The cost of homeownership is eating up a significant portion of family incomes in the United States, and some industry leaders say the solution lies in building more residences.
All told, a majority of families who own homes with mortgages spend nearly one-third of their income making payments against it.
In fact, between July and September of this year, families making the median annual income of $97,800 needed 38% of those earnings to cover their mortgage payment on a median-priced home, regardless of whether it was newly built or pre-owned, according to the National Association of Home Builders/Wells Fargo Cost of Housing Index.
For low-income families, defined as those making less than half of the median income or less than $48,900, about 75% of their earnings went toward mortgage payments.
It’s just the latest signal that the cost of homeownership is prohibitively high, the result of a mixture of elevated mortgage rates, increasing home prices and restricted inventory. The findings underscore the need to build more houses. according to leaders of the homebuilders association.
The NAHB estimates the nation is facing a shortfall of about 1.5 million housing units. The most recent index shows how that shortage is “making it difficult to purchase a home,” Robert Dietz, the chief economist at the NAHB, said in a statement.
In more than 50% of the 176 metropolitan areas included in the index, families making the area’s median income are considered “cost-burdened,” according to the most recent report. In other words, they need to spend more than 30% of their income to afford an approximately $418,700 house, the median price for an existing home in the U.S. as of the third quarter of this year.
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Some areas have median home prices that far exceed the national figure, too. Take the San Jose-Sunnyvale-Santa Clara area in California for example. The region is considered the most cost-burdened in the country as residents making the median income of more than $184,000 need to put 85% of their income toward a mortgage payment to afford a median-priced house in that area.
Other severely cost-burdened metropolitans include Honolulu; San Diego-Chula Vista-Carlsbad; San Francisco-Oakland-Berkeley; and Miami-Fort Lauderdale-Pompano Beach.
More housing needed
One solution is to build more houses, according to the NAHB.
To do that, “officials at all levels of government must work to eliminate barriers so that builders can build more attainable, affordable housing,” Dietz said.
NAHB Chairman Carl Harris also pointed to “the need to tackle burdensome regulations, permitting roadblocks, inefficient building material supply chains and other factors that are preventing builders from constructing additional homes that our nation desperately needs” in a statement.
Earlier this week, homebuilders signaled their optimism that those hopes could soon become a reality after president-elect Donald Trump takes office in January, according to another NAHB/Wells Fargo survey.
Developers expressed their confidence that Republicans will bring about “significant regulatory relief for the industry that will lead to the construction of more homes and apartments,” Harris said.
Other industry leaders have suggested other ways to up the supply of housing in the U.S.
Earlier this month at the National Association of Realtors’ NAR NXT convention in Boston, Harvard professor Edward Glaeser suggested focusing on “mass scale” production when it comes to building new houses. And Tamara Small, CEO of the Massachusetts chapter of NAIOP, the Commercial Real Estate Development Association, recommended engaging local communities.
“We need to have small business owners," Small said during a panel discussion at the event. "We need to have long-time residents, old and young, come together and really say ‘We can do this together.’”