Home builders such as LGI Homes understand that the cost of renting a property is simply too high for the average American. We can offer you a number of damning statistics to prove the point:
- First-time homebuyers make up just 32 percent of homeowners, the lowest rate since 1987.
- 42 percent of Millennials live with their parents in Los Angeles.
- There are only 29 affordable rental units for every 100 low-income families in the United States.
And on it goes. The bottom line is: The cost of renting a property is too high, and few people can afford to take out a mortgage. Believe it or not, the cost of renting a home is higher in some cities than it was during the peak of the last housing bubble.
Why Is Rent So Expensive?
There is a multitude of reasons why the cost of renting a home or apartment has escalated, but the simplest explanation is a lack of housing. In simple terms, if there is a rise in demand for housing in any area and stagnation in the number of homes built, the inevitable result is a price rise both regarding renting and buying.
In the period between 2005 and 2015, approximately nine million Americans became renters. This is nearly double the rate of growth in the 1970s. Perhaps the real issue is that the United States is losing 125,000 affordable rental units each year. The result is a scarcity of affordable housing; an issue made worse by the fact that wages are not rising anywhere near as fast as the cost of renting or purchasing property.
The location of new properties is another issue. In an ideal world, housing developers could build housing in the ‘right’ areas in terms of need. Ultimately, the cost of these units would fall until there is demand for new housing. However, homebuilders know that they operate in one of the world’s most micromanaged and regulated industries. City planners use land-use and zoning laws (among other things) to dictate the location of new properties. They even decide on the ‘type’ of property. Add in the fact that low-cost housing is often destroyed to make way for new shopping malls, and you have the perfect storm of high demand and low supply.
The Solution Is… Build More Homes!
The reality is; we need more housing, regardless of the ‘type.’ There are single-family homes, high-rises, duplexes and townhouses among other things. Guess what? We need all of them! Of course, ‘affordability’ is on the top of the agenda and while most mayors in cities across America understand the need for affordable housing, the truth is, they receive little help from the federal government.
The Furman Center in New York analyzed the cost of renting property in 11 of America’s largest metro areas and found that in nine of the markets, the average renter could afford fewer than 40 percent of the available properties.
Developers Need Help
There is an enormous gap between the cost of development and maintenance and what people can afford to pay. The development process is extremely expensive, and these organizations need loans and other sources of finance to fund the construction process before making their money back when tenants move in or purchase the property. The aforementioned gap makes it extremely difficult for developers even to contemplate an affordable housing project.
In extremely low-income areas, the problem is even worse. If the developers could somehow build for free, the cost of maintaining the building would still be too high to offer affordable rent. Clearly, developers need more aid from the government and lenders must also show more flexibility.
Overall, there is simply not enough housing available in the United States, affordable or otherwise. Every time a developer builds a new unit, the housing supply increases and the price of property should fall. This is the case even if they build ‘luxury’ housing. Over time, the effect of units built at varying price levels will cause further decreases in the cost of property. If a developer builds more luxury units, wealthier individuals will move into higher standard houses and demand for older units will technically fall; the result is lower prices.
What about First-Time Homebuyers?
American’s top homebuilders continue to create new units with affordability in mind. However, if you are still struggling to find a mortgage, you can afford, take a look at the variety of assistance programs available to see if you are eligible. Here are a few options:
The Federal Housing Administration (FHA) insures the mortgage and operates with the Department of Housing and Urban Development (HUD). An FHA loan comes with a competitive interest rate, and you can apply with a credit score as low as 580. Best of all, you only need to pay 3.5 percent of the purchase price as a down payment.
The Department of Veterans Affairs insures this loan, and it helps veterans, existing service members and surviving spouses of veterans to purchase a home. Again, it offers a low-interest rate, and you don’t need to pay any money down.
The Department of Agriculture has a homebuyer assistance program and focuses on properties in rural areas. You have fixed loan payments, there might be no down payment, and you can apply with a credit score of 620+.
Good Neighbor Next Door
The HUD sponsors this program and focuses on providing assistance for teachers (up to 12th grade), firefighters, police officers and EMTs. In specific ‘revitalization areas,’ you could receive a 50 percent discount on a property. There are not many properties available, and you have to commit to living in the home for at least three years.
Energy Efficient Mortgage (EEM)
You receive a loan to make energy efficient upgrades to your property. Eligible improvements include a modernized heating and cooling system and double-paned windows.
Fannie Mae & Freddie Mac
These government sponsored programs work with lenders to offer you a low-cost mortgage. Not only could you receive a competitive interest rate, but it is also possible to purchase property with a down payment as low as three percent.
Many experts believe the issue boils down to a disparity between income and the rise in the cost of housing. Certainly, the increase in renting and mortgage repayments makes it difficult for the average American family to fulfill their dream of owning a home. While renting is the only alternative to buying, it is extremely expensive to the point where families are better off looking for a smaller home, putting some equity in and upgrading in the future.
We are reliant on homebuilders to continue creating affordable housing, and at New Homes Section, we will continue to bring you details of the best new communities in the United States.