No Place Like Home: A Deep Dive Into the Housing Crisis
The Pitch: Economic Update for February 24th, 2022
(The Pitch is a weekly economics newsletter written by Zach Silk. Follow here on Medium or sign up for free on Substack to receive a new issue in your inbox every Thursday.)
Friends,
Walk down a street in just about any city in America today and you’ll see the signs of our growing housing crisis. From spreading tent encampments to absurdly inflated house prices to skyrocketing rents that are pushing the working class out of many cities, it’s clear that our policies surrounding real estate, rent, affordable housing—and of course, wages—have either failed or are in the process of failing. And every one of those failures impacts thousands of human lives in every city, including people who have slipped through the social safety net and into a growing underclass for whom the American dream is a fairy tale from long ago.
For about a decade, this housing crisis was largely perceived as a big-city problem. Cities like Seattle, Austin, Miami, and Atlanta saw a proliferation of cranes across the skyline, building shiny new skyscrapers for high-wage tech workers at the same time communities of unhoused people crowded under freeways, bridges, and in neighborhood parks.
But before the pandemic hit, that crisis was spilling over from big cities into smaller cities in red counties and states. Home prices in Boise and Billings have since doubled as remote-working city dwellers sought bigger, more affordable homes in quieter communities. And then, predictably, people who were priced out of those mid-sized cities began to buy up rural housing stock, raising prices by ten to twenty percent. Drive down I5 from Seattle to California now and you’ll see tent communities alongside the freeway in even small, out-of-the-way Oregon towns.
For a large and growing population at the bottom of the income distribution, it has become too expensive to live in America.
Wrapping our heads around the size and the depth of this crisis
Though skyrocketing house prices are currently grabbing the lion’s share of the headlines, let’s be clear that we can’t discuss the housing crisis without including the millions of Americans who are squeezed on rent right now. Abby Vesoulis wrote an excellent overview of the renter crisis last week for Time that spotlights the crisis that’s unfolding across America, reporting that “Nearly 12 million U.S. renters were expected to owe an average of almost $6,000 in late rent and utility payments per household by January.”
The Center on Budget and Policy Priorities determined that some 16 million households are in need of federal rental assistance—more than three times the number of households who are currently receiving it. The majority of those 16 million households are home to seniors, children, and/or people with disabilities, and more than half of them are households of color. For renters everywhere, rent has been rising far faster than income for decades:
For some reason we often keep conversations about housing and the economy separate, but make no mistake: Our housing crisis is impacting the economy in very unexpected, and very direct ways. I think a lot about the viral Tiktok video from last summer showing how super-expensive housing has pushed the working class out of Crested Butte, Colorado, and now businesses have run out of workers.
If you want another demonstration of how high housing prices hurt the economy, consider Vlad Gutman’s back-of-the-envelope calculations showing that every one percent rent increase in New York City wipes out roughly $813 million in disposable income that people used to spend in local businesses.
So economically speaking, housing is more than just a question of where you live: It also determines the size and characteristics of the local labor market, and it directly affects the lifeblood of the community: the amount of money that people have to spend.
A good rule of thumb is that you want to broadly include as many people as possible in your economy, and that rule also applies to housing. Without a broad and inclusive mix of people in your community—people up and down the income scale, families of all sizes, people of all races and backgrounds—your community is likely to wither and die. A growing community is a vibrant and prosperous community, while exclusionary or shrinking communities are on the path to economic ruin.
Without action, the housing crisis is only going to get worse
Let’s be clear that this problem is not going to simply go away without some form of policy intervention. For The Harvard Gazette, Christina Pazzanese interviewed real estate private equity expert Nori Gerardo Lietz about whether the housing market shows any sign of slowing down when the Fed raises interest rates over the next year.
“I don’t see prices really coming down substantially near-term,” Lietz replies, adding that while the poorest potential homebuyers might not be able to afford the increased rates, “There’ll be lots of people who still qualify for loans. They’re out there. But, is there a home for them to buy?”
Lietz also predicts big problems for renters as eviction moratoriums end in cities around the country and Covid continues to inject uncertainty into our lives. “Those who haven’t been able to go back to work and/or receive the support they were getting from the federal government, not just in terms of rental support but also childcare credits, etc., will face troubling times,” Lietz concludes.
So, barring some unforeseeable catastrophe that would severely damage the economy, rents and home prices are likely to, at the very least, remain at their current inflated levels for the near future. Or they could continue to climb, pushing more people out of the market and onto the streets.
What can we do?
Of course, there’s no single magic bullet that will turn America’s housing crisis around. Lietz emphasizes the obvious: we need to build more housing, and that requires reforming the exclusionary zoning regulations that currently prevent developers from building denser and taller in the fast-growing cities where people want to live. But we must also acknowledge that the market can’t fix this crisis on its own. Over the long run, we need more public investment in building housing affordable to low- and middle-income households alike. But building housing, public or private, at the scale necessary to make a dent in this crisis will take years. So we also need a massive increase in federal spending now aimed at keeping struggling renters and homeowners in their homes, and at providing the many different kinds of services and support necessary to get the homeless back into permanent housing.
Joanne Kenen wrote an excellent—even inspiring—story for Politico about Rockford, a small city of 350,000 people in Illinois, that has over the span of a few years successfully housed almost all of its homeless population. Obviously, cities need to emulate Rockford’s policies, which include “a collaboration with local eviction courts to keep those with precarious housing stable and safe.”
Once people lose their homes, though, simply providing safe and affordable shelter isn’t enough. Homelessness is a traumatic, unhealthy, and unsafe experience that often requires a host of health and social services to assure full recovery. And because, as one provider says in the story, “the biggest predictor of future homelessness is past homelessness,” it often takes more than one try to house individuals. People who have lost their homes once are more likely to do so again, so a fair amount of patience is necessary when recidivism occurs. This also explains why it’s so important to take action before people lose their homes: a small cash intercession when someone is behind on rent or a mortgage payment can save governments hundreds of thousands of dollars down the line.
And finally, we must never lose sight of the fact that there are two sides to the affordable housing equation: price and income. Our housing crisis is an inextricable part of our crisis of income inequality: low- and middle-income families are being priced out of their homes not just because their rent is too high but because their wages are too low. As with many of our economic ills, the most direct and effective intervention is to raise wages.
Anyone who has traveled around countries with massively unequal economies can tell you where this situation will go if housing inequality is left unchecked: The upper middle class will begin to cluster in gated communities protected by private security as poverty spreads on the edges of cities. Every day, the human cost of this crisis grows, and America is going to have to experience a moment of reckoning. Do we want to live in a vastly unequal society where the haves are continually on guard against the growing ranks of the have-nots? Or do we want to share our prosperity and security with more neighbors in an economically strong, vibrant community? To me, the choice couldn’t be any clearer.
Be kind. Be brave. Get vaccinated—and don’t forget your booster.
Zach