How to Solve the US Affordable Housing Crisis

A Conversation With Pete Carroll

Affordability remains a persistent challenge in the U.S. housing market. With increasing concerns over housing costs, particularly post-pandemic, the affordability crisis has grown to affect millions of households across the country.

In This Episode:

Up Next

What Is the Affordable Housing Crisis?

Erika Stanley:

Today marks a very special day for Core Conversations. The episode you’re about to listen to is our 100th episode, and it’s not just episode 100. Our guest today will be CoreLogic’s Senior Vice President of Public Policy, Pete Carroll, who is also our very first guest when we started this podcast. For all of our listeners who have been along for the ride, thank you so much for your loyalty. And don’t forget, we always want to hear from you. If you have questions or have a topic you’re curious to know more about, reach out to us on social media.

Maiclaire Bolton Smith:

Welcome back to Core Conversations, a CoreLogic podcast where we tour the property market to investigate how economics, climate change, governmental policies, and technology affect everyday life. I am your host May Claire Bolton Smith, and I’m just as curious as you are about everything that happens in our industry, whether it’s single family homes or multifamily units. Prices in the US are sky high for both home buyers and renters. The ongoing financial pressures associated with housing costs have been making headlines for years, but costs are only one piece of the puzzle. The availability of units is another. According to the US Department of Housing and Urban Development, since 2017, the minimum number of affordable units needed has surpassed the number of lots acquired. Furthermore, not every state has the same set of housing affordability issues. Nevertheless, there are opportunities available to cure this affordable housing crisis. So to talk about what can be done and how these changes can be implemented, we have CoreLogic Senior Vice President of Public Policy and Industry Relations, Pete Carroll. Pete, welcome back to Core Conversations.

Pete Carroll:

Thanks Maiclaire. It’s a pleasure to be here. I appreciate you having me back.

ES:

Before we get too far into this episode, I wanted to remind our listeners that we want to help you keep pace with the property market. To make it easy, we curate the latest insight and analysis for you on our social media where you can find us using the handle at CoreLogic on Facebook and LinkedIn, or at CoreLogic Inc. On X, formerly known as Twitter and Instagram. But now let’s get back to May, Claire and Pete.

MBS:

Yes. Well, not the first time you’ve been here. In fact, if people have not listened for a long time, you are our very first guest on core conversations when we launched in 2020. So always exciting to have you back.

PC:

I am honored. Thanks for having me back.

MBS:

Okay, so also not the first time. We’ve talked about affordability on this podcast, and it definitely will not be the last, but just to set the stage so everyone knows exactly what we’re talking about. What do we mean when we say affordability?

PC:

So this is a very important point. The definition of affordability very much lies in the eyes of the beholder. In some sense, different households will have very different tolerances for how much they’re willing to spend on housing. So it’s important to kind of caveat with that.

MBS:

Sure, yeah. But

PC:

Policymakers do tend to use a rule of thumb, which is the US Department of Housing and Urban Development, hud. They have a rule of thumb that households spending more than 30% of their gross income on housing are considered cost burdened and thus unaffordable.

MBS:

Okay.

PC:

50% would be considered severely cost burden. So I might use the term cost burden or unaffordable, and those would really be used interchangeably.

MBS:

Interesting.

PC:

At least from a broader policy discussion or market challenge discussion. We’d like to think about that rule of thumb as kind of the break point.

MBS:

Okay. Well, good place to set. To set the stage. And when we talk about affordability or honestly really the lack thereof, the lack of affordability across the us, how big of a problem is it? We’ve been talking about this for years already.

PC:

Yes. I mean, you’re right. I think maybe in the first podcast we were talking about this, right? There’s no question may Claire, this is a chronic issue. It’s blown out of all, it’s become crisis proportion at this point to the point where in the us, pardon me, in the California Senate race, two of the top five issues on the minds of Californians were housing related. And it was even in President Biden’s State of the Union address. It was a prominent element of the State of the Union address, which that’s not common for that to be the case. So it’s severe. And just to kind of dimension it, the Harvard Joint Center for Housing Studies did a study that showed that in 20 22, 40 2 million households were considered cost burdened or unaffordable under that definition that we just

MBS:

Discussed.

