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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.
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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.
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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).
[image_credit]Source: HousingLink[/image_credit][image_caption]Area median income in the Twin Cities metro area was $82,200 for an individual and $117,300 for a family of four.[/image_caption]
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.
[image_credit]Source: Minnesota Housing Partnership[/image_credit]
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.”
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If you need tangible proof that the usual shibboleths about the housing market are little more than marketing hype by those who stand to gain the most from higher prices, Greta has provided it. My income as a public school teacher never reached the median while I was teaching, and for the few years after I retired from the classroom and worked in retail, my retirement income and wages combined still did not reach the median for the metro area where I lived.
My current income is about 2/3 of the AMI for the metro area, and I feel very fortunate to have sneaked in under the wire in terms of home ownership, just barely being able to afford a 50-year-old tract house in 2009, while the housing market was in the doldrums. According to the county assessor, the taxable value of this little story-and-a-half, of which there are literally thousands in Minneapolis and St. Paul, has nearly doubled in the 13 years I’ve lived here – without any significant improvements to the structure. Actual taxes on the property have increased so much that my mortgage payment has gone up nearly 20%, without me adding anything to the structure – it’s strictly a result of inflationary increases in assessed value. I could not afford to purchase my current home if I were trying to buy one now, and occasional forays into the price of rental housing confirm – in spades – what Greta wrote about. Equivalent rental space would cost between 30% and 50% more in quite ordinary apartment developments in Hennepin County.
Just for fun (“fun” because I already have housing, it would be far less “fun” if I were truly searching), I priced a small studio apartment in one of the newer, more stylish towers in NE Minneapolis. It was an interesting case of inverse relationships in that half the space I currently have would cost me twice as much as I currently pay.
If it’s true that a rising tide raises all boats, most of the rhetoric about “equity” from the capitalist end of the spectrum is truly meaningless, since selling my home would put money in my pocket only if I were moving to a place considerably less expensive. All the other houses that might, in normal circumstances, be within reach financially are rising in price at rates to match the inflationary “value” of my current home, so the notion of being able to sell what I have to move to some place “better” or larger is largely an illusion. This sort of thing prompts me to wonder – I have no idea what the answer might be – just what proportion of the metro population’s families are actually being paid the AMI figure of just over $82,000. I’m guessing it’s a surprisingly small fraction.
An added feature, drive around some of the neighborhoods and you will see a significant number of empty, run down/fire damaged etc. properties, houses, and apartments, taking years and years to repair, or get torn down. Perhaps, getting our housing inspectors tuned up, some added staff, some efficiencies like (using e-mail and texts to advise owners and renters instead of snail mail) will help get ahead on these properties, as well as putting more pressure on quicker insurance settlements would be helpful. Yes, city council and Mayor there are things you can do to help run and improve the city, last check that is your job, other than crying in your soup every day and devoting all efforts at the failed safety committee agenda, didn’t work out so well this weekend did it?
I remember when inspections offices, including housing inspection, were gutted via deregulation maybe 20 years ago. This was to “save” money, although I believe that the offices actually generated money for the city/state.
However, I’m having difficulty in finding year-by-year data, and I’m also having difficulty in finding which inspections are done at a state level and which inspections are done at the city level.
I assume problematic properties in the city are overwhelmingly owned by landlords and banks/mortgage institutions rather than actual homeowners, and I think it would be inefficient to advise renters as part of the process other than to remind them that they were renting from a slumlord.
What neighborhoods? I drive around Minneapolis all the time and while I do see run down houses, investment groups don’t maintain their properties well, I see very few vacant and no burned out houses. One in my Northeast neighborhood was rehabbed immediately. So again where are these burned out vacant homes?
Oh I have been spending time in Rural Northern Minnesota lately and I have been noticing rundown burned out homes in those areas. Check any small town North, West or South of here and you’ll see what I mean.
It’s disappointing to see so much of this article organized around the specious claim that housing construction is the primary driver and solution to the affordable housing crises. Note, nowhere in this article is the actual nature of this housing “shortage” defined or described. We have not a single number of housing units built, or when, or how many people are without housing. We just have numbers claiming to represent some kind demand relative to a supply curve.
Depending on how you want to look at this graph it either tells us that 15,000 or as many as 30,000 people have no where to live in the Twin Cities? Sure, we have a homeless population but THAT many people without homes would create refugee camps somewhere. Obviously the “shortage” we’re discussing here isn’t actual living space, it’s a tight market, not a housing shortage. This is important to understand because it explains why there is so little economic evidence that building lowers or controls housing prices. Developers aren’t building to meet an actual housing shortage, they build in response to market fluctuations.
