Priced out.
That's now the case for people from households that make average wages in more than 7 out of 10 United States markets, when it comes to having means to buy the median-priced house--that means smack in the middle of the price spectrum--in the market.
So, in a housing environment where affordability and attainability and access have become a refrain that's almost numbingly recurrent, we get a new jolt that things are only getting worse.
Median prices in the first quarter of 2019 clocked in beyond the reach of average income households in 335 out of 473 U.S. counties, according to the latest U.S. Home Affordability Report from Attom Data Solutions, which went on to say that in fewer than half of those counties house prices are as affordable as they've historically been.
“We are seeing a housing market in flux across the United States, with a mix of tailwinds and headwinds that are pricing many people out of the housing market, but also are creating potentially better conditions for buyers,” said Todd Teta, chief product officer with ATTOM Data Solutions. “Continually rising home prices in many areas do remain a financial stretch – or simply unaffordable – for a majority of households. However, quarterly wage gains have been outpacing prices increases for more than a year and mortgage rates are falling, which have helped make homes a bit more affordable now, than they’ve been in a year. Affordability may improve because of the simple fact that homes are out of reach for so many home seekers, suggesting that prices need to moderate down in order to attract buyers. Of course, a few quarters do not a long-term trend make. The economy could slow. The impact of last year’s tax cuts could fade, and interest rates could go back up, but the signs point to the possibility of an impending buyers’ market.”
Here's Attom Data's deeper dive on the 10 U.S. counties with the worst affordability when it comes to matching household wage wherewithal with median prices of homes for sale.
The riddle is this. There's not enough housing to go around and it's too expensive and time-consuming to develop and build new homes and communities profitably.
That's having an impact on confidence and well-being in a society and culture that prides itself on social, educational, and economic mobility.
Here's evidence. And here. The American Dream may be alive, but a component of it--access to fair, decent, attainably-priced, healthy housing--has fallen by the wayside.
This stagnancy in social and economic mobility is finding its way into our nation's overall well-being, or lack thereof.
In the U.S., where prosperity is on the rise, researchers pin the blame on declines in social capital and social support and increases in obesity and substance abuse. Author Jean M. Twenge believes fundamental changes in how Americans spend their leisure time are also to blame, pointing a finger at the rise of digital media and the decline of face-to-face interactions.
Report co-author Jeffrey Sachs calls the United States a “mass-addiction society.” The prevalence of addictions — including gambling, social media use, video gaming, shopping, consuming unhealthy foods, exercising, and engaging in extreme sports or risky sexual behaviors — in American society seems to be on the rise, perhaps dramatically, he writes.
“The free-market theory taught in our universities holds that consumers know what’s best for them, with businesses efficiently and appropriately catering to those desires,” Sachs wrote. “The prevalence of addiction suggests a very different picture: that individuals may be lured into self-destructive behaviors, notably by businesses keen on boosting sales of their goods and services.”
At the center of our affordability riddle--which impacts a growing population of households and, each year, shrinks the addressable universe of people who can or will participate in the new construction and development of market-rate homes and communities--are two questions.
- Do we care?
- If we do care, does it matter?
The reason for so blunt a way of putting it is that market-rate, private sector players mostly abdicate any rights or interests when it comes to serving an expanded universe of would-be customers, claiming they don't have the power to trump what it costs to put homes on dirt and also trump financial policies that constrain qualification for loans to a smaller universe of high-earning households.
This is where innovation can, must, and will begin to both change the rules, and likely disrupt the business models of at least some of the entrenched market-rate players. It may be taken as good news that an important measure of innovation--after a long period of stagnancy--spiked upward in 2018. From Wall Street Journal staffer Josh Mitchell we learn:
But new data suggest the latest technology boom is starting to give the economy a jolt.
Multifactor productivity grew 1% last year, the strongest gain since 2010, the first full year of the expansion, the Labor Department said Wednesday. Multifactor productivity measures the improvement in U.S. output after accounting for any additions to capital and labor. It is a rough measure of innovation—how much more companies are able to produce by coming up with better ways to use existing resources, rather than by adding more workers or machines.
Call it the "more-with-less" factor, which is how we can look at our two "bright spot" case examples among the Ivory Prize for Housing Innovation Awards top 10 finalists we've been exploring over the past few weeks, here, here, and here.
