The Affordable Housing Crisis

Gabe Gabriel

By Sarah Kittle

All around the world, housing production has not kept pace with population growth. The lack of affordable housing in the United States was an issue even before the COVID-19 pandemic, which transformed the way we see and use our homes and caused myriad supply-chain disruptions. 

According to whitehouse.gov, home prices outpaced income growth for 2020. Researchers at Freddie Mac estimated that the current shortage of homes is close to 3.8 million. 

Jim Manna

In the metro Detroit area, realtors have experienced single-family homes going for tens of thousands of dollars above asking, often in cash. Appraisals and inspections are being waived, and some homes are sold without the buyer even seeing them in person. How is the typical starter family supposed to compete with that?

“The housing market has witnessed many changes,” says Gabe Gabriel, owner/broker at Strathmore Realty in Farmington Hills, “specifically in 2020 and 2021. Price, value, size, demand and supply have all changed drastically.” Some changes are obvious, with higher home values driving up the prices. “Price and value increases ranged between 10 to 20 percent in the last year,” states Gabriel. “The last four years has seen a cumulative price increase of 40 to 50 percent.”

Demand has far exceeded supply, and across the nation, home prices have risen astronomically. “There is currently one to two months of supply for homes, where typically, you would see about six months of supply,” says Gabriel. 

New homes are still being built, but they more closely resemble the “McMansions” of the ‘80s than entry-level homes of the 1,400 square foot variety. Less than 10 percent of homes being built today fit into this category. Labor shortages and the rising cost of building materials are also factors in rising costs. “People working from home demanded larger home sizes from which to work remotely,” states Gabriel.

“People are staying put because of COVID and therefore, creating much less inventory,” says Jim Manna, owner/broker at Level Plus Realty. “And buyers are qualifying for mortgages because of the ridiculously low interest rates.”

Renters are feeling the crunch as well. According to a Harvard study, one in four renters pay more than half their income on rent, and nearly half (47 percent) spend over the recommended 30 percent on rent and utilities. Yet public housing stock has been steadily decreasing since the 1990s. The New York Times (NYT) says that rent has increased a staggering 11.4 percent from January through August of 2021.

Adding to the issue, says the NYT, is the phenomenon known as “Nimbyism,” meaning, “Not in my backyard.” This trend involves vocal locals who object to the new housing development, believing it will devalue their homes and bring crime into their neighborhoods. In California, about one fourth of the cost of building affordable housing is spent on government fees, permits and consulting companies.

This fight is one the Chaldean Community Foundation knows all too well. The recent groundbreaking of their 135-unit affordable housing project happened only after years of red tape and legal wrangling. From hostile hearings to stringent zoning laws, the process was long and drawn out.

“Unfortunately, most developers are in the game of making a profit so finding affordable housing is very difficult,” says Jim Manna. “The state and federal government need to address this by providing much needed funding for developments like the Chaldean Community Foundation is currently building.”

Gabriel sees an end to the affordable housing crisis in sight, if only we could solve the labor shortage. That affects the transportation costs, which affect the raw materials cost. Says Gabriel, “Fortunately, the low mortgage interest rates increase affordability for home buyers.” But the other side of the coin is that the rates need to go up to reduce the number of buyers in order to get home prices back down to more reasonable ranges. 

“I don’t see a crash like in 2008 so it will be very tough to come back down to affordable housing,” says Manna. It will be interesting to see how it all plays out.