Corporations backed by private equity groups such as Blackstone and Pretium Partners have bought tens of thousands of homes across the Sun Belt. Prices for detached homes have increased faster in key Sun Belt states than the national average.
By the year 2030 Institutional investors may control 40% of U.S. single family rental homes, according to Met-Life Investment Management. What are institutional investors? Here are some examples: credit unions, banks, large funds such as a mutual or hedge funds, venture capital funds, insurance companies, and pension funds.
These are the “Big Three” institutional investors, Black Rock, State Street Global Advisors, and Vanguard.
Here are the 4 most important reasons why housing costs are just unaffordable for many low- and moderate income households.
The first reason is that incomes for many workers are just too low compared to the cost of housing. Some people think that full-time workers can afford housing, but in reality they cannot. Workers that earn $30 or more an hour can afford housing without a lot of worry. Sadly, there is no metro area in which full-time workers earning the Federal minimum wage can without worry afford the costs of a 2 bedroom rental unit!
On average, a worker needs to earn at least $20.30 per hour to afford a typical 2-bedroom apartment. In other words if you are earning minimum wage of $7.25 per hour you would need to work almost three full-time jobs in order to afford a typical 2 bedroom apartment.
Meanwhile many Americans are shut out of buying a home because of the cost.
In this blog article we will explore the reasons this is happening and is the American dream of owning a home almost out of reach?
The second reason is closely related to the first. For-profit developers generally do not respond to the demand for housing for lower-income households, not because they don’t want to, it’s because they can’t. The rents and home prices that many households can afford to pay are too low to cover the costs of developing and operating newly constructed homes. Some households’ incomes are too low to cover even the costs of maintaining and insuring existing housing.
The third problem is that certain types of government regulation put limits on density that restrict the number of homes that can be built on available land.
Lengthy approvals processes (red Tape) slows down the process and causes developers to go elsewhere. Also, the increasing costs and demand makes it all so difficult. Reducing regulations will not reduce costs of materials, labor and building new housing developments for low-income households but it can make it more affordable for families in the middle.
The final problem is a lack of government funding. There are programs to expand the availability of affordable homes in local, state and federal governments but these programs cannot keep up with the pace with the need. Federal housing assistance over the past 25 years has been stagnant or declining at the same time the number of renters with very low income (less than 50% of AMI) is increasing. Currently only one in four eligible households receives government housing assistance of any kind.
What is the solution? The American Dream of owning a home is becoming a nightmare for so many and unattainable.
Why not raise wages all across the country. So those who want to own a home or rent an apartment can also have money for food, transportation and a better life in general? Doesn’t that sound like a solid solution? Wouldn’t that make the American Dream more of a reality than not? Government red tape, greed and the unwillingness of Corporations to “give back” so to speak is very frustrating to say the least. How do we change the mindset of those that have more than they will ever need in many lifetimes? My guess is it may never happen. Though, we can dream.
Lori Pica