It’s Getting Harder to Buy a Home in ABQ
Housing costs outpace income growth, putting American dream at risk.
Homeownership has increasingly become a challenge for families across the United States, especially for those in lower-income households.
The Brookings Institute has stated that “evidence continues to pile up revealing that housing affordability is getting worse particularly for low-income households.” In 2010 only 11.2% of those households were able to afford to purchase a home. Regrettably, that number had deteriorated to 4.3% by 2016, and there is evidence it has worsened even further the last year or two.>/p>
Due to tariffs, insufficient production capacity and increasing demand in other sectors, the cost of construction material has far outstripped the rise in salaries during the same period. In the Albuquerque metropolitan area those issues have been exacerbated by a shortage of skilled labor and developed lot availability. And, of course, our local economy continues to lag behind many cities in our geographic area. The gap between rapidly rising housing costs and much more modest increases in incomes has made the prospect of homeownership an unattainable dream for many of our city’s families, yet homeownership remains the bedrock of family stability and prosperity.
As further evidence of the significant decrease in homeownership in the Albuquerque area, DataTraq, a local housing statistics firm, has shown that New Home Permit Equilibrium over the last 32 years has been around 4,000 single-family units a year. In the 11 years since 2008, the average number of permits issued has been less than half that number. This unfortunate fact has been fueled by the dynamics mentioned above: increasing housing costs, diminished supply and modest wage growth.
A recent study by the Bank of America showed that 74% of millennials would like to buy a home within the next five years – if they can. Frequently saddled with student loan debt, it is difficult for young families to save enough for the needed down payment and attain sufficient credit scores to secure a reasonable mortgage rate. Then, along with wages and salaries that have not kept pace with construction costs, the challenge becomes even more daunting.
Young people and others in lower-income brackets do, of course, have to live somewhere, and that has resulted in a significant demand for rental units. This increasing demand, which frequently can’t be matched by a supply of new units, has caused apartment rental rates to escalate substantially in the Albuquerque area, to the point where a two- or three-bedroom apartment can cost more than what a mortgage payment might be for an entry-level home. And as rental rates increase, renters have a decreasing ability to save money for a down payment, and the problem becomes worse.
What to do about this growing and unfortunate situation? Simply recognizing it as a growing problem is a good start. Housing is a complex industry impacted by a number of factors beyond supply-and-demand dynamics. Tax, tariff and regulatory policies can all have a profound effect on housing costs, and availability of developed land is always a factor since it typically represents about 25% of the cost of a new home. There are no easy fixes, but maybe we could start with these ideas: Take a hard look at our regulatory requirements to see if their costs are justified by the intended benefit; be more open-minded about alternative building methods; be much more supportive of skilled-labor training for the construction trades; and, finally, simply acknowledge the value of home ownership. As Wendell Pierce has said, “That is the heart and soul of the American dream, home ownership, the idea of being able to buy a house and start to build your family.” It really is just that simple.