PC:

And that’s 1.5 million more than in 2021 and 4.9 million more than in 2019 pre covid. So this problem is getting

MBS:

Increasingly worse. It’s exponentially increasing. Yeah,

PC:

Exactly. And just to put that in perspective, there’s 128 million households in the US in 2022, so that’s almost a third of all households.

MBS:

Wow, that’s crazy. So I guess, is there a certain, I mean, you referred to California as somebody who lives in California. Yes. This is very valid. It’s very true. I guess is there a certain part of the population or regions that we think this is more pronounced? I mean, yeah, what do you think about that?

PC:

No, absolutely. I mean, the story just gets worse and worse as you slice and dice it. When you look at it from an income standpoint, lower the income, I mean, this is somewhat intuitive, right? Lower the income, more unaffordable housing is going to be, just give you a sense of order of magnitudes. 72% of homeowner households earning less than $30,000 per year or cost burdened compared to 8% of families earning over 75,000.

MBS:

Yeah, that’s

PC:

Crazy. So it really does become a very extremely, very low, low moderate income problem. And from a race ethnicity perspective, it’s also disproportionate in the sense that 30% of black homeowner households were cost burdened in 2022 versus 20% of white homeowners. So college is affecting everybody, but disproportionately affecting black, indigenous and people of color. And when you look at renting, it’s even worse for across both eCommerce and ethnicity.

MBS:

Yeah, and we’ve talked about that a lot with Molly Boesel from the office of the Chief Economist too, about how the rental market has just gotten out of control as well too. Pete, how did we get here? I know it’s always being expensive to buy a home, but I mean, it’s the American dream. It’s what people have always had this dream of doing and people have been able to do it for decades and centuries, and now we’re at the stage where even very well employed people, they can’t afford to buy a home because it’s just gotten so out of control. How did we get here?

PC:

This is a vestige of the financial crisis, may Claire, that is just that market and regulatory conditions have conspired to make even worse.

MBS:

Interesting.

PC:

You might recall in the run up to the financial crisis of 2008, it was the opposite, right? We had overbuilt, right? And we were actively knocking down homes to try to bring supply and demand back into balance. And that has created an environment where we have seen the average number of housing starts be well below where there’s supposed to be over the last 10, 12 years growing. And it’s just now here we are, and it’s a tricky situation where we just don’t have anywhere near the amount of housing supply that we need. Again, is we estimate that the UNDERSUPPLY is roughly 4.4 million units and growing every year? Yes, and I’d say about roughly half of that figure, more than half that figure, but roughly half is it’s a challenge for extremely and very low income families, households where the challenge is if we’re talking about people earning less than 50% of area median income, for example, so the income they earn is less than 50% of what would be the median amount in the city they live in. This is a challenge of, it’s a double whammy challenge of it costs more to not only build the housing unit, which is typically going to be multifamily rental. It costs more to build and it costs more to operate than the income that’s available. So it’s an income growth issue as much as a supply issue. And then for low moderate middle income families, and even beyond that, we’re seeing a massive deficit in single family homes. And that’s where, in my view, it’s particularly pernicious where we need, if we’re going to create and restore home ownership opportunity for families, we’ve really got to fill in this single family starter home segment that’s missing.

MBS:

And

PC:

That’s a problem. That’s about 1.6 million in under supply that we’ve really got to try to figure out.

MBS:

Wow. Yeah. It’s so interesting because I mean, it’s not enough to just say, oh, we don’t have enough homes. Let’s build more. But it’s the cost to build those homes in this environment and with skyrocketing inflation, this is what we’re seeing. It’s just everything’s so expensive, but it’s not just building the homes, it’s operating them too. I’m glad you touched on that because it’s not just about getting people into homes, but them actually being able to stay in them is an ongoing issue as well too, because of the cost of everything.

PC:

That’s right. That’s right. And we’ve seen inflation happening across the board recently, which is a whole other discussion, but interest rates going up, property taxes, homeowners insurance, it just makes affordability even more strained.

ES:

Learn more about alternative homes, their advantages and why these structures can be cheaper than traditional homes. Tune into the core conversations episode that aired on May 1st, 2024. It’s called Why Valuing Barn Dominiums in Tiny Homes Need the Cost Approach or check out the link in the show notes.

