Short Supply, High Prices Push Away Homeownership Dreams
As the pandemic has progressed, the number of houses for sale on the market has cratered. In the Richmond area, the number of active listings has dropped by over 60% since October of 2018.
That’s made it difficult for many would-be buyers to find homes to purchase, even if they have the financial means to do so. Lauren Ginsberg and her partner have been looking for a home in the Carytown area, where they currently live as renters. When one that met their needs became available, they put in an offer.
“At the advice of our realtor, we offered over asking price… And we still did not get that house,” she said.
Ginsberg counts herself lucky, noting that for many homeownership is unobtainable. Even still, she says the tight market is a real burden.
“It does definitely feel like, to some extent, we’re being denied some of the opportunities our parents had,” she said. “To think back to earlier times when people could just live on one income and be comfortable and raise a family and own a home, that’s just not obtainable for my generation in the same way.”
People like Ginsberg are caught between two factors: Shrinking buying power and wages, and the financial impact of the pandemic, which has highlighted many shortcomings in Richmond’s housing market. According to the Federal Reserve Bank of Richmond, median family income in the Richmond area has dropped by nearly 4% over the past year as thousands of residents lost work or were furloughed, leaving many on the brink of eviction or foreclosure.
Despite this, the median sale price of homes in the area has climbed by more than 11% over the same time span. Mel Jones, the associate director of the Virginia Center for Housing Research at Virginia Tech, says that rise in prices isn’t because of the pandemic, but rather in spite of it.
“I don’t think it’s related to the pandemic very much,” she said. “I think it’s just a continuing rise in prices in the face of the shortage that we have. Prices are going to continue marching up until we build more housing.”
She points to the Great Recession as one origin point for the current housing shortage. Following the collapse of the housing bubble, the construction sector in the United States shrank dramatically, bringing the number of new houses down with it.
At the height of the housing boom in 2005, Virginia saw over 6,000 new units authorized in one month. In 2020, that number was about 2,800 on average, the highest it’s been in any year since the Great Recession ended. Jones says the slow pace of building not only limits supply but also increases prices.
“The market continues to respond to the higher end demand, because it hasn’t been satiated and that’s where the margin is greatest,” she said. “With a more limited number of construction companies and builders, and them focusing on the higher end market, we’re not getting the mass production building that we might need.”
That’s a problem Tarah and Damon Harris run into in their work. They run Teal House Co., a real estate outfit that also runs education programs to help first-time home buyers understand the market.
“The problem is there is no inventory, and the inventory was dipping prior to the pandemic,” Damon said. “This time two years ago, someone could be approved for [$180,000], we could take them to Henrico, Richmond, Petersburg, Colonial Heights, you name it. Now, they’re down to one or two places, and there may be three houses on the market at that price point.”
Tarah says that’s made it difficult for first-time buyers to compete.
“If you have a client who needs help with closing costs, who wants to have a home inspection, those can be the items that are seen as not as strong,” she said.
Jeff Zabel is an economics professor at Tufts University in Massachusetts. He says one thing local governments could pursue to lower home prices is zoning reform.
“The problem is that it’s in everyone’s best interest to see the price of their house rise, because it’s their biggest asset, and the best way to do that is to limit supply” he said. “So there’s been a real push in a lot of the suburbs to restrict supply through increasing minimum lot size or making sure that multifamily housing does not get built.”
Richmond recently proposed a grand vision of zoning changes as a part of its Richmond 300 plan. While the plan calls for a denser, more affordable city, nothing will change without an extensive legislative process that has not yet begun. . Residents in some areas of the city, such as Oregon Hill, are already pushing back, citing potential property value declines and a desire to maintain single-family housing neighborhoods.
Damon Harris worries the city is relying too heavily on zoning changes, however, saying they alone won’t lower housing costs. Zabel agrees, pointing to policies in Massachusetts requiring cities and towns to have at least 10% affordable housing.
“If they go under [10%], it gets rid of some of the red tape, and allows them to build at higher densities, given that a certain percentage, 25%, are for low income,” he said. “That’s something that's been quite popular by developers, because they can make a whole lot of money on that other 75%.”
The Harris’s, Jones and Zabel all agree that fixing the affordability crisis will require a change in how society imagines homeownership. Jones says for things to change, those who aren’t affected by high housing costs will have to take up the issue.
“This is all hitting the ground at the local level,” she said. “Going out to town council meetings, going out to planning commission meetings and saying that you care about low-income people being able to live in your community because that’s your waitress, because that’s your childcare provider, because that is your barista, because that is the person who checks you out and brings your stuff out to your car at Target… Saying that over and over again at a public meeting will do more good than anyone realizes.
“Local government officials are under so much pressure to try to keep people happy, and they never ever hear from the people who have to work three jobs in order to afford their housing, because they’re working three jobs.”
Damon Harris says people can’t just be advocates, however, and encourages people to think about what’s good for society when they purchase homes.
“Whenever people do real estate transactions, you can’t solely think about your bottom line and you,” Damon said. “Real estate means everyone. It means people you don't know, people who aren’t here yet. The reason why we have to be so intentional now is because they were so intentional 40 years ago, and we have to call it out.”