The global housing crisis across the high-income world, particularly in the Anglosphere, represents perhaps the single biggest challenge to the future of the middle class. From the United Kingdom to Australia, an entire generation is facing a future that will preclude even those with decent incomes from ever owning a house or acquiring assets.
At the heart of the problem lies ever-growing land prices. According to the Organization for Economic Co-operation and Development (OECD), housing prices have risen “three times faster than household median income over the last two decades.” OECD concludes, “housing has been the main driver of rising middle-class expenditure.” Rising rents are a smaller, but still significant, part of the problem because of their strong relationship to housing prices.
Despite the recent drop in home prices, home affordability in the U.S. is at the lowest level in at least three decades. Similar trends have driven homeownership down in the United Kingdom, Australia, and Canada as well.
The young are most affected. According to Census Bureau data, the rate of homeownership among young adults ages 25 to 34 was 45.4 percent for Generation X, but dropped to 37 percent for millennials, the generation now entering the prime family-formation years. In Australia, 50 percent of those born in the fifties and early sixties bought their first home by the age of 30, while for younger Australians born in the nineties, this number has fallen to 36 percent—despite the availability of several government-backed schemes to encourage first-time homeowners, programs which did not exist for boomers. Much the same pattern exists in the United Kingdom and Canada.
The future increasingly offered to young people is not buying a home or row house that would be good for families, but remaining renters for life. In some places homeownership is rapidly becoming an impossible dream. In California, which has among the lowest homeownership rates in the country, according to one recent study the median family in San Jose or San Francisco would need 125 years (150 in Los Angeles) to save enough for a down payment. What used to be the normal American benchmark of homeownership is almost gone for increasing numbers of people, particularly for the young and blue-collar workers. According to a recent study by economist John Husing, not one unionized construction worker can afford a median-priced home in any coastal California county.
The Fruit of Failed Policies
The good news is that these problems were largely caused by policies which can be reversed. There is no land shortage in the U.S, or in England, Australia, or Canada. Urbanized land in the United States is less than three percent of the total, which is about the same in Canada, according to government statistics, even when you exclude the tundra belt. Australia is even more empty. The U.K., by far the most crowded, is only ten percent urban.
Many countries, as well as local jurisdictions, particularly in the English-speaking world, generally undermine housing affordability. These widely-imposed, detrimental policies include “urban growth boundaries” and greenbelts that restrict new housing on the fringe. According to research by demographer Wendell Cox, virtually all the most expensive places in the English-speaking world follow such an approach. In addition, high fees, the imposition of “prevailing wage” rules that set union wages as the floor on development, and forced solarization and electrification of virtually everything contribute to higher prices. According to the Housing Industry Association, by 2022 these taxes and regulatory costs accounted for 50 percent of the price of a new dwelling in Sydney.
Read the rest of this piece at American Mind.
Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.