One thing it is to make basic observations regarding prices and affordability, but extrapolating explanations for those trends based on simplistic supply and demand models, and data primarily derived from market analysis is a tricky business. One would think that before simply recording the numbers being supplied one would ask some basic questions regarding the actual cost of construction, the number of units built, the basis of claims regarding demand, i.e. are this extrapolated claims based on population projections or real-time demand by people who literally can find no housing? Are these demand and sales numbers based on mortgage applications, realtor contracts, etc. etc. And if your going to make inventory/vacancy ratio claims you have to factor in the extent and mechanisms being used to control or manipulate inventory for certain financial interests.
If the claim that we have a housing shortage seems specious to you, can you explain how else it would be possible for housing prices to reach historic highs compared to household incomes?
You have a market populated with actors trying to make as much money as possible. They will charge as much as they can regardless of income. So long as people continue to buy and rent, they’ll raise prices because that’s how they make money. This isn’t a housing shortage, it’s just profiteering. This is why there is little or no evidence that we can build our way into more affordable housing… we keep building, prices keep rising.
Average wage in MN is about $65,000, but you need $107,000 to afford a house and let’s not ignore the minimum wage is $7.50 hour.
We have developed into a country with unaffordable life, healthcare and just about everything, while wealth inequality is among the worst in the world.
We have just a few corporations controlling aspects of our economy which are earning record or near record profits, paying outrageous sums to their leaders, while refusing to provide workers with decent wages.
One has to wonder about the selfishness and greed, not only from these corps, but who are fully enabled by repubs and this repub court which is completely undermining our constitution.
If you vote repub…this will only get worse. Just look at repub states who have the vast majority of worst poverty and k-12 educational systems. That’s what we get from repubs, who are also undermining our democracy.
Yet I also don’t see Democrats doing much about it, other than building more subsidized housing or affordable housing for a small group of people that is almost always rentals or a few Habitat for Housing type programs. I am a democrat, but like many others sometimes vote outside the box for local candidates. So much double speak from both parties. You can’t keep asking those who make working/middle class wages to subsidize other programs when they themselves are priced out of buying a home despite working two jobs or can’t afford daycare. Many people want smaller, single family homes in safe communities where they can build some equity. We hear so much about reducing disparities, but then we have systems run by both parties that offer more of the same–a lousy living wage, taking years at most companies to reach the top of a pay scale, tax write offs that make sense if you are making over 300,000, but for those in the middle-not so much.
Developers and landlords hold major sway over city council members, regardless of party affiliation.
There are rare exceptions; the long-term feuding of one/two Sabri brothers vs Gary Schiff comes to mind.
Just a perspective, dual income families have been around since at least the 60’s, (my dad worked full time + and my mother part-time), the wife and I have both worked since we were teenagers (60’s), a single income family, unless you are doing extremely well at a very early age, is just not going to cut it, and has been a tough ride for quite awhile already.
“let’s not ignore the minimum wage is $7.50 hour.”
Name five companies that pay this hourly wage.
“but who are fully enabled by repubs”
Who are in the minority. The President, Senate, and House are all controlled by the Democrats. The Repubs can’t enable anything. Shees!
Has Biden inflation and high interest rates hurt housing in MN?
Perhaps someone can explain to you that interest rates are set by the Federal Reserve, a body over whose actions the President has no control. If you’re lucky, they might also explain to you that higher interest rates are put in place to slow down demand and thus ease inflation.
A full picture would tell you that the steep upward trend of housing prices than began in July of 2020 may be leveling off. That full picture might also point out that inflation is a global phenomenon right now, and that price gouging and profiteering are certainly part of the cause. Then again, that’s a lot to take in on one day.
July, 2020; why does that ring a bell?
It’s almost like there’s a correlation to when people chose to invest in their homes because they couldn’t travel or seek entertainment outside the home due to that pandemic thing. Those pandemic relief checks were hitting bank accounts around then too.
Of course, it’s not just demand that drove housing prices up, but also the supply of building materials. Between wildfires & bark beetles (both exacerbated by climate change), there’s less timber supply available to meet demand.
But all that makes it hard to blame Biden, so let’s just ignore inconvenient facts.
