W.I.N.R.R. refers to the five biggest drivers of the housing affordability challenge we are facing here in the US and throughout the world:
1. Wages:
Few address this subject, but it's possibly the most important of all. Anyone who thought they could suppress the price of goods and services forever was delusional. Prices were going to rise regardless of the Covid surge, they already were prior to 2020, albeit at a slower rate. Wages, for many, have not kept up with home prices. This is a reflection of growing, extreme wealth disparity. Simply look at the wealth and incomes of the wealthiest and the disparity is alarming and growing. Corporate profits are dramatically up too. The money is there, lots of it, but it is not flowing sufficiently to those who need it most.
2. Investor buyers:
Almost 15% of homes sold in the US are being bought by investors. Small, medium and large institutional investors and individuals. Regular, end-use buyers cannot compete with these people even if they represent a small percent of buyers, this is not insignificant.
3. NIMBY-ism:
Many have acclimatized to the existing nature of their neighborhoods and don't want to change by adding density that is often met by inadequate infrastructure, schools, services, etc. Their concerns are valid. The nature of a leafy single-family suburb is bound to change if you allow more dense housing. But there is not enough buildable land in most areas conveniently located close to jobs that don't involve an extended commute. Placing a 30-story tower in an area with 10-storey buildings changes the fabric and look of that area.
4. Rates:
Higher borrowing costs automatically reduce buying power. Higher rates make borrowing to finance construction more expensive and this cost is passed on to the consumer. Tighter lending standards and larger down payments to ensure borrowers can repay loans is understandable and prudent, but it does limit affordability.
5. Rents:
Sharply higher rents, that keep rising, have reduced the savings capacity for first time homebuyers. The more they pay for rent, the less they have for savings. More than 21 million renter households are “cost-burdened,” meaning they spend more than 30% of their income on housing costs.
These five issues require careful, honest evaluation and collaborative efforts if we indeed wish to resolve the housing affordability issues of our time. And no, housing affordability, the relationship between income and home prices, is something that does not merely impact the poorest, it is an issue in many areas of the US and the world at almost all levels.
