requires a six-figure income.
The pandemic economic crisis had a profound impact on the country’s housing market. It increased demand for space and drove up home prices.
A repor The May report on the state housing in the U.S. estimates that the annual income required to buy a home in the Twin Cities is almost $104,000. This is nearly $21,000 more than what the average Twin Cities household earns.
This report by Harvard Joint Center for Housing Studies, (JCHS), values the median Twin Cities home as $377,672, an increase of 12 percent over last year.
This report also showed that Minnesota renter households have been spending an alarmingly large portion of their incomes on rent since 2019.
“It is truly a remarkable moment in housing,” stated Daniel McCue, senior researcher associate at JCHS, during an Event that unveiled the reportspan styling=”font-weight 400 ;”>. “From the skyrocketing cost of housing to the record low supply, the surge in demand and the construction response — dragged lower by supply chain delays”>event unveiling the report/span>/a>.
The cost of home ownership in Minnesota and the United States is rising
The high demand for housing and low borrowing rates have caused steep rises in home prices nationally and in Minnesota in recent years.
Between April 2021 to April 2022, the JCHS estimated that the annual income required to afford the median American home rose by $28,000, from $79,600 and $107,600. This increase pushed an estimated 4,000,000 U.S. renter households off the housing market within a year.
Many renters will find the math more difficult than ever, with interest rates increasing by about a percent to an average of 5.7% in June , according to Federal Reserve Bank of St. Louis.
Minnesota’s average household cannot afford a home. This is not only the Twin Cities. In every other Minnesota metropolitan area, the income required to buy a home is higher than the median household’s.
Incomes have declined relative to the cost to buy a home in many cities across the state. In 2021, they will be unaffordable relative to median incomes that were not seen since the Great Recession.
The report also found that median household incomes in many Greater Minnesota areas are significantly higher than the home prices of
People who own homes have seen an increase in their home value. According to the JCHS, this has resulted in an equity boom. There was an average national increase in home equity of $55,300 over the past year. However, rising costs have made homeownership more expensive for many who are now looking to purchase homes.
This means that there is a greater wealth gap between renters and homeowners, and it also reinforces other systemic inequalities. The home ownership gap in Minnesota is one of the largest in the country with homeownership rates for black Minnesotans at three times the rate.
Apartments are not affordable for many
Not only is it becoming more difficult to buy a home, but renters who earn less than half of the income of homeowners in Minnesota are also finding it increasingly difficult to afford a place for themselves.
The Twin Cities metro saw a rapid rise in rents after the Great Recession. However, increases in rents for one- and two-bedroom apartments have seen a slowdown, according to Dan Hylton, the research director of HousingLink . This market monitors the local rental market.
HousingLink data shows that Minneapolis rents peaked between 2017-18 and 2019, while those in the rest of the metro peaked between 2019-20, Hylton stated.
Hylton stated that although many factors are constantly influencing the market, a large part of the reason why rents rose so quickly in the first part of 2010s was because of apartment development being halted up during the Great Recession.
Developers have been racing to catch up in the years that followed, and this inventory seems to have caught up to the rising prices. However, just because rents are declining doesn’t mean that renting an apartment is more affordable. HousingLink discovered that 0 percent of Minneapolis’ vacant rentals were affordable for households earning 30 percent of the area median household income. In April, $72,200 was for an individual, and $117,300 was for a family with four span>.
Renters’ incomes have not kept up with rent increases over time. The Minnesota Housing Partnership (MHP) reports that gross rents rose by 14 percent between 2000-2019, while median renter incomes rose by 1 percent.
Although the JCHS report showed that pandemic-era measures were used to keep people in their homes, such as emergency rent assistance and eviction moratoriums to help some households catch up with housing costs, housing affordability continues to be a problem.
In Minnesota, the share of renters that are “cost-burdened” (meaning they spend more then 30 percent of their income) has increased from 40% to 43.2 percent since 2019, The JCHS also found that the number of renters who are extremely cost-burdened, which is a renter who spends more than 50% of their household income, rose from 19.6 to 20.8 percent.
There are huge disparities in Minnesota when it comes to cost-burdening, with Black, Hispanic, and Indigenous households more likely to pay high rents.
More housing required
The report revealed some good news despite the poor outlook for affordability. Although housing production has been slowing since the Great Recession it has increased in recent years. However, rising costs of labor and materials have made affordable housing difficult to build.
According to Anne Mavity (executive director of Minnesota Housing Partnership), the mismatch in supply and demand in Minnesota is putting pressure upon housing in Minnesota at all income levels, but particularly for those with the lowest income, she said. Mavity stated that Minnesota is experiencing an increase in evictions, and an urgent need for rental assistance.
Although new housing is being built, it isn’t growing at a fast enough pace to address long-term supply/demand issues. It’s not being built at an adequate pace to solve affordability problems for Minnesotans with lower incomes.
The Minnesota Housing Partnership’s analysis shows that Minnesota must build 10,000 more units each year to compensate for the Great Recession.
Mavity stated that we have consistently underproduced year after year. “We have this built up pressure and gap span in the actual number of units actually available span>