MBS:

So you alluded to single family homes. I kind of referred to the American Dream earlier as well too. Is that what people are all about still? Is it people looking for that single family homes, starter homes, and even growing family homes and moving up? Is that the biggest point of contention right now?

PC:

It’s certainly where most of the focus remains. The way we build homes today, particularly single family starter homes, continues to be traditional, what we call stick and brick homes, the traditional method of building, you have a foundation, a frame, then you put your roof, exterior, interior appliances, and that’s just the economics of that type of development. Particularly when we talk about what’s affordable for lower, moderate and middle income families. The economics have just become upside down. The cost, the cost of labor equipment and materials has inflated so much that you really can’t build. If you’re a builder, it’s very difficult to build a home where the all in costs won’t, that it remains profitable, likely. Right, exactly. They’re going to exceed the price points that are affordable for the folks you’re trying to build them for.

MBS:

Yeah. Yeah. It’s just so interesting, and a lot of what we think about is from the homeowner’s perspective, and you touched on builders a little bit, investors are a big part of this situation as well too, with people buying homes, and is there a way that we can lessen this financial burden or is it just out of control and it’s never going to get back into control?

PC:

No, there’s lots we can do. Okay. And this is what’s really, at the end of the day, the problem is that you’re talking about the need to marshal the energies of so many different stakeholders where you need to have the right subsidies available from the federal government that aren’t there today.

MBS:

The

PC:

Federal, state, and local governments own land, lots of land that’s locked up that if it were released, it could lower land costs and really provide a lot of relief to the cost to build these homes. I mentioned there’s subsidies that we need to spur financing of the construction of these homes, which we don’t have today. So lots that can be done. It just requires a lot of collaboration and a lot of coordination amongst everybody at the federal, state, local level, and then of course, everybody involved in the home building value chain.

MBS:

Sure, yeah. There are paths to affordability or paths to fixing or solving this affordability crisis

PC:

Without a doubt. Something you touched on earlier to me is really critical, which is we’re we still build these stick and brick homes, but there are alternative options. So I mean, one example is you can buy a home today on Amazon for a tiny home for $20,000 that can be shipped to your house. Crazy. I mean, it is it, but I mean, that’s not the all in cost. You would still have to transport to your house to fix it to the land or rent the land, whatever it would be.

MBS:

Yeah. Set up plumbing and electricity and all those things that are part the operational costs, but

PC:

No, exactly. There is

MBS:

A structure you could live in that is more than a tent that is available to you.

PC:

That’s absolutely right. And what’s most important to me is that I don’t know that we’ve done a great job as an industry of asking the emerging home buying demographics, most notably Gen Z, which is now emerging right behind them. But there’s massive pent up demand from millennials, and I’m sure there’s a lot of understanding still to do about what their preferences and needs look like, but less so this work done with Gen Z and we don’t know what their preferences look like. It may very well be that different families with different income levels might be willing to, they may desire to live in different circumstances that give them either the amenities in a community or the features in a home that they want that they can afford. So there are many tools that are available to provide this, but we have to understand what they want and need first.

MBS:

Sure. Yeah. That kind of the full market need

ES:

It is that time again, grab a cup of coffee or your favorite beverage. We’re going to do the numbers in the housing market. Here’s what you need to know. Two years of high inflation, staggeringly high home prices and high interest rates are driving a growing number of home buyers to take out costly second mortgages. This is especially true for those home buyers who can least afford a home first time in low to moderate income. Home buyers are disproportionately burdened by mortgages. This is particularly the case for homeowners that have taken out piggybacked loans. A piggybacked loan is a separate and secondary loan that home buyers borrow in addition to the first main mortgage on the house. CoreLogic found that between June, 2022 and June, 2024, the share of piggybacked FHA purchase loans rose by more than seven percentage points from 10.8% to 18%. The soaring cost of home buying has also sent more conventional borrowers to take out piggyback loans. The percentage of piggybacked loans for conventional loans rose from 2.2% in June, 2022 to 3.6% in June, 2024. The result of this is that many homeowners have zero equity on their homes or are underwater. This reality poses a risk for many borrowers and lenders as a change in employment or finances could result in non-payment. And that’s the sip. See you next time.

