Real Estate CEO Warns: COVID Measures Made U.S. Housing Unaffordable for a Generation
The recent economic policies initiated during the COVID-19 pandemic have significantly impacted housing affordability in the United States, according to Sean Dobson, CEO of the Amherst Group. He believes these measures have made homeownership unattainable for many Americans, creating challenges that may last generations. Dobson shared his insights at the ResiDay conference, emphasizing the long-lasting effects of loose lending practices and aggressive fiscal policies implemented during the pandemic.
Impact of COVID-19 Measures on Housing Affordability
Dobson highlighted that U.S. housing has reached an alarming level of unaffordability. He stated that it could take 10 to 15 years of consistent income growth for the market to recover to pre-2006 standards. The current economic landscape is shaped by several factors:
- Pandemic-era monetary policies deemed “reckless.”
- Soaring asset prices.
- Stagnant wage growth.
According to Dobson, the affordability of housing has never been worse, even more dire than during the housing market peak of 2006.
Challenges in the Housing Market
The CEO warned that the system is currently presenting significant barriers to homeownership. Notably:
- Rental options must become part of the solution.
- Homeownership difficulties arise from inadequate housing stock across all price points.
A recent estimate from Amherst indicated that the monthly payments on an FHA-insured mortgage consume approximately 42.9% of median income, a rise from 41.5% in 2006 and far above the historical norm of 25-35%.
The Price of Economic Policies
The economic response to COVID-19 involved trillions in government spending and ultra-low interest rates, intended to prevent recession and mass unemployment. However, these “easy money” policies have driven home prices and rents to unprecedented heights. Dobson noted, “There is a tax on the U.S. economy,” pointing to the inflationary impacts of these policies.
Current analytics suggest that for affordability to revert to 2019 levels, either home prices must decrease by 35.3%, interest rates must drop by 4.6%, or incomes need to rise by about 55%. Dobson remarked that achieving any of these adjustments independently is impractical, suggesting that moderate changes will be gradual over the years.
Credit Constraints and Market Exclusion
Credit restrictions post-financial crisis have also impacted potential buyers, particularly those with lower credit scores. Dobson explained that stricter mortgage lending standards have effectively marginalized many first-time buyers. The impact of Dodd-Frank regulations has systematically excluded a significant portion of the market, leaving many Americans unable to become homeowners despite their aspirations.
Role of Institutional Landlords
Dobson addressed misconceptions about institutional landlords like Amherst, asserting they fill gaps in the housing market. He noted that these landlords provide options for residents with modest incomes who may struggle with traditional mortgage financing. His data indicated that many residents have modest credit scores, making conventional homeownership elusive.
He defended the growing presence of institutional owners, stating, “The nation is not going to finance our customers to live in the home.” This structure provides stability and addresses housing gaps left by traditional lenders.
Future Outlook and Possible Solutions
Looking ahead, Dobson remains skeptical about fast fixes from policymakers. He advocates for expanded credit access, which could include innovative financing methods or gradual adjustments to lending standards. He concluded by reflecting on the broader implications for the economy and individual livelihoods.
Average annual income for new residents at Amherst is about $108,000, yet many still grapple with housing costs. The current situation requires serious attention to ensure future generations can navigate homeownership successfully.
