Supply and demand: We often hear that this is the fundamental problem with affordable housing. If we just built more housing to meet demand, prices would go down. But like many simple stories, this one is more fiction than truth.
I was reminded of this recently when I heard from one of our clients at Housing Opportunities Made Equal of Virginia (HOME of VA). She was struggling to find a home she could afford. We work with first-time homebuyers to help them become homeowners, and this client was hoping we could help her solve a seemingly insurmountable problem.
Our client had worked as a nurse at a Richmond-area hospital for 31 years. Her salary made it difficult for her to make ends meet while raising her four children, and she was never able to save for a down payment. When she suddenly had to retire due to a disability, her reduced income made purchasing a home seem out of reach—especially in the current market.
The high cost of housing is no news to anyone today. In Richmond, 52% of tenants spend more than 30% of their income on rent—an amount economists call “cost-burdened”—making rent more expensive relative to income here than in New York or San Francisco. The average selling price of a home in Richmond is Today 60% higher than five years ago. And in the last generation, local property prices have risen almost twice as high as the income.
Even without these statistics, we all see and feel these realities—in conversations with friends and family, in difficult decisions about how to make ends meet while still having access to good jobs and schools. But some of us are feeling the crisis more than others.
In Virginia, black workers like our client earn 32% less than white men – a gap that means they almost 1 million dollars less over the course of their lives. At the same time, the average black family in the United States 15% of assets of the average white family. This has a significant impact on home ownership, because Family assets are the source of the down payment for more than a third of first mortgages. And even when credit scores and debt-to-income ratios are equal, black Americans are twice as likely to be rejected for a mortgage loan than white applicants.
The lack of availability of affordable housing was a major factor straining our client’s – and many others’ – finances. The Partnership for Housing Affordability, a local nonprofit, found that the Richmond region must build 20,000 affordable homes just to meet current demand. When we work with first-time buyers or renters looking to move to more opportunity-rich neighborhoods, the lack of alternatives is an all-too-familiar obstacle. Increasing the housing supply would help many families in need.
But supply alone will not solve a central problem with demand: Too few black and Latino residents of Virginia can afford to own a home or pay a stable rent because the housing market has been unfair for generations. Redlining, a government policy until 1968, excluded communities of color from investment. Today, people live in these areas Despite it have lower incomes, lower life expectancy and poorer access to services. These inequalities exacerbate the effects of income inequality and lack of access to credit. Increasing supply without addressing demand inequality problems will only reinforce racial exclusion.
We have the means to break with the injustice of recent years and create a housing market with more opportunities for all. For example, US Senators Tim Kaine and Mark Warner have jointly introduced a bill that Down payment assistance for first-time home buyersAnd a little-used federal law already empowers banks to Loan programs for special purposes for historically marginalized communities.
Both strategies – down payment assistance and a greatly reduced interest rate through a special program – proved to be a solution for our client, who purchased her new home last month. She told us she was grateful for the chance to “build multigenerational wealth” and appreciated a simpler pleasure that is no less special – “just enjoying a piece of earth that’s mine.”
But that happy ending isn’t yet possible on a large scale. Government down payment assistance, a possible outcome of the November election, would help. And banks could dramatically expand their dedicated lending programs. In the meantime, even as dozens of new homes are built, longstanding barriers to homeownership and affordable renting will remain a reality for far too many of Virginia’s black and Latino citizens.
That’s because housing cannot be distributed from the bottom up. Expanding supply is a one-size-fits-all solution to a problem with many dimensions. When addressing the housing affordability crisis, we need to be targeted, think nuanced, and act deliberately. And we should make equity our top priority.
