The American dream of homeownership is increasingly slipping away for many, as escalating housing prices create insurmountable barriers. Several interrelated factors contribute to this crisis, including rising planning and permitting costs, restrictive land use policies, dwindling resources, and a shortage of skilled construction workers.
Problem: Planning and Permitting Costs
In major metropolitan areas, the costs associated with planning and permitting have surged, directly impacting housing affordability. These requirements often lead to increased administrative burdens, uncertainty, and delays, all of which elevate the overall cost of building new housing. For instance, in Portland, Oregon, the fiscal year beginning July 1, 2024, saw increased costs for labor, materials, and services, further driving up permitting and development fees.
https://www.portland.gov/ppd/news/2024/4/10/portland-permitting-development-fees-2024-25
Problem: Restrictive Land Use Policies
Land use policies significantly influence housing availability and affordability. Oregon’s land use policy, enacted in the 1970s, is a pertinent example. While designed to protect farmland and natural resources, such policies have inadvertently limited the availability of developable land, contributing to higher housing costs. Research indicates that increased regulation is associated with declining housing supply and affordability.
https://www.cato.org/policy-analysis/zoning-land-use-planning-housing-affordability#
Problem: Resource Scarcity
The construction industry faces challenges beyond regulatory hurdles. Dwindling resources, particularly lumber, have led to increased material costs. Factors such as tariffs on imported construction materials, including lumber from Canada, have exacerbated these challenges, further inflating home prices.
https://www.wsj.com/economy/trump-immigration-deportation-policy-construction-impact-b8db1120
In an era of dwindling natural resources, housing itself is becoming a “scarce resource” for many working-class citizens in the U.S., Canada, and Western Europe.
Problem: Shortage of Construction Workers
A critical shortage of skilled construction workers compounds the housing crisis. This issue, exacerbated by the COVID-19 pandemic, is poised to worsen under current immigration policies. The construction industry heavily relies on immigrant labor, and proposed mass deportations could lead to severe labor shortages, driving up costs and hindering housing development.
https://www.theguardian.com/us-news/2024/oct/30/trump-deportation-plan-economic-disaster
Problem: Corporate Landlords
In response to America’s housing shortage, companies like Mill Creek Residential, under their Modera brand, have expanded their portfolios to include upscale apartment communities across various cities. These corporate landlords develop, acquire, and manage residential properties, aiming to meet the growing demand for rental housing.
The rise of corporate landlords has been significant in recent years, particularly following the Great Recession. During this period, institutional investors began purchasing single-family homes in bulk, transforming them into rental properties. This trend has continued, with large firms investing heavily in single-family and multifamily rental markets. Wall Street firms have increasingly invested in single-family rental homes as homeownership becomes less attainable due to high prices and mortgage rates.
Some of these corporate-owned housing developments rely on foreign sources of investment capital to grease the corporate wheels of companies like Mill Creek Residential, which raises the obvious question of what is the Trump Administration going to do about this subcategory of the “immigration problem.”
https://www.wsj.com/real-estate/build-to-rent-single-family-home-investments-d6e57200
Problem: Ever-Increasing HOA Assessments
The increasing prevalence of housing developments governed by Homeowners Associations (HOAs) has introduced additional financial considerations for prospective homeowners. HOA fees, which cover services such as maintenance, amenities, and community management, have been on the rise. In 2024, 40.5% of for-sale listings included an HOA fee, up from 39.2% the previous year, with the median fee increasing from $110 to $125 per month.
While HOAs can enhance community living through shared amenities and maintenance, the associated fees can significantly impact housing affordability. For first-time homebuyers, these additional monthly costs may strain budgets and affect loan approvals, as lenders consider HOA dues when calculating debt-to-income ratios. Unexpected special assessments for major repairs or improvements can further challenge homeowners’ financial stability.
It is often argued that higher HOA fees lead to better-maintained properties, and increased property values but this added expense can also raise the cost of owning a home. This dynamic can exacerbate housing affordability issues, particularly in markets where housing costs are already high. As HOA-governed communities become more common, it’s crucial for potential buyers to thoroughly assess the financial obligations associated with HOA membership to ensure sustainable homeownership.
When evaluating mortgage applications, lenders assess the borrower’s debt-to-income (DTI) ratio to determine their ability to manage monthly payments. This ratio compares the applicant’s total monthly debt obligations to their gross monthly income. A key component of this assessment is the calculation of PITI—Principal, Interest, Taxes, and Insurance—which represents the primary costs included in a mortgage payment. However, lenders also consider additional housing-related expenses, notably Homeowners Association (HOA) fees, when evaluating an applicant’s financial profile.
Problem: Housing and Trump Policy Shift
The convergence of these factors—rising planning and permitting costs, restrictive land use policies, resource scarcity, and a shortage of skilled labor, and the rise of corporate landlords, and ever-present HOA assessments—has created a perfect storm, eroding the foundation of the American dream of homeownership.
Addressing this multifaceted crisis requires comprehensive policy reforms aimed at increasing the housing supply, reducing unnecessary regulatory burdens, ensuring sustainable resource management, and developing a robust workforce to meet the nation’s housing needs.
Bottom Line: The first rung on the so-called “property ladder” is being reset to a level that will make it even harder for many young families, and first-time homebuyers to gain a foothold on the American Dream. Don’t expect the corporate-friendly Trump Administration to address the problem despite the populist rhetoric spewing forth from the bowels of Washington DC these days.
Because You’re Buying More Than a Home!