Attendees of our Housing Leadership Summit, May 13-15, at the Ritz Carlton Laguna Niguel, will have an opportunity to come face-to-face with "multifactor productivity measures" among Ivory Prize honorees, who are being celebrated for the impact, sustainability, and scalability of their initiatives. Register for HLS here.
IndieDwell, a Boise, ID-based start-up, leverages widely-available shipping containers and factory-training of its skilled-labor workforce for a double-bottom-line impact on housing affordability, at both the input and output level.
IndieDwell produces homes in 28 days in a seven-station assembly line via a patented design and construction factory process, and delivers them to owners' sites complete and ready to hook up to utilities. Here's how this venture scores on impact, sustainability, and scalability:
Innovation: The Company’s commitment to human powered assembly line production is innovative in that it drives down costs and provides employment opportunities in areas of operation. The start-up costs for the Company’s factory model is only $150-$300k, which is significantly lower than the development costs for a fully automated factory model. Currently, indieDwell is the only company in the space using almost completely human powered assembly at scale. Additionally, the Company’s patent pending insulation technology is innovative and satisfies a demand for an energy and cost efficient insulation in the marketplace.
Scalability & Sustainability: IndieDwell’s financing primarily comes from partnerships with community based economic development groups, trusts, and foundations. In 2018, the Company partnered with Leap Charities and the National Housing Trust Fund to install four 4 bedroom, 2 bathroom homes to support individuals at 30% of AMI outside of the Boise area. For the 2018 fiscal year, they had an expected $3 million in sales.
Although a new company, indieDwell has gained significant traction over the last year, proving the scalability of their model. In fall of 2019, the Company is projected to open a second factory in Pueblo, Colorado in partnership with the Colorado Health Foundation and Centura Health. Production is nearly backlogged for 2019 with an anticipated 125 homes to be completed at the Boise factory. Additionally, the Company is already in talks with groups in Colorado, New Jersey, San Diego, Houston, Nevada, and South Dakota to open factories within the next few years. With the opening of future factories and forging of new partnerships, the Company is projecting around $30 million in sales for 2019.
The Company’s model is sustainable in that the main revenue stream comes from partnering with economic development orgs, foundations, and land trusts. Additionally, there is sustainable and predictable demand for the development of indieDwell’s homes as well as factories. There is significant demand for affordable housing solutions from Native American tribes and the Company is currently in talks with the Pine Ridge and Nez Perce communities to provide homes for future development projects. Furthermore, the Company’s mission of locating the factories in low-income communities aligns well with the new Opportunity Zone legislation. Current interest in factory development comes from in or around designated Opportunity Zones, which is attracting investment and allowing for greater scalability. However, in order to meet demand, indieDwell must figure out a way to cut the time of production for one home to fewer than 28 days.
Another of the Ivory Award finalists, Jackson / Main Architecture, with offices in Seattle and Kansas City, proposes a triple-threat solution--featuring advanced offsite construction, regulatory/policy initiatives, and financing models that support non-traditional construction methodologies. Its Pilot 5 push, a plan for 5 new multifamily communities in the Puget Sound area, totaling 500 units in the next five years, works this way as a learning and research model JMA wants to offer other developers and investors.
Innovation:
Jackson | Main Architecture is dedicated to pushing the boundaries of design and construction with modular and factory-built technologies. Affordable housing is the biggest vehicle to economic stimulus, stability, and empowerment for socioeconomically disadvantaged populations. Pilot 5 will redefine housing development with a vertically integrated team focused on the entire product delivery system. Most critical to the Company’s proposal is the ability to provide an open-source design solution and allow others to build on the work, adapt it to new circumstances and increase the impact.
Scalability:
Pilot 5 will be transferable to any place it needs. Although the current focus will be on Washington, this model will have the ability to rinse down to an applicable structure in each state – once initially established with boots on the ground. JMA feels the partnership with the Sorenson Impact Center and the Ivory Prize will enable Pilot 5 to expand beyond the Puget Sound and offer a major impact on affordable housing development across the U.S.
Sustainability:
Currently, JMA is working with a client in 8 different cities to better understand the issues, barriers, and opportunities that exist within the application of the Pilot 5 model. JMA is seeking failure as they see success will not be set unless they are hitting roadblocks and establishing solutions. Rather than simply throwing money at an issue, their initiative is to drive the change and conversations with all stakeholders involved.