MBS:

It’s interesting because my nieces are in this Gen Z category and looking to purchase homes, and they’re such so young, but they’ve been working for a while and just to hear on what they’re looking for for them compared to what I might’ve been looking for when I was looking to buy my first home too. They definitely have different priorities.

PC:

Yeah, no, there’s no question. And we’re going to have to get creative.

MBS:

Absolutely. I guess, too, you kind of touched on this government land and potentially even zoning here too, and this is a deep subject that we could go far beyond then we will go in this podcast. But can you talk just a little bit about how the zoning of land affects affordability?

PC:

Absolutely. A common trend, which is getting better as time goes on, is that we’ve had this legacy of large swaths of land in cities and towns zoned local regulations and ordinances that say that you can only build single family detached one unit homes, the typical

MBS:

Single

PC:

Family picket fence home, right? And that’s fine except we’re out of land. So when that’s the only style of home that’s, or type of home that’s allowed to be built, it really limits the ability to add more housing stock and what we call the highest and best use of that land and one way to address this is through what a movement called light touch density, where,

MBS:

Okay,

PC:

We get it. This is a planned unit development of single family detached homes. They don’t have big high rises just plopped into the middle of them, but why not allow different types of single family homes that have more units for structure to be allowed in? So example would be a townhome row, still one unit homes, but just you get many units in one structure or single family attached homes, duplexes, triplexes, quadplexes, right? These are still stick and brick homes.

MBS:

Yeah, I was going to say, which I think are becoming more common. I know if I drive around and look at the new construction where I live, and we bought this house a year and a half ago, that was a lot of what was available was this new construction of, I don’t want to call them multifamily, they’re single family homes, but attached in some sort of way, whether it be a townhouse or a duplex triplex.

PC:

In many ways it’s back to the future. I mean, I grew up in Providence, Rhode Island where if you go to the downtown College Hill area, everything is duplexes, and these are beautiful homes. I mean

MBS:

Gorgeous homes,

PC:

I’d be delighted to buy one of ’em. And so it really does come down to just it. It’s not something new. It’s just trying to recognize that we’ve got to rethink some of our communities, and that has to be balanced against real infrastructure concerns, transportation that’s available, and utilities that are available and sewage services are available. But aligning those things is very important, and that kind of gentle density or light touch density can add in more units and from a builder perspective, make the construction a lot more profitable. But if I can sell six units from one structure I build as opposed to one that’s going to yield a profit. So that’s also a way to cross-subsidize in a way. If I have to build some single family, one unit homes that at a loss, I can maybe offset that loss with some of these multi-unit homes.

MBS:

Yeah. It’s interesting. And my brain instantly goes to is to something that may not be, you said back to the future in many ways too, but also something that other countries have done for eons exceptionally well. If I look to the UK and I look to Europe, this idea of the single family white picket home is a very North American concept. A lot of other places around the world, that’s not the norm. The norm is row houses. I look at the uk, and that’s where a lot of the houses are, and they’re very high-end homes in many ways. It’s just how they zoned or developed their properties because it worked best for the environment that they had and the demand that they had.

PC:

Absolutely. I think that’s right. So there’s a mindset shift that has to happen amongst everybody, amongst regulators, amongst local officials, home builders and consumers.

MBS:

Pete, how do building codes fit into all of these things too?

PC:

So building codes are zoning requirements. Say this is what you can build, the types of homes you can build in this geographic area here, the building codes are the specific rules around the land and the structure itself, how high the structure can be, for

MBS:

Example. Right. And many times defined by the local jurisdiction as well.

PC:

Yes. And these will be defined locally, right? So there’s international, so there are international standards for these types of things, but then the states layer on their own rules and local governments layer on their own rules. But at the end of the day, the city or county will generally have the say on what is allowed to be what types of materials and features you’re allowed to put into a home and that’s a real challenge because sometimes you have requirements. There are requirements to use certain materials that can unduly add costs to a project. And sometimes there is not the ability to use materials that would be more durable, energy efficient, resilient to natural disasters, for example, but they’re not permitted by these building codes. Interesting. And that’s a challenge too.

