The pandemic economy had far-reaching effects on the national housing market, increasing demand for more space, and driving up home prices.
A report released in June on the state of housing in the U.S. estimates the annual income needed to afford the median Twin Cities home is now almost $104,000 — nearly $21,000 more than the median Twin Cities household makes.
The report, by the Harvard Joint Center for Housing Studies (JCHS), prices the median Twin Cities home at $377,672, up 12 percent from last year.
The report also found the share of Minnesota renter households spending a concerningly high share of their incomes on rent has increased since 2019.
“It’s truly a remarkable time in housing,” said Daniel McCue, senior research associate at the JCHS during an event unveiling the report. “From the soaring cost of housing, to the record low supplies, the surge in demand, the construction response — dragged down by supply chain delays,” and now high inflation and interest rates hikes attempting to tame it.
Home ownership costs rise across the country and Minnesota
High demand for housing and cheap borrowing have prompted steep increases in home prices in recent years, both in Minnesota and nationally.
The estimated annual income needed to afford the median home in the United States rose a whopping $28,000 — from $79,600 to $107,600 — between April 2021 and April 2022, the JCHS found; an increase that priced an estimated 4 million U.S. renter households out of the housing market in just a year.
The math for many renters would be even tougher now than it was just weeks ago, as interest rates have risen by roughly a percent, to an average of 5.7 percent in late June, according to the Federal Reserve Bank of St. Louis.
In Minnesota, it’s not just the Twin Cities where the average household is priced out of home ownership: in every larger Minnesota metro area, the income needed to afford the typical home is more than the median household makes.
In many metros across the state, incomes have shrunk relative to the cost of the typical home, and in 2021, hit levels of unaffordability relative to median incomes not seen since before the housing crash of the Great Recession.
Median home prices also significantly outpace median household incomes in many Greater Minnesota cities, the report found.
Rising home values have meant an equity windfall for people who are already homeowners, who saw a national average increase of $55,300 in home equity in the last year, according to the JCHS. But ballooning costs make homeownership increasingly unaffordable for many people who are looking to buy homes now.
Ultimately, that means a wider wealth gap between homeowners and renters, and also reinforces other systemic inequalities: Minnesota’s home ownership gap is among the widest in the country, with homeownership rates for white Minnesotans three times the rate for Black Minnesotans.
Apartments unaffordable for many
It’s not just owning a home that’s increasingly unaffordable in 2022: renters, whose household incomes average less than half that of homeowners in Minnesota — are also struggling to afford a place to live.
Rents in the Twin Cities metro grew rapidly after the Great Recession, but increases in rents in one and two bedroom apartments have seen a slowdown of late, said Dan Hylton, the research manager for HousingLink, which tracks the local rental market, said in an email.
HousingLink data find Minneapolis rents peaked in 2017-18, while rents in the rest of the metro peaked around 2019 and into 2020, Hylton said.
“A lot of things are always influencing the market but a big part of why rents were rising so fast in the early part of the 2010s was due to apartment development having been stoppered up during the Great Recession,” Hylton said.
In the years since, developers raced to catch up, and that inventory seems to have caught up and put a damper on rising prices. But just because rent increases are slowing down, that doesn’t mean renting an apartment is affordable. In April, HousingLink found zero percent of vacant Minneapolis rentals were affordable to households making 30 percent of the area median income (area median income in 2021 was $82,200 for an individual and $117,300 for a family of four).
Over time, renters’ incomes have not kept pace with increases in rent. According to the Minnesota Housing Partnership (MHP), gross rents increased by 14 percent between 2000 and 2019, while median renter incomes have increased by 1 percent.
While the JCHS report found pandemic-era measures to keep people in homes, including emergency rent assistance and eviction moratoriums, helped some households who were struggling to keep up on housing costs catch up, housing affordability struggles continue.
Since 2019, the share of Minnesota renter households that are considered “cost-burdened,” which means they spend more than 30 percent of their income on housing, rose from 40 percent to 43.2 percent in Minnesota, the JCHS found. The number of renters who are severely cost-burdened, meaning they spend more than 50 percent of household income on housing, rose from 19.6 percent to 20.8 percent.
And there are large disparities when it comes to who is cost-burdened in Minnesota, with Black, Hispanic and Indigenous households far more likely to be paying high shares of their incomes in rent.
More housing needed
Despite the bad news for affordability, the report found some reason for hope. Housing production, which lagged demand significantly since the Great Recession, has picked up in recent years, though the increased cost of building materials and labor has made building affordable housing a challenge.
The mismatch between supply and demand in Minnesota is putting pressure on housing in Minnesota at all levels, but especially for the lowest income households, said Anne Mavity, the executive director of Minnesota Housing Partnership. Minnesota is seeing an accelerated increase in evictions and an acute need for emergency rental assistance, Mavity said.
While new housing is under construction, it’s not going up at fast enough rate to solve some of the long-term supply and demand issues. And it’s especially not being built at a rate fast enough to help solve housing affordability issues for Minnesotans on the lower end of the income spectrum.
Analysis from the Minnesota Housing Partnership finds Minnesota needs to build an additional 10,000 new units per year in order to make up for the lack of housing produced during the Great Recession.
“Year after year after year, we have underproduced,” Mavity said. “We have this pent up, built up pressure and gap in the number of units that are actually available.”