Here’s Why Many Middle Class Workers Are Struggling to Buy a Home

If you landed in Denver, San Diego, and most certainly the Bay Area as a middle-class American, you would be hard-pressed to find a suitable home to purchase. Not only that, if you did find something, you’d most likely be house-broke and unable to buy your favorite bottle of wine. The point is, buying a home as a middle-class American is not easy.

The middle class encompasses 42% of households in the United States with incomes varying anywhere from $35,000 to $100,000 annually. So within this broad span of income, why are middle-class workers struggling to buy homes? 

1. Cost of housing is steadily increasing

house for sale

The median home price has almost doubled since 2000. | Tim Boyle/Getty Images

Adjusting for inflation, the median home value in 1940 was $30,600. In 2000, the median home value had risen just shy of $120,000. According to Zillow, the median home value in March 2018 was $207,600. That is a 6.7% increase from a year earlier. But there’s some good news: Zillow predicts this kind of increase should cool off to a more sustainable rate of 3.1% over the next 12 months.

Next: Home values are risings, but incomes are stuck.

2. Home value growth is outpacing income growth

Income can’t keep up. | Christopher Furlong/Getty Images

As you can see, home values continue to skyrocket while income growth stagnates. All the while, the economic inequality of the United States becomes more relevant every day. In 1980, the income growth of the middle class was 2%, which enabled households to see a doubling of income over the course of 34 years. By 2014, the income growth had dropped to 1.4% in the middle-class realm.

Although middle-class incomes did rise over 4% in 2015, the upper class continues to make the most gains: upward of 6%.

Next: A shortage of new homes  

3. Some cities are lagging in new home builds

Some cities barely have any new builds. | Spencer Platt/Getty Images

There are standout cities and states that are working hard to bring in new homes, but other states and metropolitan areas are lagging. While Austin, Texas, is paving the way for building through issuing over 71,000 permits between 2011 and 2014, cities — including Chicago, Detroit, and Rochester, New York — are barely moving forward with new builds. Providence, Rhode Island, had only 1% growth in its housing supply from 2011 to 2015. When there are a lot of prospective buyers and a shortage of available housing, expect prices to rise.

Next: Regulations are making it hard to meet buyer demand.

4. Land use regulations have not been properly revised

Investment risk and uncertainty in the real estate

Government restrictions impact the housing market. | iStock.com/BrianAJackson

It’s at the local government levels where the breakdown occurs. The problems in the housing market and the lack of affordable housing is greatly due to barriers rooted in local governments. Regulations on land use, zoning restrictions, and extremely long approval processes prevent towns from meeting the demands of the housing market. Furthermore, the lack of updated regulations only drives housing costs through the roof.

Next: First-time buyers face special challenges.

5. Inventory for entry-level homebuyers has become tighter

house for sale sign

There aren’t as many starter homes out there. | Tim Boyle/Getty Images

Starter home inventory in the U.S. is at its lowest level in six years, according to a March 2018 Trulia report. Prices of homes for first-time buyers also increased nearly 10% from the first quarter of 2017 to the first quarter of 2018, while the number of available homes fell 14% over the same period.

This crisis exists for a couple of reasons. For one, investors took advantage of foreclosed homes during the recession. Those homes are now rentals. Second, from an investment perspective, entry-level homes exist for the homeowner to eventually trade up for a premium home in the future. However, premium home prices are too high for homeowners to afford to move, therefore the growth cycle becomes stagnant.

Next: Blame it on Airbnb.

6. The Airbnb effect is real

Airbnb rally in New York City

Many homes have become vacation rentals. | Andrew Burton/Getty Images

The housing crisis and success of Airbnb is a catch-22. Not just in America, but across the world, travelers enjoy taking advantage of Airbnb’s inventory. On the other hand, residents are facing a major housing crisis. Perfectly suitable homes are being exploited for vacationers to cycle in and out. Rental properties are printing cash for owners but driving up housing costs across the nation.

Next: How the government could help

7. A little government support could go a long way

woman protesting housing costs

Regulation could help. | Josep Lago/AFP/Getty Images

Big investors snapped up homes during the recession driving rental income for themselves. In addition, local zoning and land use regulations contribute most to the housing crisis. While so much is regulated in terms of new builds, Airbnb and other vacation rental properties seem to move along mostly unregulated. It’s at the local levels where the change begins.

The acknowledgment of the detrimental impacts of current regulations, in conjunction with an urgency to make a positive change, will be required to alleviate the stress on the housing market for middle-class workers.

Next: A generation of lifelong renters?  

8. Lifelong renters and societal impacts are in the making

for rent sign

Some people might rent for life. | Robyn Beck/AFP/Getty Images

As grim as it might sound, the trends lend a not-so-great outlook for middle-class workers hoping one day to buy a home. Lifelong renters are being cultivated as the middle class continues to get shut out of the housing market. Furthermore, the societal impacts could be even more astounding. Because the wealth of the middle class is much more dependent on the value of a home in comparison to that of the upper class, the economic gap will continue to grow.

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