Home ownership has always characterized the American Dream. Suburban two-story houses with long driveways and perfectly manicured lawns for the kids to play on—these images surround the stereotypical images of an ideal American lifestyle in the media. However, the way developers and cities approach the real estate market will have to adapt if home ownership will continue to be the pinnacle of the American lifestyle.
Once an aspiration within reach, home ownership has now grown increasingly expensive, slowly becoming unattainable for the middle class. Today the average cost of a house in the US surpasses $300,000. In the third quarter of 2018, the ability to afford a home was down to its lowest level in the past decade. Likewise, 30 per cent of Americans live in a county where a minimum annual income of at least $100,000 is needed to afford a median-price house.
This spike in housing prices has been caused by a myriad of factors. One of the central causes is that developers are simply building bigger houses. Houses with a large square footage mandate higher prices and thus bring in larger profits. Other factors that come into play include strict zoning, stagnant incomes, and inability for cities to control rent prices.
Historically, home ownership and property rights have been considered necessary features of democracy, known to strengthen the economy. Real estate investments are increasingly common in the US as a way to build wealth. It provides stability both to individuals and to the larger economy, which has recently suffered from a disastrous real estate bubble. Unfortunately, despite once being an attainable goal, an annual study conducted by Bank of the West has shown that roughly 25 per cent of millennials are report having abandoning their dreams of home ownership. In fact, many millennials are leaving big, and historically expensive, cities like New York and Boston, and are moving further south to cities like Dallas with the hopes of affording a home. However, these millennials that choose to move are met with little luck. It’s not just large cities with steep housing prices; home ownership has become increasingly expensive across the country.
A so-called “McMansion” boom helps to explain why houses have gotten bigger and more expensive. McMansions are known as “cookie-cutter” suburban homes between 3,000 and 5,000 square feet in size. First popularized in the late 1980s, they were considered to be the epitome of affluence. Contrary to the luxury that they promised, they were built cheaply in order to get the maximum amount of desirable features such as columns, two-story foyers, and hardwood floors- all packed into a house for the lowest possible cost. These houses were often mass produced, and buyers would have the option of selecting from a standard cohort of five to six floor plans per new neighborhood. Many of those homeowners who purchased McMansions are now baby boomers, and are retiring. As such, they are finding that such houses no longer cater to their lifestyles. As baby boomers are listing their enormous and luxurious houses on the market, the average price of a property has been skyrocketing.
The possibility of home ownership is slowly diminishing, carrying along with it the way we think about the American Dream. With this, the makeup of the housing market is rapidly transforming.
Up until now, developers have mostly been catering to the upper-middle class. However, this has created a strain on the housing market. In fact, many developers have recognized that there exists a “missing middle housing”. After years of catering to a more affluent market, there has been a movement aimed at diversifying housing choices at affordable prices. Younger buyers need additional inventory and entry-level housing. Entry-level housing is ideal for a newly-married couple or a family of three. They’re often more affordable for those in the early stages of their careers as well as more conservative in size and luxury. Building smaller entry-level houses seems to be an obvious solution to addressing the issue at hand.
But this change in direction has been one that many developers have been hesitant to agree to. Zoning laws incentivize developers to build big and luxurious properties. For example, if a zoning law allows no more than two units per acre, then developers will want to build the most expensive units possible to generate the largest profit. Developers also fear that building smaller houses will lower property values and result in houses becoming rentals.
However, such a large demand for smaller housing exists that many economists predict that an increase in affordability would stimulate the housing market and offset the consequences that developers fear. Smaller-sized families are becoming increasingly common, hence there is a greater demand for smaller-sized housing.
Millennials are also more environmentally conscious. Houses that are smaller and require less maintenance, resulting in lower expenses for cooling and heating. While the housing market is still growing, it is growing at a more modest rate than in previous quarters. All of these factors mean that increased affordability through more, potentially smaller, housing options could potentially propel sector growth.
Another large step in improving home affordability is to increase rental-assistance Section 8 vouchers. This federal program helps to subsidize rents for low-income houses. Yet these vouchers are the hardest to come by in some of the country’s most expensive cities, such as New York. The last time Boston accepted new applications for rental-assistance Section 8 vouchers was in 2010. In Los Angeles, the estimated wait time to receive the voucher is 11 years. Even worse, in Washington DC, the waiting list is indefinitely closed.
Clearly, it’s necessary that we allocate tax-payer money to re-establish rental-assistance Section 8 vouchers along with other government social programs. An example of a successful government program to increase access to affordable housing can be found in Seattle. In Seattle, voters agreed to the largest housing levy yet, one expected to raise nearly $290 million over the course of the next seven years. Contributions to the levy are determined by home values. For example, a family living in a house valued at $480,000 (the city’s median value in 2015) pays an additional $122 a year in taxes. The money generated will be used to fund emergency rental assistance, loans to first-time home buyers, and the construction of housing units that must remain affordable for at least 50 years.
Granted, the American dream will constantly be evolving, but the one thing that should always remain central to it is the ability to afford a home. Home ownership provides a pathway for many to establish lives as well as build wealth. Affordable home ownership provides security for families, and as developers change their focus to meet the needs of the market, the government should give the proper support to social programs that help make it a reality.
Photo: Image via Jan Baranski (Flickr)