While I recently published a post on housing, that was a more general look at the concept of holding a mortgage in the first place. This post will be more on the specifics of housing conditions in urban centers throughout the US. Namely, things have gotten increasingly unaffordable for middle class people in desirable cities.
Take this article, for example:
The median home value in San Francisco now stands at $765,700 – 10 times the city’s median household income, according to the census. As of March, the median rent for a one-bedroom apartment was $3,590 a month. With the median income in the city being $78,400 a year, this means the average household can end up spending as much as half its earnings on housing.
It’s gotten to the point where the city core will be filled with the wealthy, while the ordinary workers, teachers, nurses, and police officers have to commute in from miles away. That takes an incredible toll, both physically and financially.
Will things continue to trend this way? Central London has shown us that prices can remain out of reach for decades, if not generations, when houses become used as investment assets for the global wealthy rather than as places to live. Central banks by lowering interest rates drives hot money chasing returns into real estate. While mortages are lower, houses are not any more affordable given how much prices have risen.
New construction isn’t going to come galloping in like a white knight to rescue us. For one, since the last crash construction has shut down and is only starting to slowly return now, but not nearly at the pace needed to keep up with new household formation.
Currently, things maintain themselves at an equilibrium, albeit stretched at near breaking point. Ordinary adult workers shack up two or three to a house in order to live in the city.
What’s the solution? Cities have to look at becoming denser with better utilization of space, overriding objections of the NIMBY anti-density crowd. Simply raising wages without increasing construction won’t work – there will be more money chasing the same tight supply, which will result in even higher prices.
There are some nifty things that governments can do to alleviate the shortage by discouraging investors from buying and removing housing stock from the rental pool. This is more of a problem in the UK, where property taxes are low, as compared to the US, where it would be costly for a foreign magnate to let too many houses sit empty.
But these are all things out of our control that may or may not end up happening. What we can do as individuals is to vote with our feet and move to places that are still affordable, such as Salt Lake City, Dallas, and Atlanta. Envisioning life outside of the country can work as well, especially for those who have read my book on wealth and are interested in a mobile freelance life.