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Housing unaffordability is historically the norm

“Why doesn’t the president of the United States ever get up and say, ‘You can be a full-fledged American citizen and rent an apartment — it’s OK.” David Wessel, economics editor, Wall Street Journal

Americans now pay more for housing than ever before, according to a report by Harvard’s Joint Centre for Housing Studies. In its annual report The State of the Nation’s Housing 2010, researchers write that 18.6 million Americans spend more than half their incomes on housing, up from 13.8% in 2001. While this figure includes both owners and renters, 45.1% of renters are in the bottom income quartile. Homeownership is at a historical low, household income barely increased in the past decade, and rental vacancies are at a historical high. No wonder the authors are calling calling the first ten years of the 2000’s “the lost decade.” But housing “unaffordability” isn’t anything new, nor are our solutions to the problem.

While the Harvard researchers blame falling wages and high unemployment (9.9% in April 2010), high rental vacancy rates and low supply of the most affordable and smallest units are also major issues. Fewer homes were built in the US in 2009 than in any year since WWII, particularly multifamily homes: 62% fewer multifamily developments were begun in 2009 than in 2008. Demolition and conversion of existing low-income rental units is also a major cause for concern. Lower immigration rates are also taking their toll: there was a sharper decline in the number of foreign-born households under the age of 35 than in native-born households from 2009 to 2010. Minority households have been hit hard by the mortgage crisis. In 2009, minorities accounted for 37 percent of householders aged 25–44 and 39 percent of those under age 25. The minority homeownership rate is still expected to increase by 2020, despite lower incomes among foreign-born and minority households and lower immigration rates due to the economic recession.

Some progress has been made in terms of rental housing: rental conversions from foreclosed housing has already been done in many cities, but Housing and Urban Development (HUD) considering introducing market-rental units into its publicly-funded affordable housing developments in order to help pay for much-needed maintenance on the buildings. And the pro-homeownership policies keep coming, including the renewal of the federal tax credit for first-time homebuyers (and its expansion to repeat homebuyers) and Federal Reserve purchases of mortgage-backed securities to help keep interest rates low. But with the expiration of the tax credit program in April 2010, Harvard’s Joint Centre for Housing Studies warns that any good news may not be long-lasting. The problem, they say, is that there is unusually low demand for new homes. The ratio of housing and transportation costs to income has risen steadily over the past fifty years (see Figure 30 and 31 of the report).

As I’ve written before, without massive government programs to support homeownership and assistance for low-income renters, housing has ever been a good deal. Check out the CBC’s digital archives on the development of suburbs. In a video clip from 1954, the narrator explains how expensive homes are for the average person and how far people have to live (up to 50 miles from the city center) to afford them. In 1953, the average Canadian earned $971/month before taxes. Don Mills, the first suburb in Canada, had house prices beginning at $11,000 all the way up to $100,000. Rental rates at that time were $300/month for the average apartment in Toronto (already hovering around 30% of the average Canadian’s income, the level most housing authorities classify as affordable) and $100/month for a basic three-bedroom in the city centre. In the new market-rate high-rise apartment complexes in the suburbs of Toronto, apartments went for less than $100/month. In Montreal, then the largest city in the country, 70% of homes were apartments and the going rent was $70-100/month, only slightly more than the rents in Winnipeg ($80/month). A house in Vancouver was $2,000 cheaper than in the east at the time. While 1950s housing solutions (demolition of existing older housing to make room for low-income public housing developments in city centres, massive concrete high-rises in the suburbs) may have been questionable, they were quite desirable at the time: the wait for affordable housing, like the still-under-construction Regent Park) was 2 years for a $29-90/month rent-geared-to-income apartment. The average rent at Shannon Heights, a 1950s assisted rental development in Halifax, was only $90/month. Commuting to the city became a new drag, and buses quickly replaced streetcars and trains, steps were taken to make commuting more enjoyable. A 1963 video clip records a housewife saying that the lack of transportation options in the suburbs mean she spends considerable time driving her teenagers around; another says her family moved to the suburbs because that’s where they could get a mortgage.

Whatever housing problems we face today, whether it’s affordability or commute distance, they’re nothing new. Solutions to these problems, like artificially stimulating homeownership through tax incentives and policies, are likewise nothing new; housing affordability problems persist. Recently, researchers at the The New York Times compared the cost of living in a suburban house to an urban apartment in the New York City metro area, and found that the suburban option cost a surprising 18% more (“High-Rise, or House with Yard?” July 2, 2010): the big difference was the higher property taxes, and their comparison didn’t include the cost of home repairs. Even the The Wall Street Journal is publishing articles saying homeownership doesn’t work (“Is the Homeownership System Broken?”, June 22, 2010): WSJ economics editor David Wessel is quoted as saying, “So now we have a system where a lot of people own homes but don’t have any equity in them, which means you don’t get any of the virtues of investing in them. And the government has been forced to take over the mortgage financing system, which suggests that it wasn’t a very strong one if the government has to take it over.” This is quite a turn of events. Could North Americans be forging a new path in housing policy?


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