-
- Author
- Cannon Financial Institute
-
- Published
- April 27, 2022
Articles
Shortage of Affordable Housing Reducing Productivity Growth
Sub-Par Productivity Growth Costing The US $2 Trillion A Year
The lack of affordable housing is costing our economy two trillion dollars a year because of lower wages and reducing Gross Domestic Product (GDP) growth in the US. “If families had better access to affordable housing, GDP growth between 1964 and 2009 would have been 13.5 percent higher.” [1]
Housing Costs Have Outpaced Wage Growth
Median home prices increased by 416% from 1980 to 2020. [2] According to the Economic Policy Institute (EPI), the hourly wage of nonsupervisory workers has grown 0.3 percent per year through 2018. [3] Even with the growth years of 2019 to the present, wage increases since 1980 haven’t come close to rising 416%.
Increased Wealth In Key Cities Used To Pay Increased Housing Costs
Using figures from the previous 15+ years, economists at EPI found while high economic growth in cities such as metro New York, San Francisco, and San Jose “created great wealth in sectors like finance and high-tech, nearly all of those gains were eaten up by the wages used to pay for higher housing costs.”
What Is Affordable Housing?
When we hear the phrase “affordable housing,” we often think of government-funded housing for the poor. Says the US Government, housing is “affordable” if it costs no more than 30% of the monthly household income for rent and utilities. [4] But the definition of poor is relative. In major cities, such as New York and San Francisco, you can make $100K a year and be poor, given rents and housing prices.
Median Housing Price In US $392,000
As of March 2022, the median price of a home in the US was $392,000 [5], which requires $78K for a 20% down payment. In August of 2021, the median home sales price was $374,900… an increase of over $50,000 from a year ago (2020).” [6] There are many causes for this increase, including shortages of lumber, labor, and a shortage of undeveloped land near cities zoned for multi-family dwellings.
Local Zoning Laws Inhibit Construction Of Multi-Family Homes
Adding to the housing shortage are artificial constraints on supply by local zoning laws, which inhibit the construction of multi-family homes, and apartment houses. Single-family zoning is restricting economic and productivity growth in the US. [7] Even when buyers look at places to live in the far outer suburbs of cities, housing remains expensive because of limits on multi-family construction.
The Bellwether State Of California Is Taking Control Of Zoning
As of September 2021, the median price of a single-family home in California was $811,170, up 21.7% from a year ago. [8] Political pressure to do something about the shortages and costs of housing has been intense, so the legislature recently passed new statutes which require cities to approve as many as four housing units on lots zoned single-family. Another requirement is to encourage and approve splitting single-family lots so they can be sold separately.
Matching a trend occurring across the country, local governments can also rezone residential areas near mass transit for multi-family. [8] By increasing supply and reducing housing costs, we can increase productivity in the US and help the economy perform to its highest potential.
Resources
[1] nlihc.org/explore-issues/why-we-care/problem
[2] https://www.fool.com/the-ascent/research/average-house-price-state/
[3] https://www.epi.org/publication/americas-slow-motion-wage
[4] https://calhsng.org/resources/affordable-housing
[5] https://www.businessinsider.com/first-time-buyers
[6] https://www.fool.com/the-ascent/research/average-house-price-state/
[7] wealthmanagement/multifamily/what-infrastructure-means-affordable-housing-apolitical-assessment
Contributing Writer: Subject Matter Expert Charles McCain
Copyright© 2022 Cannon Financial Institute - All Rights Reserved
Subscribe to Cannon Insights at http://www.cannonfinancial.com/newsletter/subscribe
