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Addressing the Widening Housing Gap

home prices

home pricesThe COVID-19 has widened the housing gap, the Brookings Institute reports, as cost-burdened households are at higher risk of contracting the virus. According to the report, housing costs "are a major financial stressor for low-income households, who typically devote between a third and a half of their incomes to housing. Cost-burdened households are at risk of losing their homes to eviction or foreclosure, especially during economic downturns. These households are also unable to accumulate savings that could help them weather temporary income losses like so many have seen during the pandemic."

In order to avoid future struggles, Brookings researchers propose increasing access to affordable housing, whether through increasing the supply of long-term affordable rental housing or by supporting affordable housing projects.

The report notes that, in response to foreclosure risks, the federal government created the Neighborhood Stabilization Program (NSP) to mitigate the impact of concentrated foreclosures in low-income neighborhoods during the 2007-2009 housing crisis. HUD allocated nearly $7 billion over three rounds of funding to local and state governments and nonprofit organizations. Funds could be spent on various activities intended to reclaim and reutilize vacant properties; in practice, most grantees used NSP funds [1] either to acquire and rehabilitate properties or demolish vacant structures. The program initially targeted single-family homes, which accounted for most foreclosures.

Researchers from the Urban Institute also indicated that prices for low-priced homes have appreciated faster than higher-priced homes.

As low-price home prices rise, would-be homebuyers with low incomes have trouble finding affordable homes, so they remain in the rental market, drive up rents, and increase the demand for and price of rental properties, Urban notes. As a result, the cost for both owning and renting has gone up substantially for low-income households, while their income growth has not kept pace with that of high-income households.

“A closer look at 285 metropolitan statistical areas (MSAs) suggests that rapid employment growth combined with increased supply constraints from zoning and other regulations contributed to this disproportionate price growth for low-price homes,” said Urban researchers. “If left unaddressed, these same supply constraints will hamper the ability of low-income households to prosper as we emerge from the crisis and will exacerbate income inequality.”