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Here’s a not-so-fun fact: Renting is even less affordable in Lubbock, Texas, than in San Francisco. Seriously.
As unbelievable as it may seem, Lubbock is becoming the norm. The impression of Middle America as a utopia of affordability is no longer grounded in reality because of a growing housing crisis that is far more than just a coastal problem. So if you’re living in America’s Heartland and feeling financially insecure, it’s not altogether surprising — and certainly not your fault.
The Mid-American Housing Crisis
The share of rent-burdened households (those spending over 30% of their income on rent) has spiked in many U.S. cities over the past decade. This is why a growing number of renters in cities like Detroit and Memphis are feeling financially constrained. For example, in Columbus, Ohio (where our company is based), the percentage of people who are rent-burdened is a lot closer to San Francisco than one would assume.
San Francisco:
Share of renter households who are rent-burdened: 43.9%
Median renter monthly housing cost: $1,945
Median renter household income: $78,400
Columbus:
Share of renter households who are rent-burdened: 41.7%
Median renter monthly housing cost: $950
Median renter household income: $39,600
The lack of affordability is impacting the home-buying market as well. Over the past few decades, home prices have doubled even as wages have remained essentially flat. While existing homeowners may not recognize there is a housing crisis, renters seeking to become first-time homeowners are finding starter homes to be priced out of reach. The price of entry-level homes is, on average, 50% more than it was at the beginning of 2012.
Still, from the perspective of someone living in New York, housing prices in “flyover country” could seem relatively cheap. However, a comparison of home prices between cities should also consider income levels. Companies often arbitrarily adjust salaries to match the cost of living in each city. It can be difficult to find high-paying work in markets that happen to have cheap real estate prices, especially when 90% of U.S. tech jobs were created in just five metros between 2005 and 2017. While some Midwest cities like Columbus are bucking the trend with a growing technology ecosystem, these cities are also experiencing population growth that is not matched by enough growth in the housing supply.
We must look at lifestyle in addition to income when evaluating housing affordability in the urban core. People who gravitate to the suburbs for more bedrooms or better school districts sacrifice in the form of transportation costs and commuting times. Suburban residents in Middle America often have commutes into the city that are barely shorter than the ones in New York, Los Angeles or Miami.
No Money, Mo’ Problems.
So, what are the effects of this new paradigm? For starters, homeownership rates and wealth accumulation among young people have plummeted. Since 1989, the median wealth of families headed by someone under 40 has decreased by 28%. Also, millennials are about half as likely to own a home as the same age cohort was in 1975, according to U.S. Census Bureau data. This has forced people into renting and upended the viability of homeownership for young adults (and, in fact, renting is now more affordable than buying a home in 47% of U.S. markets, including Columbus).
All of this is quite depressing, right? I agree. This is why I quit my job as a venture capitalist in 2018 to play a role in addressing housing affordability by cofounding Rhove. I remember pitching the company and having many people asking us if middle- and upper-middle-income people need help buying homes, or if young recent graduates even care, or if people living in new developments in the urban core have financial problems that need addressing.
The answer is a resounding yes, and finally major publications are noticing the data. Everyone is feeling the housing crunch. Even a six-figure income isn’t enough for many people to transition into homeownership. “In 2019, about 19% of U.S. households with six-figure incomes rented their homes, up from about 12% in 2006,” according to a Wall Street Journal analysis (paywall) of Census Bureau data that adjusted the incomes for inflation. This results in about 3.4 million new renters who, a generation ago, would more likely have owned their homes, which further contributes to rising prices.
We are all in this together. Housing problems that affect the middle class, and even high-income workers, affect the housing supply and, in turn, affect low-income workers and the most vulnerable in our community.
Now What?
We need to embrace new ideas that impact housing from the bottom up. This can start from the development of our housing stock, fostering conditions in every neighborhood that are more conducive to affordable building. Density is one key component to help drive down costs.
Minneapolis, for example, recently became the first major American city to end single-family zoning, a key effort to improve affordability. A big factor at play is the “yes in my backyard” (YIMBY) movement, pushing against the “not in my backyard” (NIMBY) mindset among existing residents that thwarts development and reduces the housing supply.
NIMBYism and business-as-usual is not sustainable. The situation in middle American cities and in many rural areas is heading down a dangerous path. YIMBYism alone cannot fix the problem. We need innovation. Fortunately, a budding crop of fintech solutions is beginning to ignite transformative change in housing and wealth creation.
Myth Busted
The concept of an affordable Heartland is no longer valid, but we have a responsibility (and opportunity) to fix these issues before they spiral further out of control. Intervention from government, nonprofits and the business community is much needed. The first step is acknowledging that our historically “affordable” markets are no longer the bargain they used to be.
Let’s get creative and do something about the housing crisis from coast to coast.