By Kristi Waterworth – Published May 31, 2024

The State of Affordable Housing in the U.S.

It’s no secret that affordable housing is increasingly difficult to come by in the United States for both home buyers and renters. In preparing our joint study with Ashoka, “Demystifying Financial Freedom: 4 Key Principles,” we learned that housing insecurity is much worse than we thought.

In 2022, for a full-time worker to earn enough to rent a modest two-bedroom apartment in America, they’d need to make $25.82 per hour. With the federal minimum wage stagnating at

$7.25, the math simply doesn’t work out – that’s 3.5 times more than the base wage. In the last decade, the median home price rose about 30% versus an 11% increase in average incomes. During the pandemic alone, rental prices increased 18%, still well above those 11% income gains.

To put that a different way, if you’re renting a two-bedroom apartment for $1,000 per month pre-pandemic, you’ll have to pay $1,180, or an extra $2,160 per year. Working 40 hours a week at minimum wage, you’ll gross roughly $1,256 each month. That’s not what you take home but what you earn. Which means that even two adults working full-time will earn only $2,513 per month, 2.12 times the rent – one entire partner’s income is going to housing, and you may not even qualify for that average unit because of the low earnings-to-rent ratio.

Causes of the Affordable Housing Crisis

There are a huge number of problems coming together to create an even worse situation for people who need affordable housing, including rising materials costs and increasing land prices that are driving up the cost of construction, zoning laws that may impede the construction of single homes or more affordable multi-family housing, gentrification that’s driving up the prices of formerly affordable neighborhoods, and, of course, those stagnant wages mentioned above.

We all know that the cost of building anything has gone up, from the price of a fence to a new deck – and this goes just as much for whole housing units. The price of land is a huge contributor to the problem, according to the US Government Accountability Office (GAO), which found that land prices alone rose 60% from 2012 to 2019. These increasing costs are making it harder to build more housing, to the point that construction of new affordable housing has dropped precipitously. This affects both home buyers and renters since landlords must charge more to cover their own expenses.

Zoning laws are another major issue. Although inclusionary zoning was designed to promote more equitable housing options for lower-income residents, the results have been very mixed. This is in part because some inclusionary zoning laws are mandatory, and others are voluntary. It is also influenced by some inclusionary zoning laws that allow builders to pay a fee in lieu of constructing units that will be less profitable for them.

Gentrification is another fairly obvious issue affecting affordable housing. It’s a push-and-pull situation when whole neighborhoods are remodeled and brought up to current building fashion. People who have lived in the neighborhoods for a long time, especially if they’re renters, can no longer afford to live there. Even owners whose homes have gained significant value may feel the sting when their taxes and insurance costs are increased dramatically due to forces outside of their control.

Impact on Low-Income Families

Low-income families feel the burden of the affordable housing crisis much more acutely and much more quickly than the rest of the population because they have so much less margin to work with in their budgets.

According to the GAO, only 25% of extremely low income families who need assistance will get it because of the lack of funding for assistance programs. This is one reason that over 580,000 people in America are homeless at any given time. Without enough housing that they can afford, and without assistance to afford what’s available, how could anyone be expected to maintain stable housing?

When it’s a parent with a child, or even a nuclear family, housing instability due to a lack of affordable housing means the child doesn’t stay with their peers from year to year in school since they may have to change districts frequently to afford to live indoors. Instability is not good for adults, but it can be devastating to children who may never know the security of a bedroom they’ve called their own for years.

Innovative Solutions and Success Stories

There’s a lot to be concerned about when it comes to affordable housing, but there are people out there in the world who are trying to create more stable housing for more people. Take, for example, Kimberly Driggins, who is the executive director of the Washington Housing Conservancy and one of our Motley Fool Foundation Rule Breakers.

Kimberly’s foundation focuses on acquiring rental housing in the Washington, D.C., area. Instead of raising rents and kicking people out, she’s preserving and setting these units aside as designated affordable housing units. Her foundation has acquired more than 1,400 rental units in the area for moderate—and low-income workers, keeping 2,000 residents in stable housing and saving them thousands of dollars in annual rent.

Of course, the Washington Housing Conservancy is just one of many organizations that are working to help improve the affordable housing crisis, but they can do so much more when we work together with them. By donating your time, talent, or treasure, Fools like you can help further social innovation at a time when it’s desperately needed by so many people.  The Motley Fool Foundation’s investments in these organizations help Americans living paycheck to paycheck take their important next to Financial Freedom.