This article is part of a ten-article series. See the full list of articles at the end of this one. The articles explore the issues Port of Harlem publisher Wayne Young uncovered and learned about while investing in his economically-challenged hometown, Gary, Indiana, and witnessing gentrification in once-economically challenged Washington, D.C.
The articles cover other places including South Bend, Indiana; Prince Georges County, Maryland; Washington, D.C.; Omaha, Nebraska; Flint, Michigan; Jackson, Mississippi; Florida, and the Lower Colorado River Basin States, specifically, California, Nevada, and Arizona.
Comparatively low-cost housing is part of what makes rustbelt cities such as Gary and South Bend, Indiana - - cities discussed in the previous two editions of this series - - attractive to housing investors. Housing costs in such cities remain relatively low as housing prices are expected to continue to soar across America, especially in metro areas where the housing demand is high and the shortage may seem insurmountable.
In The U.S. Housing Shortage From a Local Perspective, The Federal National Mortgage Association, commonly known as Fannie Mae, reports on the housing situation. In the report, Fannie Mae divided the country into eight noncontiguous groups.
“We can do more such financing, but only if the housing supply is there to be financed. And it isn't.”
-Jeffery Hayward, Executive Vice President and Chief Administrative Officer at Fannie Mae.
Cities in the Mature Economy Metros group (which includes Chicago/Gary and Washington, DC) have an adequate level of affordable inventory and account for only 1.2 percent of the nation’s housing shortage. However, the areas are still short of about 115,600 housing units to adequately meet the demand for affordable housing.
In stark contrast, the report shows that the housing shortage in a group of cities called Bifurcated Metros (which includes Miami and San Diego) with 28.8 percent of the nation’s housing shortage, or a staggering 1, 070,000 units.
While the housing shortage is often measured by the cost of buying a home, the housing shortage affects renters as well. The median asking rent in the United States rose above $2,000 for the first time in June 2022. Given that the U.S. Department of Housing and Urban Development (HUD) sets the standard of affordability at 30% of household income, $2,000 per month would only be affordable for households earning at least $80,000 per year - - well above the median U.S. household income of $67,521.
“Every American city has a housing supply problem, but each city's housing supply problem is unique,” affirms Jeffery Hayward, Executive Vice President and Chief Administrative Officer at Fannie Mae. Making sure mortgage funds are available to create and preserve an affordable housing supply for low- and moderate-income families is central to what Fannie Mae does. However, having the funds is not Hayward’s concern. “We can do more such financing, but only if the housing supply is there to be financed. And it isn't.”
Experts believe the housing supply shortage began after the Great Recession (2007-2009) when new home construction dropped like a stone. “Fewer new homes were built in the 10 years ended 2018 than in any decade since the 1960s,” continued Hayward. The pandemic-induced materials and labor shortage exacerbated the trend, as evidenced by the surge in rents and home prices in 2021. (The same year we noted new interest in Gary’s real estate as noted in the opening article of this series.)
My Gary contractor often laments that the problem is exacerbated by the labor shortage and even more so by the lack of skilled workers for him to hire and to follow his path when he retires. My DC contractor says the same. Both of their crews are mainly Spanish-speaking recent arrivals. Yet, immigration of such workers also very oddly remains an issue in the United States.
Housing scholars also point to zoning laws and other regulations as contributors to the housing shortage, as Mike Keen, of Portage Midtown in South Bend, Indiana, pointed out in the second article in this series. He explained how they can also foster higher housing cost.
Generally, zoning laws include minimum lot and square footage requirements, limits on the height of buildings, and restrictions on building multi-family homes and are often considered exclusionary. The zoning laws make housing units more expensive while excluding lower-income residents, often purposely.
Interestingly, the Fair Housing Act which prohibits discrimination based on race, color, national origin, religion, sex, and other identities, does not prohibit class-based discrimination. Without having to hang a “Whites Only Signs,” communities are able to use exclusionary zoning laws to legally limit Black and Latinx families who generally have far less wealth and income than White households.
