Can We Build our Way out of the Housing Crisis? The Issue of Missing Middle Housing

Introduction - Part 1 of 4

If you’ve lived in the Denver Metro the past couple of years, you’ve probably heard the joke “What’s Denver’s official bird? It’s a crane.” But despite the perception of increased construction, and the (very real) increase in population, Denver hasn’t actually built very many new houses. 

The recent Denver Post article, “Denver Doesn’t Want to Know How Much Housing it Needs - and its a Lot,” by Andy Bosselman shows that:

“Between 2010 and 2017,  over 100,000 people moved to Denver, while only 35,000 permits for new housing construction were pulled during the same period.” Additional research conducted by Economic and Planning Systems (EPS) shows that from the period 2011 - 2019 job growth necessitated adding 25,000 new households a year, but the average was only 18,292 houses per year - an average annual deficit of 6,920 households - for a total shortage of 62,280 new houses.

And this shortage isn’t unique to Denver. According to the Urban Institute’s Housing Supply Chartbook, national housing supply relative to new household formation (demand) is short by 350,000 housing units.

Even on the back of a napkin, we can see that more people + fewer houses = higher home prices. 

According to Urban Cottages: “The median income in Denver is around 20% higher than the US median, while the median home value is approximately 90% higher than the US median. Affordability for prospective buyers in Denver is not simply an issue, but an emerging crisis.” (Census, Zillow, Case-Schiller)

When home prices increase AND there are not enough houses on the market, many first-time home buyers begin looking at historically lower-income neighborhoods. These buyers often have better paying jobs and/or higher educations leading to greater purchasing power, thereby resulting in the eventual displacement of the residents of those communities.

And for households who want to buy but can’t afford to, many are faced with the option of sharing a house with another family or moving out of the region entirely.

The result is the gentrification of lower-income neighborhoods and communities of color — neighborhoods that were often created as a result of discriminatory housing policies. Denver was recently ranked by the National Community Reinvestment Coalition for being the second worst city in the U.S. for gentrification.

The average median household income in the Denver Metro service area for a family of four is $93,000. But according to the Economic Policy Institute, a family of four would need to earn $98,187 annually in order to pay no more than 30% of their take-home pay on housing. The Bell Policy Center cites Denver as the 7th worst metro area in terms of affordability of a median home compared to median household income.

According to the Denver Metro Association of Realtors, the median home price in the Denver MSA in August 2020 is $460,000. At the Denver Metro current AMI of $93,000, monthly housing costs need to be $2,325 or less to be considered affordable (less than 30% of expenses). Assuming a 10% downpayment and a 4% interest rate, a homeowner could afford no more than a $376,000 house in order to keep monthly payments below $2,325. This is an $85,000 gap between what is affordable and what the median home price is currently. In order to afford the median home price of $460,000 and keep housing costs to no more than 30% of income, a household would need to earn $110,000 annually - a whopping 17% higher than the current AMI.

If we want to live in a city where you don’t have to make $110,000 a year to achieve home ownership, we need to build more houses and we need to build a wider-spectrum of houses.

So why aren’t more houses being built? And how many houses do we need? How do we also increase economic opportunity to raise incomes for working and middle-class families?

The Uplands Community Collective aims to dig into these questions over the next couple of weeks. We’ll look at several factors that contribute to current shortage of affordable and attainable housing, including what types of housing are being constructed, the cost of construction, public policy and community planning decisions, and macro-and micro-economics impacting household income and purchasing power.

In the mean time, if you have thoughts or questions about housing affordability or the overall housing shortage, drop us a line.