Unpacking the Housing Crisis
by guest blogger Troi Bachmann, CEO of the Northwestern Vermont Realtors® Association
By many standards, the purchase of a house is generally considered to be a strong investment and a great way to build generational wealth.
Property ownership and homeownership has been a main tenet of the “American Dream” for a century, but in recent years, the classic idea of wealth building via homeownership has gotten more and more unattainable.
As home appreciation skyrockets, many individuals are being priced out of the market, so those with existing equity continue to build wealth, while first-time buyers struggle to break into ownership.
This affordability crisis is not exclusive to people interested in owning property, however. Renters are seeing increased prices, as well, and more and more Americans are considered “cost-burdened” by housing, which means the household pays more than 30% of their income for housing.
Here are the facts:
- $495,000: median sales price of a single-family home or condo in Chittenden County (as of
10.11.23, Domus Analytuics) (a)
- $67,674: median household income in Vermont (2021 US Census data) (b)
- 1.2: Number of months it would take for current inventory of homes on the market to sell given
current trends in Chittenden County. (c) 4-5 months’ supply is considered healthy.
As mortgage interest rates continue to rise with the cost of a home, monthly payments are becoming untenable for many families.
Even more troubling, however, is the gap between white homeownership rates and homeownership rates for people of color.
The gap in homeownership rates between Black and White Americans was the exact same in 2020 as it was in 1970, just 2 years after the passage of the National Fair Housing Act designed to eliminate racial discrimination in housing. (d)
People of color continue to face disparities and discrimination in the housing market, from lower appraisals to higher denial rates for mortgage loans and refinance loans. (e)
How did we get here?
The housing affordability and supply crisis has several exacerbating factors, including the 2008 Great Recession, increased building costs, increased labor costs due to lack of tradespeople, and the fact that people are living longer than ever before.
The Joint Center for Housing Studies at Harvard estimates that between 2011 and 2021, the number of householders over the age of 65 grew by 10 million. (f)
In Vermont, regulatory burdens like Act 250 have also played a significant role in limiting the production of new housing units over time. One of the most egregious examples is that of the 10-5-5 rule, which requires developers to seek additional regulatory review if they wish to build more than 9 units within 5 miles within 5 years, adding cost and time to developments with higher density.
A 2017 study found that this review process could potentially add up to $50,000 to the cost of a home. Multiple levels of bureaucratic permitting add significant cost to any building project, and Vermont is a prime example of how that impedes economic growth.
Housing is essential to existence as a human in our society, and we need to be proactive and creative in devising solutions to close the racial homeownership gap and diversify our housing stock.
While we cannot build our way out of this situation, there are important reforms being discussed across local and state government here in Vermont that paint a hopeful picture of the future.
Housing advocates are hopeful that Act 250 will see substantive reforms in the next legislative session, like increased density allowances and lower thresholds of regulatory review. Municipalities are broadening local zoning codes to allow for development of “missing middle” housing types like duplexes, quadplexes, etc.
Land use reform alone will not close the racial disparities in homeownership, though.
Many of the barriers to homeownership for people of color come from the generational side effects of financial insecurity, and thus the solutions the racial homeownership gap will require financial reform.
Increased downpayment assistance, alternative credit scoring, rental assistance, interest point buy-downs, first-time homebuyer savings programs, etc. should all be considered essential features of closing this gap.
Real estate professionals must actively advocate for their clients to find the most creative ways to make homeownership a reality in this crisis and be aware of the tangible biases their clients of color are facing in this housing market.
They can go even further by actively identifying blighted properties that could be rehabilitated and brought back onto the market instead of remaining vacant.
To make the “American Dream” tangible for all, homeownership needs to become more accessible to the average American through policy reforms, education, and creative financing across income groups.
References
(a) Vermont REALTORS®. 2023. Market Data. https://www.vermontrealtors.com/vermont-market-data/
(b) U.S. Census Bureau. n.d. “QuickFacts Vermont.” https://www.census.gov/quickfacts/fact/table/VT/PST045222
(c) Vermont REALTORS®. 2023. Market Data. https://www.vermontrealtors.com/vermont-market-data/
(d) Derenoncourt, Ellora, Chi Hyun Kim, Moritz Kuhn, and Moritz Schularick. 2022. “Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860–2020.” NBER Working Paper 30101.
(e) National Association of REALTORS®. 2023. “More Americans Own Their Homes, but Black-White Homeownership Rate Gap is Biggest in a Decade, NAR Report Finds.” https://www.nar.realtor/newsroom/more-americans-own-their-homes-but-black-white-homeownership-rate-gap-is-biggest-in-a-decade
(f) Joint Center for Housing Studies. 2022. “The State of the Nation’s Housing.” https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_State_Nations_Housing_2022.pdf