Gene J. Puskar/AP Photo
The share of housing wealth held by middle-income households fell from 43.8 percent in 2010 to 37.5 percent in 2020.
Last week, the National Association of Realtors released a report showing the windfall gains to the already rich in the form of increased housing wealth. Between 2010 and 2020, according to the report, the total value of owner-occupied housing increased from $15.9 trillion to $24.1 trillion. Of that gain, 71 percent went to high-income households.
Meanwhile, lower- and middle-income people who were not already homeowners had an ever-harder time buying their first home. The overall homeownership rate dropped by about four points in that decade, from a peak of 69.3 percent to 65.5 percent at the end of 2020. But for middle-income families, it dropped by 8.4 points.
The share of housing wealth held by middle-income households fell from 43.8 percent in 2010 to 37.5 percent in 2020. For low-income households, whose only source of net worth is typically their home, the share fell even faster, from 28.8 percent of the total in 2010 to just 19.8 percent in 2020.
What happened? First, the subprime catastrophe caused close to ten million foreclosures—almost none among the affluent, who typically had conventional mortgages.
Second, the bankers’ overreaction to the subprime mess led many mortgage lenders to add ridiculous requirements for first-time buyers, making it harder to qualify for a mortgage at all. This was a secondary, knock-on effect of subprime.
Third, the rising burden of student debt caused many younger buyers to be disqualified, because they were already carrying too much debt relative to their income. The decline in homeownership rates was steepest among people under 30.
And finally, the scarcity of affordable homes bid up prices, driving more and more houses out of reach and leaving fewer affordable ones. You would think that developers would respond to this shortage by building more affordable homes. But developers make a lot more money building McMansions for the affluent. And tax policy, allowing deductions for mortgage interest and property taxes (up to a limit), is one more subsidy for the already rich.
Please note that although lumber prices have risen somewhat and some items (garage doors, for example) are hard to come by, the drastic increase in housing prices has little to do with the current supply chain shock. Rather, it is the legacy of half a century of perverse public policy. And while anti-NIMBY measures, such as overrides of single-family-home zoning, can help, they are no substitute for broader policy changes, of which more in a moment.
Race is also a major part of this story. In the mid-20th century, moderate-income people of my father’s generation could become homeowners on one income, thanks to government-subsidized mortgages and conversion of farmland to suburbia promoted by federal highway subsidies.
But this new deal for housing only applied to white people. If you were Black, you were unwelcome in the Levittowns. The FHA underwriting manual literally required racial segregation as a condition of insuring mortgage loans.
Our frequent contributor Richard Rothstein tells the full story in his modern classic, The Color of Law. As Rothstein argues, if there is a strong case anywhere for some version of reparations, it is especially in the realm of housing. We could calculate the gain in housing wealth that a Black family might have realized, had they been allowed to buy in, say, 60 years ago, before the great housing inflation—and then give them a voucher allowing them to buy in at that price.
THE GROSS INEQUALITY on housing wealth for homeowners is only half the story. Most people of moderate income are renters, and the same insane increase in costs is affecting rental housing. In nearly all metro areas, the cost of a median rental far exceeds what a median-income household can afford, and the gap widens every year.
According to the latest report of the National Low Income Housing Coalition, “Out of Reach: The High Cost of Housing,” nationally it takes an hourly wage of $24.90 to afford a modest two-bedroom apartment, and there is not a single county in America where a minimum-wage worker earns enough to spend less than 30 percent of their income on that rental. In some cities with very high rents, the hourly wage required to rent a median-price apartment exceeds $60.
This mismatch, too, is the legacy of perverse policies. We have very little public housing, and Congress added to the shortage in 1998, under the Faircloth Amendment, by capping the number of total public-housing units, now about two million, and denying adequate funding to local public-housing authorities to keep public-housing complexes in decent repair, leading to a steady attrition. The repair backlog is now about $70 billion.
In nearly all metro areas, the cost of a median rental far exceeds what a median-income household can afford, and the gap widens every year.
Public housing is monumentally unpopular among Republicans and corporate Democrats, so they add legislative conditions to almost guarantee that public housing will fail. Even so, the scarcity of affordable housing is so extreme that in many cities there are long waiting lists for public housing.
Instead of genuine social housing, public policy in America provides some (far too little) affordable housing by subsidizing developers and landlords, and in some cities by extracting a quasi-tax on market-rent housing in the form of a modest quota of affordable units that the developer has to provide as part of the deal. These measures are both inefficient and inadequate.
One key policy instrument is the Low-Income Housing Tax Credit, which subsidizes developers to the tune of about $8 billion a year. A lot of the subsidy leaks to middlemen who syndicate the tax shelter.
A second badly flawed mechanism is housing vouchers, which pay landlords the difference between the market rate of the apartment and what the tenant can afford. Because of limited appropriations, only a small fraction of people who qualify actually get vouchers.
Neither housing financed by tax credits nor units whose rents are subsidized by vouchers are true social housing. They are privately owned housing subject to market forces. In the case of vouchers, they are a convenient way in gentrifying areas for the landlord to keep the unit occupied until the unit can fetch a higher market price, at which point out goes the low-income tenant.
One grievous failure is that taxpayer money goes to subsidize affordable units that stay affordable at the convenience of the landlord. Housing subsidized by HUD under programs created in the 1970s required the units to be affordable only until the initial mortgage was paid off, and then the landlord or developer was free to sell them or jack up the rents.
I was born in Parkchester in the Bronx, one of three moderate-rent projects in New York, developed by MetLife and subsidized by both land transfers and tax abatements granted by the city. These were nonprofits, and the idea was that the public subsidy would maintain them as affordable apartments in perpetuity. But the other two projects, in more trendy locations in Manhattan, Stuyvesant Town and Peter Cooper Village, have now been sold off and converted mostly to market-rate housing. This has to be prohibited, and the only solution is true social ownership.
FOR OWNER-OCCUPIED HOUSING, we need to reverse the direction of subsidy and subsidize first-time homeownership for moderate-income qualified buyers. Just getting rid of the tax subsidy for the affluent would damp down the tendency of prices to inflate. And we need to devise a strategy of compensatory subsidy for those who were denied access to housing wealth because of their race.
For rental housing, we need to create a true social-housing sector, where rents are forever protected from market pressures. This can include a mix of land trusts, municipally owned housing, and limited-equity co-ops. This report, “Social Housing in the United States,” co-authored by our Prospect colleague Ryan Cooper, suggests a variety of forms of social ownership for housing, and strategies for capitalizing them.
The challenge is not technical; it is political. In Vienna, about 60 percent of all the apartments are municipally owned and available to the middle class as well as the poor. This legacy dates to the era between the end of World War I and the fascist takeover of the early 1930s, when “Red Vienna” was superbly governed by democratic socialists.
Housing doesn’t get as much attention as some areas of public policy, but it is a source, a reflection, and a reinforcer of gross inequality—and of economic pain. It is a bipartisan policy failure that only radical remedies can reverse.
