Affordable housing is almost an economic line of demarcation between Millennials and Gen Z (“Zoomers”), on the one hand, and older generations, on the other, the latter of whom are at peace, if not gleeful, at the 60% average increasing in the price of a home, even as further complicated by the highest mortgage rates in decades (which they don’t have to pay!). Elder’s savings accounts are enhanced by those same Fed increases in interest over the past several years. Younger generations are railing at their exclusion from home ownership while seriously challenged by soaring residential rents.
As Reuters (March 28th) notes: “‘The high-cost [housing sales prices] regions in the Northeast and West experienced pullbacks due to affordability challenges,’ said Lawrence Yun, the NAR's [National Assn of Realtors’] chief economist. ‘Home prices rising faster than income growth is not healthy and adds challenges for first-time buyers.’
“Contracts on pending homes dropped in 2023 as prospective buyers faced shortened inventory and higher mortgage rates, tracking with the Federal Reserve's rate hike campaign. While the average 30-year fixed-rate has eased from two-decade highs in October -- falling to 6.87% for the week ended March 21, according to Freddie Mac -- foot traffic in the existing homes market is expected to stir as inventory recovers, according to the NAR.” Sales are rising very slowly.
Indeed, the markets where the rich get richer, generally older folks who have been investing, are incredible. “Stock investors are closing out a great first quarter, with the market continuing to crush it with near-daily record highs… It's not only the AI revolution and the Magnificent Seven (or ‘Super Six’ minus Tesla). All of the 11 S&P 500 sectors have risen on a YTD basis, except for Real Estate (SP500-60), and the momentum has even recently spread to other indexes like the Russell 2000 (IWN). The records also haven't been limited to stocks, with bitcoin (BTC-USD) and gold (XAUUSD:CUR) notching new highs, in a rally that has spread across asset classes.” Seeking Alpha, March 28th (emphasis added). Commercial real estate is really suffering. Really suffering!
So, here’s the headline: Housing availability and pricing are a huge problem for younger and first-time buyers, yet if you are older or rich, you are living in truly exceptional economic times. But Houston, and almost every other city and country in the United States, we have a problem. As New York Times housing correspondent, Connor Dougherty points out in the March 27th Times The Morning feed: “Home prices are up about 60 percent over the past decade, adjusted for inflation. About a quarter of renters — some 12 million households — spend more than half their income on housing, far in excess of the one-third level that is considered healthy. Homeless camps have expanded, and ‘super commuters’ — who drive for 90 minutes or longer to work — have migrated well beyond the expensive coasts to smaller cities like Spokane, Wash., and fast-growing metropolitan areas like Dallas and Phoenix.”
Indeed, some of those red states, particularly Florida and Texas, are rapidly losing their claim to cheap or reasonable home ownership, and accompanying soaring insurance costs and property taxes add a new deterrent for expensive blue-to-cheaper red state migration incentives. Rents tend to track home prices, so renters are hardly sheltered from these rising costs. As polarized as we are politically, there is an age schism that is separating older Americans, especially those settled in their lives, and younger constituents.
As ye olde Republicans speak of cutting “entitlements,” younger voters are assuming that there is a massive unwillingness to change the fundamental basis for funding Social Security and Medicare – the now-lapsed reality of a vastly larger pool of younger workers supporting the retirement of a vastly smaller pool of older workers. Without an alternative tax structure, Zoomers and Millennials assume Social Security benefits for them will fade away. On the other hand, folks with big lot zoning are wincing at the inevitable crowding if more units can be built on smaller lots, even on existing lots that already have a house on them. “Not in my backyard” anger rises.
Still, there is a growing bi-partisan realization that with fewer rising buyers able to afford to buy a home – hence a stabilizing stake in their own country – finding that housing is priority one. Conservatives see getting people into affordable housing tends to make them more conservative; Democrats see it more as an income inequality issue. But what used to be merely local has become a national issue. With Nashville now making the top ten most expensive cities in the country, you know we live in the new world. So how do we build the needed housing, perhaps increasing supply may moderate pricing, and how does government make it possible?
“The legislation in each state varies. But in general it removes permitting and design barriers so new construction can be approved faster. States are also trying to alter zoning rules to allow a greater diversity of units in more neighborhoods… One way is to allow more backyard homes — known as granny flats [or ADUs]. That way, homeowners can build a space for a renter or family member. Another is to shrink lot sizes so several smaller cottages can be built on parcels currently reserved for only one larger home. Cities and states are also altering zoning rules so duplexes and triplexes can be built in neighborhoods that are currently designated for single-family homes. All these methods aim to increase density within a city’s existing footprint.
“Already, Democrats and Republicans in Montana and Arizona have united for housing legislation. A similar coalition has taken shape in other states, including Texas, Minnesota and North Carolina. Even in California and Oregon, whose governments are both dominated by Democrats, Republican votes have helped pass housing bills… ‘Some issues become a horseshoe,’ said Cody Vasut, a Republican member of the Texas House of Representatives who wants to drastically restrict abortion — but also liberalize land use laws. ‘We have different views of government, but sometimes we arrive at the same conclusion.’… These coalitions are not always successful. Last week, for instance, the Arizona governor, Katie Hobbs, a Democrat, vetoed a bill that would have allowed smaller homes and lot sizes. She called it ‘a step too far.’
“Most of these laws are too new for us to know their ultimate outcomes. But there’s ample evidence that building more housing reduces prices. In Austin, Texas, for instance, a surge in rent and home prices during the pandemic led to a boom in construction. Now prices are falling, and landlords offer months of free rent to fill empty units.” Dougherty. One thing for sure, however, as these issues are addressed, it is going to take a lot longer than most believe to make a difference. For those struggling to pay for a place to live, their political beliefs have been and will be severely influenced by that reality.
I’m Peter Dekom, and already the 21st century is becoming perhaps the period of greatest change in the human condition… everywhere on Earth… and often not for the better.
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