The U.S. Housing Crisis: When Will Home Prices Be Affordable Again?
The effects of the COVID-19 pandemic have resonated worldwide. Job losses, economic downturns, and strains on livelihoods have become harsh realities for many in the wake of the pandemic. In the United States, this economic turbulence has translated into a surge in housing insecurity, pushing individuals and families to the brink of homelessness. In April 2020, research supported by the Robert Wood Johnson Foundation found that 30.6% of adults in the U.S. could not pay rent, mortgage, or utility bills. The crisis escalated when 53% of firms were experiencing construction delays of units projected to be completed by 2020. According to the National Association of Realtors, the U.S. is currently facing 6.8 million units of housing shortage. To make matters worse, the gap between supply and demand widens every year.
Some experts state that single-family zoning laws led to the housing crisis. The restriction on land use results in the inability to build more homes that house low-income families. Single-family zoning laws initially arose to protect residential areas from industrial developments such as warehouses. Only eight cities had zoning laws in 1916, but within two decades, over 1,200 cities had adopted such regulations. In 1917, the Supreme Court ruled that race-based zoning was unconstitutional. The court did, however, uphold the constitutionality of single-family zoning laws in 1926, allowing communities to limit higher-density residential development. This decision allows neighborhoods to preserve their character and property values by prohibiting higher-density development. In the 1970s, a second wave of more restrictive single-family zoning laws emerged.
It has been over a century since zoning laws were passed. Currently, 75% of U.S. land zoned for housing is for single-family only. According to Jenny Schuetz, a senior fellow specializing in urban economics and housing policies, “Zoning has gotten more complicated and more restrictive.” However, there is still room for optimism with more local and state governments taking action to alleviate the housing crisis. Minneapolis, Arlington, Gainesville, Charlotte, Walla Walla, Washington, and other cities have implemented changes to single-family zoning laws recently. Oregon, California, Washington, Montana, and Maine have ended them statewide.
The housing market has developed in a positive direction in recent months. House prices are recovering from a dip after peaking in June 2022–in particular, Boston’s rose by 1.5%. According to the Washington Post, the prices are settling to where they “ought to be.”
The future remains optimistic for the housing market with the ease of inflation. What happens next depends on the Federal Government’s effort to cool down interest rates to 2014-2019 levels.
“Right now, it’s more about what the Fed intends to do rather than what it does,” says Keith Gumbinger, primary researcher and writer for HSH.com's MarketTrends newsletter.
by EMMA HE