In 1940, 60% of the housing stock was entry-level homes; today, it’s 10%—and in some metro areas, the percentage is in the single digits.
The U.S. is experiencing a weighty housing supply shortage and affordability issues, which Dan Ticona, director of housing solutions at Freddie Mac, examined Monday during his presentation at the Land Use, Property Rights, and Environment Committee at the REALTORS® Legislative Meetings in Washington, D.C.
Freddie Mac has found that the country currently has a deficit of 3.8 million homes, a figure that accounts for supply and household formation. Although housing starts have been rising since 2010—there were nearly 1.5 million starts last year—new construction isn’t keeping pace with intensifying homebuyer demand, Ticona said. Plus, the housing shortage is being exacerbated by the pandemic and supply chain issues. “The supply shortage is not getting better, and the demand remains strong despite the rise in interest rates,” he says.
This led to an average home price appreciation of 19% nationally last year. However, income growth has not kept pace. The median household income has been gradually rising from a low of $57,623 in 2012 but only recovered to $63,683 by 2016—an amount last seen in 2000, according to the U.S. Census Bureau. In 2019, the median household income was $69,560, but it decreased by nearly 3% in 2020 to $67,521 due to the pandemic. Incomes in 2021, though, likely will show some recovery.
“When I think about this, I always think about my parents when they purchased their home. They paid about a third of the cost it’s valued at today,” Ticona said. “If they tried to purchase that house today, even though their income has increased some since they bought it in 1999, they would not be able to afford it unless they had a significantly higher down payment.”
Craig Foley, chair of the Land Use, Property Rights, and Environment Committee, said REALTORS® need to aggressively pursue solutions to housing supply and affordability issues in America. The inventory of unsold homes is at historic lows, with only a little more than 1 million homes for sale nationwide. There are more members of the National Association of REALTORS® than homes available in the market.
One solution is to leverage the current aging housing stock and vacant homes. Ticona estimates there are 5.8 million vacant properties nationwide. Plus, more than 50% of the housing stock is at least 42 years old; in some areas, almost 100% of their stock is older than that. “Efforts should be put in ramping up renovation and rehabilitation of these decades-old houses,” Foley says. Freddie Mac has shared equity, manufactured housing, and affordable housing preservation products that can help offer solutions.
Real estate professionals can also investigate properties held by municipalities or land banks, which have the power to clear a title and hold the inventory but no capability to put the properties back into active use, Ticona said. Freddie Mac is looking for opportunities to partner with property stewards that are holding inventories and facilitate acquisitions with some of their products, such as the CHOICERenovation mortgage, and put the homes back onto the market.
A high percentage of the land owned by municipalities or land banks consists of vacant lots. There is an opportunity for public-private partnerships to get that land rebuilt, Ticona said.
Accessory dwelling units offer another solution to the housing shortage, and many cities and states now allow ADUs. Ticona said he expects that trend to continue, though finding ways to standardize the legislation and regulations around ADUs would help the industry. “Multigenerational households are a reality that will continue, as is aging in place,” Ticona says. “We need to come up with better products and solutions to meet those needs.”