as she refers to them—while shuttling them about looking for homes to buy.

And over the years, those people have been changing. Yes, there are still clients who can afford the large and expensive house to hold a burgeoning family. And there are still clients who seek out good schools, proximity to their workplaces, and amenities like a nearby grocery store or restaurant—and can pay the price to get them.

But ask her about the first-time homebuyer, that person who has scraped and saved and is ready for a first mortgage on a house below $400,000—costly compared with many parts of the country but entry level in the D.C. area—and she has to pause and think.

And then, she answers: In the past three years, she’s had exactly two of them.

“That kind of traditional homebuyer, that person isn’t out there anymore,” she says.

Well, she knows there are people out there wishing for that first affordable home. She hears from them, sympathizes with them, and keeps looking for them. It’s just that those first affordable homes are almost impossible to find.

“Home availability is really low, and we’re really competing against other people,” Beatty says. Often those other people are investors who swoop in, able to pay cash—and then will rent out the house or condominium, elbowing out buyers dependent on financing who continue their search in the shrinking inventory of homes that can match their budgets.

Real estate agent Sarah Beatty gets to know her clients—“the people in my car”—whom she drives around the Washington region as they look at homes for sale. In the past three years, only two of her clients have found homes below $400,000.
Lexey Swall for The Pew Charitable Trusts

The problem is hardly confined to a big city like Washington. Across the country in the wide expanses of Montana, it was easy less than a decade ago to find a comfortable family home in Bozeman for $250,000. Today, many of those same houses sell for more than $600,000, with prices often driven up by people moving in from more expensive states who have sold a house and have ready cash to buy what they want. The pace of those new arrivals only accelerated during the COVID-19 pandemic.

State Senator Daniel Zolnikov (R) has watched the housing situation with growing dismay. Only seven of every 10 housing units needed to keep up with Montana’s population growth were built in the last decade, he says, with the lack of supply driving up prices. He has seen families unable to afford houses living in campers and RVs—in a climate where winter temperatures routinely plunge to single digits.

“You’re making 60,000 a year,” he says, and to buy a house “you’ve got to pay 2,500 a month for a mortgage. If you want to still buy shoes, fix your car—which is more expensive—buy groceries—which is more expensive—pay your energy bill—which is more expensive—that’s not realistic.”

The national numbers fill in the big picture of this story: From 2019 to 2022, the median price of a house jumped 25% in the U.S. And over the past seven years, rents have skyrocketed by 30%. These historic increases aren’t only eating into family budgets; they’re also taking away part of the American Dream from a growing number of people.

In December 2022, Pew Research Center found that 86% of U.S. adults said homeownership was important to their view of the American Dream, more even than having a successful career (79%). And nearly half of Americans said a lack of affordable housing was a major problem in their community.

“Americans are struggling to afford housing because housing costs are rising to the highest levels we’ve ever seen. That means housing, which was already the biggest line item in a family’s budget, is taking up more and more of each paycheck,” says The Pew Charitable Trusts’ Alex Horowitz. “And that does a lot of damage, because it means people don’t have enough to spend on other goods. People are living farther than they have before from the places they need to go, and homelessness is rising to the highest level we’ve ever seen.”

Houston increased its housing stock by more than 10% from 2015 to 2022, thanks to local policy changes that included reducing minimum lot sizes. Even as other big Texas cities like Dallas saw major increases in housing costs, the Houston moves kept prices in check, allowing families like the O’Neals—Nick and Alyn O’Neal and their son, Shepherd—to find an affordable home.
Karen Warren Houston Chronicle via Getty Images

Horowitz and Tara Roche lead Pew’s housing policy initiative, and Roche says outdated housing policies and financing structures have led to the current problem. “People continue to aspire to homeownership, but today’s policies just haven’t kept up with that demand, especially for people looking for starter or low-cost homes,” she says. “It’s really difficult to find safe, affordable financing to do that. So it shuts a lot of those people out of homeownership and kind of keeps them away from achieving the things they want to, which is a safe roof over their head in a community they love, near friends, family, jobs, a good school.”

The Pew initiative researches the financing and availability of housing in the United States, illuminating how laws and regulations have been driving the shortage and the rising costs, to help policymakers find solutions.

