Housing Affordability and Economic Growth

Abstract

The U.S. has a chronic shortage of reasonably-priced housing. Decades of policy and program intervention at federal, state, and local levels has not substantively alleviated this problem. Consequently, alarmingly high proportions of the population spend over 30% of their income on housing costs and are deemed housing cost-burdened. Housing cost-burdened households have a much lower quality of life than those that are not. Thus, the housing affordability problem is a serious social concern. Is this problem also holding back the U.S. economy? I explore whether the lack of reasonably-priced housing adversely impacted per capita gross domestic product (GDP) growth in the 100 most populous metro areas of the country. I use publicly available data for three time points (2000, 2010, and 2015) and changes in the proportion of cost-burdened households in metros as the experimental variable. I find that decreases in housing affordability had a statistically significant negative effect on economic growth in these metros. Over 80% of the national GDP is generated in U.S. metros, and increasing housing affordability there may help grow the U.S. economy. Therefore, policies to increase housing affordability, long seen as a social imperative, may well be an economic imperative also.

Keywords:

• Housing affordability
• economic growth
• U.S. metro areas
• cost-burdened households
• housing policy reform

Acknowledgments

I am indebted to Brian Dunkelberger, graduate assistant in the School of Planning & Public Affairs, University of Iowa, for help in procuring and synthesizing data for the study reported in this paper. I am very grateful to three anonymous reviewers and the editors of this journal for several insightful comments and suggestions.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

1 In 2020, Facebook announced it would set employee wages based on location (Murphy, 2020).

2 In 2019, 86.5% of the U.S. population (barring Puerto Rico) lived in the 384 MSAs in the country.

3 In 2018, the 384 MSAs accounted for $16.5 trillion of the $20.89 trillion national GDP—about 79%.

4 The boundaries of a few MSAs changed between 2000 and 2015. In such cases, information from the counties constituting the MSAs was aggregated to form MSA-level data.

5 All dollar amounts were adjusted to 2010 dollars.

6 The 30% standard for households at all income levels suggests that the income elasticity of housing consumption is 1. This is clearly not true. Some authors deem it arbitrary as well. Several researchers have suggested various other methods to measure housing affordability. Yet none of those measures are available for all metros at any point in time, let alone at different time points. So in spite of its numerous shortcomings, the 30% standard continues to be commonly used to measure housing affordability.

7 There is one publicly available source of information about the regulatory environments of cities: The Wharton Residential Land Use Regulatory Index, which provides information at two points, 2006 and 2018. But this information is for only 44 metros, thereby missing data for the majority of MSAs used in this study.

Additional information

Notes on contributors

Jerry Anthony

Jerry Anthony, PhD, FAICP, is an associate professor at the School of Urban & Regional Planning at the University of Iowa. He has an undergraduate degree in Architecture, a graduate degree in Town Planning and a PhD in Urban & Regional Planning. He researches U.S. housing policy issues, U.S. land policy issues and international planning issues, particularly in South Asia. He is a co-founder of the Housing Trust Fund of Johnson County (http://www.htfjc.org/). He has developed several interactive online maps on housing issues; for example, a map depicting housing cost-burdens in U.S. counties in 1990, 2000 and 2010 can be found at http://ppc.uiowa.edu/housing/affordability; and a map depicting foreclosure trends in the U.S. state of Iowa can be found at http://ppc.uiowa.edu/housing/foreclosure. His research has been supported by many organizations and agencies such as the Lincoln Institute of Land Policy, the U.S. Department of Housing & Urban Development, The Brookings Institution and the Office of the Attorney General of the State of Iowa in the United States.