We Must Keep Our Biggest Edge: Housing Affordability

If there’s one location advantage for the heartland that’s become clear during the last several years, it’s the edge we enjoy over the coasts in housing affordability. Time and again, people who locate in or come back to Flyover Country cite the fact they can afford to live in a decent home – and they can’t do that on the seaboards, especially in big metro areas.

Problem is, the current acceleration in home prices in most of our region could be whittling away at our competitive advantage in housing affordability, the most important component of the overall reasonable cost of living that has been attracting so many folks to our locales.

And if we lose a significant piece of that advantage, fewer people will be interested in looking at all the other quality-of-life aspects of living out here. Such a development could blunt the economic momentum we’ve achieved recently.

“What’s kind of new on the horizon is that cities around Flyover Country that thought of this as a San Francisco problem or New York problem are seeing it’s their own problem too,” Cullum Clark, director of the George W. Bush Institute-SMU Economic Growth Initiative, in Dallas, tells me. “It’s a huge issue.”

In the wake of a wave of New Yorkers decamping to Florida amid the pandemic, says Richard Florida, “Go try and find a house in Miami now.” The founder of the Creative Class Group and author of books including The New Urban Crisis says, “Where can you buy an affordable house? Austin is out now, too. The coastal hubs also are unaffordable. Pittsburgh, Cleveland and Detroit [areas] all have beautiful homes, though, with nice neighborhoods and school districts. Where can normal, average, middle-class people live?”


‘Pa’ Bailey Was Right


It may seem obvious, but we need to remind ourselves of the primeval and continuing importance for Americans of being able to afford where they want to live. As savings-and-loan-chief “Pa” Bailey put it in It’s a Wonderful Life, advising his intrepid son George, “It’s deep in the race for a man to want his own roof and walls and fireplace.”

“Affordability” was the No. 1 answer given by people surveyed by Prudential Financial when asked why they chose to live where they did, topping “job prospects” and “school quality,” Clark has noted. The lack of affordable housing in thriving cities is the main reason geographic mobility among lower-educated Americans receded in the United States before the pandemic, economists Peter Banong and Daniel Shoag have pointed out.

For decades now, coastal denizens have been complaining about the stratospheric costs of housing. Increasing emigration from California is one proof that unaffordable housing finally is pushing the middle class out of locales that haven’t been able to get their arms around this problem. Many of these folks are heading inland where, data and perceptions tell them, they might actually be able to afford to put one of Pa Bailey’s roofs over their heads.

Many factors determine housing affordability, including density of population, income and education characteristics, the urban-suburban balance, the quality of public amenities, taxation and land-use policies. For the most part, cities and towns across Flyover Country have managed to strike a better balance among all of those factors than many places in the Northeast and on the Pacific Coast.

It’s clear this relative affordability of housing helped create the sheen on many heartland cities that have become economic stars lately, including Nashville and Austin, where attractive home prices and rents have effectively supplemented other appealing elements such as tech employment, warm weather and quality-of-life amenities.


Barbie’s Warning


But unfortunately, the edge for these cities in housing affordability is “shrinking,” Clark writes in his most recent report, “The New Geographic Opportunity: Case Studies from a Changing Economic Landscape.” That situation largely “stems from weak [housing] supply growth and an increasingly difficult housing policy environment,” he writes, “together with growing internal resistance to the development-friendly model of many suburban cities” in the heartland. Home prices in Texas’s capital have been skyrocketing at legendary rates over the last couple of years, thanks largely to a huge influx of tech emigres from California.

Slide north to the Midwest, which “could become the next migration attractor” within America, writes Wendell Cox, principal of Demographia, a public-policy firm in St. Louis. The region’s “principal advantage relative to the rest of the nation is a lower cost of living (driven by superior housing affordability) and in many areas, regulatory environments that don’t threaten this advantage.” Even the perceived disadvantages of Midwestern climates, Cox adds, are “for many people readily canceled out by the other advantages of the Midwest, principally financial.”