If so, then Biden’s historic low unemployment rate and Biden’s historic wage increases, especially for the lowest wage workers, has increased housing demand.
Was the Biden inflation caused by the Trump pandemic?
It is quite amazing that here in a capitalist economy, that we ALL participate in, permeated with various markets wherein we all buy and sell everything… it’s nearly impossible to have a coherent and informed discussion regarding how or why anything costs what it costs. From gasoline to real estate and even tennis shoes the nearly complete level of ignorance is quite breath taking.
You would think that an educated population that lives with these markets every day would be able to discuss prices intelligently but all we ever get on any level are this specious and simplistic supply side claims that don’t even begin to explain the cost of anything.
People don’t even ask basic intelligent questions; for instance when someone says something like: “we need to build 10k units a year… to catch up” nobody bothers to ask what that even means or where exactly that figure comes from? Are you telling us 20k to 30k people are sitting around in refugee camps somewhere in the metro waiting for housing to materialize? Who ARE these people you need to build for and where are they? How are you identifying these “buyers”?
Getting back to this claim that we’re somehow behind on building… has everyone failed to recognize the fact that we’ve been watching a nearly historic building boom for the last 3-5 years? We’ve brought 80k+ units online in the last 5 years but your telling us we’re UNDER-BUILT by 10k a year? Just look around, from the West End in SLP to the old Army Ammunition Plant up in Arden Hills and everywhere in between you see new housing construction… and it did NOT slow down or stall during the pandemic. This can’t possibly “explain” the price of new housing.
There are a whole host of other obvious and basic questions that are typically avoided like a plague in order to service this supply side narrative, but space is limited. For instance materials are more expensive… OK, but how much more expensive, and how exactly is THAT calculated into the final sales price?
And when these people produce these numbers as if they have some kind of formula they have worked out, no one asks for any kind of competent prediction… when you build what you say you “need” to build, when will prices drop and by how much? And for some reason everyone’s stricken with some kind of amnesia that wipes out the fact that we’ve never built our way into affordable housing despite decades of promises to do so.
The most obvious explanation for these housing prices is a real estate bubble, we’ve seen this many times and the real estate industry is very very good at creating such bubbles. They managed to create a bubble that economists claimed was impossible to create, THAT bubble was soooo big it crashed the world’s economy.
These prices are a product of a market populated with dozens of actors ALL trying to make as much money as possible and succeeding. This claim that they have some kind of quasi-scientific buyer-seller ratio of availability that “explains” prices is just smoke and mirrors obscuring their profit margins.
One thing it is to merely document the problem, but you have to perform some impressive intellectual gymnastics to avoid the fact that what your documenting here is a bubble, not an supply based “explanation” for prices.
“A six-figure income is needed to comfortably afford a home in the Twin Cities, nation”
It’s odd to me that the median price gets treated like the “get in” price. I’ve seen this with stories about apartment affordability, too. It feels intentionally misleading.
If I ask how much it costs to go to a MN Wild game, the answer isn’t the $100+ median price. It’s about $40-50. Or maybe “anywhere from $40 to a few hundred bucks”.
Just to circle back quickly to something that Ms. Larey said: “Yet I also don’t see Democrats doing much about it, (snip)”
No, NO ONE has really done anything for decades which why the problem keeps spinning out of control. This is the most pernicious aspect of the supply-side narrative: ultimately it’s a circular logic that actually prohibits any action. Basically supply-side logic can only conclude that nothing can be done, we just have to live with unaffordable housing indefinitely until supply meets or exceeds demand. Of course we’ve been waiting for decades now. This logical trap emerges from a logical non-sequitur that profits build housing therefore the greater the profits the cheaper the housing. Obviously anything we would do that could actually be effective at lowering housing costs would necessarily put downward pressure on profit margins, therefore we can do nothing… and round it goes. This has NOTHING to do with ACTUAL supply or demand, it’s simply a way to bubble prices until the bubble pops for some reason, and then it all starts over again. This is why we never got affordable housing out of the Great Recession, according to the supply-side narrative the Great Recession should have re-set the prices at affordable rates; instead it just paused the increases for a short time.
And yeah, this is part where developers et al usually complain about their “margins” but you will note that no on EVER reveals their actual profit margins… and for some reason reporters NEVER even ask to see them. The industry just whines about their low margins as-if they’re all losing money. Obviously this is ridiculous, building and real estate are clearly very lucrative businesses and have been for decades.