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Factors beyond high mortgage rates are affecting housing affordability for many Americans, according to experts.
Nearly four years ago, a family earning $59,000 a year could afford a new mortgage without spending more than 30% of its monthly income and with a 10% down payment, according to a recent report from the Zillow Group.
This is no longer the case today.
While the typical family in 2024 makes about $81,000 a year, up from $66,000 in 2020, wages have not kept up with housing costs.
“Since January of 2020, typical mortgage payments on the typical home in the United States have nearly doubled,” said Orvi DeVonge, chief economist at Zillow.
Nowadays, prospective homebuyers need to make about $106,500 annually in order to purchase the typical home today, an 80% increase from January 2020, according to Zillow.
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The relationship between housing costs and wages has gradually decoupled over the years, according to C. Kirabo Jackson, economist and member of the White House Council of Economic Advisers.
“Around the mid-1990s, you started to see housing prices kind of decoupled from median wages in a way that made housing less affordable for people in the market,” Jackson said.
More supply 'helps keep prices low'
Lack of supply is another reason behind unaffordability. A decrease in the number of homes available on the market for potential buyers is causing real estate prices to rise, and in some local markets, the shortage is causing prices to rise.
The number of new housing units built has declined over the years, and the low supply is due to restrictive land use and zoning regulations, according to experts.
“If we have a supply problem, we really need a supply solution,” DeVonge said.
Land use and building regulations across the country make it difficult in some markets to build new homes, Devonjoy said.
He said the most important way to improve affordability is to build more housing in the United States.
We have a growing economy, and we have a growing population. As your population grows, you have to build more housing to accommodate the growth and population
C. Kirabo Jackson
Member of the White House Council of Economic Advisers
To increase housing supply, local policymakers will need to lower barriers for builders by relaxing land use and zoning regulations, which specify factors such as maximum building height or minimum lot size, Jackson said.
For example: Some local areas may say you can't build buildings taller than three stories in a certain area, meaning high-rise buildings that can accommodate around 100 people are out of the question.
“Instead, you should have a house that can accommodate maybe five people,” Jackson said. “The more supply you have helps keep prices low. So, the more housing available, the more that puts pressure on prices.”
While increasing housing density in an area can enhance affordability, land use and zoning regulations, which by their nature determine the housing supply in an area, are often determined at the local level, he said.
“If you really want to expand the housing supply, one of the most urgent ways one can do is to relax these zoning restrictions and allow affordable housing to be built in areas that would not currently be allowed under local land. Use the rules,” Jackson said.
Some areas have already begun to see a boom in new housing stock due to loosening of zoning rules, according to DeFonge. Markets that allow builders to build smaller, attached homes rather than detached single-family dwellings are seeing a boom in new construction, such as markets in the South.
“Markets that have more land use restrictions, regulations and zoning rules are markets where you don't see the type of new construction necessary to keep up with housing demand,” DeVonge said.
Jackson said that while local zoning rules are not under the control of the federal government, the administration is working to make local areas more flexible by providing financial incentives to help developers build affordable housing.
“We have a growing economy, we have a growing population. As your population grows, you have to build more housing to accommodate the growth and population,” Jackson said.
