A Problem That’s Not Getting Much (If Any) Spotlight During the Debates: Housing Affordability

August 20, 2019

Many Americans feel the pinch (or crushing burden) of high housing costs.

This issue is a top priority for most Americans—91 percent say “stable affordable housing is very or one of the most important things that affect people’s security and well-being.” Housing isn’t a commodity: It’s a necessity. Every person needs a safe and quality home to live a dignified life. Despite the widespread concern and the importance housing plays in the daily lives of every American, today’s housing affordability crisis has yet to receive much (if any) air time during the Democratic presidential debates. Many of the candidates have put forward quite bold plans; but it’s past time to talk about how they plan to rein in high housing costs when millions of Americans are tuned in in September.

How we got here: The housing market has changed, but policies have not kept costs in check.

Americans know firsthand that housing costs are increasingly high, but the drivers of this problem and how to solve for it are less clear. Since the 2007-08 housing crash, a new set of trends emerged that help explain why housing affordability is so acute. First, homeownership has not recovered since the crash, which resulted in 10 million people losing their homes to foreclosure and along with it $16 trillion in housing wealth vanished. Today, homeownership stands at 64 percent, which is nearly 5 percent lower than the 2004 peak. This decline exacerbated homeownership disparities by race: In 1987, the national homeownership rate for Black households was nearly 46 percent; 30 years later, the rate has fallen to 4 in 10 Black households, compared to more than 7 in 10 white households.

Furthermore, homeownership costs hit a 10-year high in 2018. Close to one-third of the US now lives in counties where buying a median-priced home requires at least $100,000 in annual income (based on an analysis of 440 counties with a combined population of 220 million).

As homeownership declined, demand for rentals grew by 20 percent and continues to grow. The crash pushed many previous and would-be homeowners to rent because of tighter credit conditions, low housing supply, personal financial challenges, and changing preferences. For example, many people, including millenials and retirees, prefer to rent for a number of reasons, including the desire for the flexibility of a rental, the interest to buy but can’t, or because of broken confidence in the housing market.

Supply and demand explains part of today’s high-cost rental market. With more renters entering the market (higher demand) and housing construction not keeping up (insufficient supply), prices inevitably increased resulting in half of renters being cost-burdened on average during the five-year period ending in 2016. Rental costs continue to grow as incomes remain stagnant. Today, a person working full time at a minimum-wage job cannot afford a two-bedroom apartment anywhere in the United States. Most low-income households pay more than half of their income on housing, and more than 38 million US households have housing cost burdens, leaving little income left to pay for food, healthcare, and other basic necessities.

Wall Street could be your landlord. How the financial industry is driving today’s high-cost housing market.

In addition to insufficient housing supply, Wall Street predation plays a role in today’s high-cost housing market. After the market collapsed, investors from the financial sector, especially private equity (PE) firms, saw an opportunity and rushed to buy foreclosed homes. These investors bought apartment buildings, single-family homes, manufactured housing communities, and mortgages aiming to buy properties cheaply and earn double-digit returns from increasing rental costs. Many of these investors were PE firms, such as Blackstone, which led the way for other financial firms to buy up tens of thousands of homes at deep discounts, most of them out of foreclosure. Blackstone is now the largest landlord for single-family rentals. This upended a rental market that was traditionally dominated by mom-and-pop owners. One fourth of single-family rentals today are owned by institutional investors, and more than 200,000 families pay rent to giant PE firms. The invasion of private actors into the housing market has been marked by unprecedented rent increases, including spikes in evictions and a shifting of maintenance costs to tenants by nickel and diming their renters.

#NewRules for housing: Let’s hear what the presidential candidates have to offer.

Since the housing crash, policymakers failed to enact bold measures to address increasingly high housing costs. However, several of the candidates introduced their own solutions that deserve air time during the next debates. Here’s a snapshot of some housing proposals.

At the next debate, moderators and each of the candidates should give this issue the attention it deserves. Notably, we need to talk about how recent housing policy has yet to go as far as many of the plans on the table. We also need to discuss the range of structural solutions that will truly make housing affordable and available to all.

We can’t solve the housing crisis without identifying a set of policies to achieve two objectives. First, any plan must rein in—or better yet prohibit—predatory Wall Street investors (specifically PE) from buying homes and hiking up rental costs. Second, we need to think boldly about how the federal government can and should directly provide housing—especially since housing is a fundamental necessity for human thriving, and the private sector is failing to provide safe, affordable housing to all. Excitingly, new ideas to revive the government’s role in improving people’s lives are rising, such as a 21st Century Homestead Act, creating a housing guarantee, and reimagining the role of the Department of Housing and Urban Development. While these are nascent policy solutions, the fact that they’re under serious consideration could signal that housing policy will soon see a major shift.

To truly tackle today’s high-cost housing market, we need bold structural change. This means that presidential hopefuls, policymakers, and the public at large need to move forward with a renewed commitment to restructuring the housing market and reimagining the role of government.