Home Ownership Is Out Of Reach

Housing is less affordable today than it was before the 2008 housing crisis. How did we get here? And how can credit unions help?

Walking through my suburban neighborhood just outside of Washington, DC, I stumbled upon an interesting structure new to Montgomery County — and, come to find out, new to many cities throughout the United States — the accessible dwelling unit.

An accessible dwelling unit, ADU for short, is a secondary housing unit located on a single-family residential lot. Limited to just 50% of the size of the primary residence, ADUs are big enough to comfortably accommodate a one-bedroom living arrangement, complete with kitchen, bathroom, and living room. In the nation’s most expensive housing markets, ADUs are making home ownership more affordable.

Owning a home was once considered a quintessential element of the American dream; however, many people cannot afford to make that kind of purchase at today’s prices and interest rates. Indeed, according to the Federal Reserve Bank of Atlanta, housing affordability is the lowest it’s been in more than a decade. How did we get here?

During the past few decades, many metropolitan areas in the United States experienced a population boom. Unfortunately, new construction failed to keep up with demand, leaving residents to fight over a dearth of housing stock. Experts have suggested today’s housing shortages were intentional — or at least foreseeable — as city zoning ordinances that dictate where and what types of buildings can be constructed and restrict construction based on density, design, usage, and historic preservation have limited development, slowing new housing starts and pushing up the prices for existing houses and apartments in the process.

The median home price in the United States was in the ballpark of $425,000 in the first quarter of 2023, according to the Federal Reserve Bank of St. Louis. That’s an increase of more than $100,000 since the first quarter of 2020. And the recent rise in interest rates has made owning a home even less affordable. According to Freddie Mac, the interest rate on a 30-year fixed-rate mortgage was 6.69% as of June 15. With these numbers, a typical homebuyer would shell out north of $2,500 for their monthly mortgage payment.

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The long-held general rule of thumb for budgeting purposes is that a household should spend no more than 30% of its income on housing. Factor in insurance, taxes, and maintenance, and owning a home in the above scenario becomes even more impractical.

The ramifications of today’s housing crunch have far-reaching effects. According to the Office of Disease Prevention and Health Promotion, families that spend more money on housing might not be able to adequately cover necessities like food and health care, which, in turn, is associated with increased mental health problems, stress, and other diseases.

Americans are looking for relief. Many cities have experimented with capping the growth in housing and rental prices or expanding the housing supply. Although many of these municipal government solutions are outside the control of credit unions, the movement can help members navigate the housing market. The market segment most impacted by high housing costs is precisely the segment credit unions were founded to support: those of modest means. Financial planning and counseling coupled with competitive mortgage rates can help members keep up with rising rents or purchase a home of their own.

Credit Union of Atlanta ($82.6M, Atlanta, GA) works with a CUSO that provides down payment assistance as well as collaborates with the Atlanta Land Trust to offer an affordable route to homeownership. The credit union’s real estate portfolio has grown 30% since beginning these programs. In Michigan, Community Financial Credit Union ($1.6B, Plymouth, MI) has launched a Path to Homeownership program that offers a low or no down payment as well as no minimum credit score, two barriers for many on the path to homeownership. And in California, Redwood Credit Union ($7.7B, Santa Rosa, CA) has rolled out financing to encourage the construction of ADUs to benefit those in need of housing as well as homeowners trying to make ends meet.

For the overwhelming majority of Americans, housing is their largest expense. Credit unions that help members chip away at this burden can build loyalty while boosting the bottom line.

As I continued on my walk through my neighborhood, I pondered the future of affordable housing. Will we see ADUs take over neighborhoods and cities across the country? Probably not. It’s difficult to scale one-bedroom units in someone’s backyard. Nevertheless, I do believe they are a low-hanging fruit of our urban and suburban future. Hopefully, they aren’t the only fruit on the tree.

June 26, 2023
CreditUnions.com
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