But if the Midwest “should lose its financial advantage” through restrictive land-use policies in certain cities, for instance, “any domestic migration will be far more tenuous than it was to the previous and current [migration] attractors” such as California and the Northwest, Cox says.

Yet now, for a different reason, we see the threat of slipping affordability becoming evident across Flyover Country, in the very recent explosion in home values and rental rates amid the pandemic. Thousands of anecdotes and millions of data points tell how housing prices have ballooned as first-time and repeat home buyers take advantage of personal-income streams that have held up amid covid, coupled with historically low mortgage rates that only now are beginning to edge up.

“America is living with the consequences of a giant systematic policy failure, and that is the failure to allow new housing development to keep up with population growth in places all over the country,” Clark told me.

Today’s typical home-sales scenario has become such a part of the zeitgeist that one of the most popular TV advertisements during Super Bowl LVI was “Dream Barbie.” The Rocket Mortgage commercial told the cartoonized story of the sale of Barbie’s house featuring characters including “Better Offer Betty,” “Cash Offer Carl” and “House Flipper Skipper.”


Middle-Class Squeeze


On the positive side, the sudden leap in equity in houses they may have occupied for decades has gobsmacked many American homeowners in nearly every province and hamlet, leading to more early retirements and more unplanned post-covid vacation trips.

But on the negative side, this new reality has been especially painful for the middle class, significantly undercutting their buying power and robbing many such households of one of the most traditional American routes to build wealth.

Households earning between $75,000 and $100,000 could afford to buy just 51% of the active housing inventory in December, according to a study by the National Association of Realtors, down from 58% in December 2018. That 7-perentage-point drop trailed in severity only the 8-percentage-point drop for households earning between $100,000 and $125,000.

The fine print in the NAR report should be relatively encouraging for us in Flyover Country. For example, it showed that metro areas such as Des Moines and McAllen, Texas, led the nation in having the most homes for sale per household with income of $75,000 to $100,000, while predictably pricey markets including Seattle and San Jose, California, were on the other end of the scale, with practically nothing available for households in that income bracket.

But other new data shows some troubling signs for housing affordability in the heartland. Metro Atlanta — geographically on the fringes of Flyover Country but psychographically more central to it — saw the highest inflation last year among metropolitan areas with more than 2.5 million people, a 9.8% rate, according to the U.S. Labor Department. Housing costs account for almost a third of the consumer-price index and were the largest single driver of inflation in the Atlanta area.

Other Flyover destinations with inflation higher than the 7% national rate for December included St. Louis and Tampa. Meanwhile, inflation for December came in below the U.S. average in major coastal redoubts including San Francisco, New York City, Boston and Washington, D.C.


What To Do


Demographers and economists are watching this data closely. Several years ago, Clark predicted that rising housing prices in the hot cities in Texas would cut into their advantage over coastal metro areas. “But that turned out not to be entirely true,” he recalls. “Coastal cities also saw big increases since then. So the percentage gap has remained the same over the last five or six years.”

In fact, even amid covid and the housing-price boom of the last couple of years, Clark says, “The advantage in some places in the Midwest and Plains has actually grown. It’s a complex picture.”

Demographer Joel Kotkin has one suggestion for how we can avoid falling into the same trap as his home state of California. “You need to allow for development of exactly what people want – affordable town homes, spacious apartments and, most of all, single-family homes,” says the fellow in urban studies at Chapman University in Orange, California. “You have to build enough of them to keep prices in check. One reason we have such problems in California with housing prices is that it’s almost impossible to build single-family homes here unless they’re luxury homes.”

Indeed, in Flyover Country, we can’t count on the coasts continuing to stumble in order for us to be able to leverage one of the biggest advantages we have in attracting and retaining population. We should take a purposeful approach to hanging on to the huge edge we’ve still got in housing affordability.