Pew’s analysis has found that strict land-use regulations have limited the availability of homes, especially lower-cost options such as apartments, town houses, and manufactured homes, and that financial policies have prevented millions of creditworthy homebuyers—including Black, Hispanic, and Indigenous people and those in rural areas—from obtaining mortgages to buy low-cost homes. Many borrowers have instead been pushed into riskier and more costly alternative financing arrangements such as land contracts and rent-to-own agreements that give buyers few protections.

When Pew’s research began, Roche says, she estimated that 12 million people might be using financing other than mortgages. Research determined that the actual number is triple that: 36 million. “That blew us away,” she says. “One in five borrowers have used risky arrangements.”

That’s because mortgages for lower-priced homes have become expensive for lenders to make and for borrowers to find. And for many buyers, the problem starts even before they try to enter the market, when they are renting and trying to save for a down payment. Half the nation’s renters are considered “burdened”—that is, they spend more than 30% of their income on housing.

New construction is dominating Minneapolis’ downtown since the city made it easier to build apartments. In 2019, Minneapolis also became the first major city to eliminate exclusive single-family zoning in its efforts to increase the availability of housing.
Mark Peterson Redux

“With rents reaching an all-time high, that makes it hard to save for a down payment, because such a large portion of a family’s paycheck is going to cover housing costs,” Horowitz says.

But some places are enacting real solutions, with the data again telling the tale.

Compare Dallas and Houston, for example. In 2015, the average rent in Dallas was $1,120 a month, a little lower than in Houston. But from 2015 to 2023, the average rent in Dallas rose $643, while in Houston it went up by only $382—a difference of more than $3,000 a year. And over that same period, homelessness dropped 29% in Houston but jumped 35% in Dallas.

Why? Houston added 10.2% to its housing stock from 2015 to 2022 while Dallas added just 6.9%. If Dallas had matched Houston’s pace, it would have 19,000 additional homes. One big reason Houston saw that change was that the city reduced its minimum lot size—so that people didn’t have to buy more land than they wanted or could afford—and made smaller lots viable for town houses.

In Montana, Sen. Zolnikov responded to rising housing costs by sponsoring legislation to require that cities allow multiunit housing in commercial zones. Other legislation—all passed on a bipartisan basis—that is now state law allows duplex housing on any city home lot and the construction of accessory dwellings on lots that already allow single-family homes. The legislature also required communities of more than 5,000 residents to plan for the housing they’ll need to accommodate population growth and to gather public comment earlier in the planning process, and changed zoning laws to treat less expensive manufactured housing the same as site-built housing.

And in Minneapolis, city officials have been working on zoning and other policy changes for more than a decade and in the process created a blueprint for communities seeking to fix their housing problems.

Beatty says there is a dearth of affordable homes: “Home availability is really low, and we’re really competing against other people.”
Lexey Swall for The Pew Charitable Trusts

“We were seeing, particularly for families of color, a broadening gap between the number of places that they could afford to live,” says the city’s planning director, Meg McMahan. “And the city has taken a fairly aggressive position on trying to produce more housing in order to really meet that demand. It’s been really focused on increasing supply at all income levels.”

In 2019, Minneapolis became the first major U.S. city to eliminate exclusive single-family zoning, allowing duplex and triplex construction on all residential lots. In addition—and what may have been even more consequential in creating more housing—the city enacted a range of policy changes to make it easier to build apartment buildings in more places.

The city changed policies to simplify the process for constructing taller buildings and housing along corridors that have more transit options by reducing parking requirements for apartment complexes and encouraging development along commercial corridors.

From 2017 to 2022, Minneapolis’ new housing stock increased 12%. Rents remained constant, and homelessness decreased by 12%.

“Minneapolis is coming out on top in terms of slower rent growth, high housing production, and generally the numbers are headed in the direction that we would expect and are happy to see,” McMahan says.

Pew’s housing initiative continues to research and analyze states and cities that are embarking on needed policy changes, hoping to highlight successful strategies. It also is working with policymakers to promote the increase of small-mortgage credit and to improve protections on alternative financing.

“Everyone deserves a safe and affordable place to call home,” Pew’s Roche says. “And modernizing our policies can help people achieve their housing goals—for their families today and for many generations.”

Daniel LeDuc is the editor of Trust.

For more on Pew’s work to increase access to housing, listen to our podcast “After the Fact.”

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