MBS:

Yeah. Yeah. I mean, you’re talking to my heart when you talk about building for natural hazards. I know this is a big, big thing. I look at a lot of places I’ve lived and just communities that I’ve done a lot of work in of having the local jurisdiction, having specific seismic building codes, and what’s required for that. And I mean, frankly, just the cost associated with different building code requirements as well is something that kind of factors into making this even less affordable as well too. But yeah, it’s interesting how the governments determine which materials you should or shouldn’t be using really from a mitigation perspective.

PC:

The good news here is that it’s coming around. I mean, I’ve got this one anecdote. I love to use

MBS:

A

PC:

Builder. I know in Richmond, Virginia, he found a style of vinyl siding that’s a new composite that is actually very attractive. It’s visually appealing, it looks like wood, basically. Incredibly energy efficient, incredibly durable,

MBS:

Interesting,

PC:

And very low cost. And it was just because it wasn’t conform to the letter of the building code, it took months for this builder to get the city to approve it. Once the city approved it, they approved it. And so I think the good news, the cities, they’re feeling the pain here. They want to see this problem solved. They’re doing a lot more to try to attack these permitting more of this light touch density, rethinking the building codes to allow for better style and materials that are lower cost durable, energy efficient.

MBS:

Sure. Wow. Wow. Interesting.

ES:

Before we end this episode, let’s take a break and talk about what’s happening in the world of natural disasters. CoreLogic’s hazard HQ command central reports on natural catastrophes and extreme weather events across the world. A link to their coverage is in the show, August marked, the one year anniversary of the 2023 Maui wildfires. These fires claimed more than a hundred lives burned approximately 6,500 acres of land across Maui and caused more than 5.5 billion in damages. To read more about why these wildfires spread so quickly, go to hazard hq.com. The link is in the show notes.

MBS:

To wrap up today, Pete, if you were to look into your crystal ball and think about what’s one of the first step or steps that we could do to get on this path to cure the affordability challenges that we have in this country, or just other things that we haven’t thought about today? What’s on your list?

PC:

I think there’s a lot the federal government can and should be doing that it’s not. Today. We have virtually no subsidies to address this homeownership housing for sale problem. We have right home ownership problem we have, there’s all sorts of subsidies on the rental side, not as much on the home ownership side, but after World War ii, before World War II and following World War ii, we created Fannie Bay and Freddie Mac, the FHA program. There’s a very long history of the federal government doing big things to create a tremendous amount of housing in this country. I would be authorizing everything under the sun. I’d be providing tax credits to home builders to stimulate more developments. I would be providing what we call gap financing that could be used to backstop and generate construction financing for home builders to actually assemble the capital they need to actually build these homes in the first place. And then other forms of gap financing that would allow a home builder to strategically buy down the home price where it’s just necessary to do that, to be able to market a home at a price point that

MBS:

Is affordable to a family that’s affordable. And

PC:

Then if we could pool that activity, and if there’s organizations that could pool this type of activity, all this construction lending activity, you could then create a secondary market for that lending, creating liquidity for that market, which would be incredibly helpful. So that’s where I would truly be focused, is on the financing side of all this stuff and the role that the federal government could play.

MBS:

Okay. Pete, this has been so interesting, so relevant in today’s world as well, too. I know this is not the last time you and I are going to talk about affordability, so you will definitely be back. But thank you so much for joining me today on Core Conversations at CoreLogic podcast.

PC:

Oh, my pleasure. Thanks. Met Claire. I appreciate it.

MBS:

And thank you for listening. I hope you’ve enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life producer Jessi Devenyns, editor and sound engineer, Romie Aromin, our facts, Erika Stanley, and social media duo, Sarah Buck and Makaila Brooks. Tune in next time for another core conversation.

ES:

You still there? Well, thanks for sticking around. Are you curious to know a little more about our guest today? Pete Carroll is the Senior Vice President of public Policy and industry Relations at CoreLogic. He expands opportunities for the company’s thought leadership insights, brand awareness and solutions expertise within Washington DC and across federal housing agencies and other stakeholders.

The CoreLogic statements and information in this blog post may not be reproduced or used in any form without express written permission. While all the CoreLogic statements and information are believed to be accurate, CoreLogic makes no representation or warranty as to the completeness or accuracy of the statements and information and assumes no responsibility whatsoever for the information and statements or any reliance thereon. CoreLogic® is the registered trademark of CoreLogic Solutions, LLC.