Rising prices, rents are ‘exacerbating the gap between rich and poor’
The dynamics of the housing market are contributing to widening disparities of income and wealth while in turn increasing the financial pressures on renter households and limiting prospects of home ownership for low and middle income households.
Thomas Byrne of Boston University studies homelessness. Last year, he co-authored with two colleagues an article, “A Rising Tide Drowns Unstable Boats: How Income Inequality Creates Homelessness,” which appeared in the Annals of the American Academy of Political and Social Science. By exploring the role of income inequality in housing markets, Byrne highlights a dimension of the deepening housing crisis in New Hampshire, which has been overshadowed by the imbalance between demand and supply in the market.
For Byrne, the supply of housing is just the starting point. As the economy recovered from the Great Recession, demand for housing and the price of housing increased. But the supply of housing did not expand in response to growing demand and rising prices.
In New Hampshire, the number of housing permits plummeted from some 9,000 in 2005 to little more than 2,000 in 2010 before nearly doubling to 4,000 by 2020, leaving an estimated shortage of between 20,000 and 30,000 units. Moreover, according to the NH Association of Realtors, there were 14,500 homes listed for sale in 2010, but since 2017 the number has fallen year after year and now stands at only 1,385. During the same period, the vacancy rate in the rental sector has fallen from 4 percent to 0.06 percent, well below the 3 to 5 percent indicating a balanced market.
With the onset of the pandemic, between March 2019 and March 2022, median sales price of singlefamily homes spiked 54 percent, from $285,900 to $440,000, and the median sales price of condominiums rose 63 percent, from $214,900 to $350,000.
The housing affordability index, calculated by the National Realtors Association, measures whether a median household earns enough to qualify for a 30-year fixed-rate mortgage to purchase a medianpriced single-family home. An index of 100 or more indicates sufficient income to qualify. Since 2005, when the index was introduced, it has seldom dipped below 150, and in 2013 neared 300.
In March, New Hampshire’s index fell to an all-time low of 80.
Rising home prices have been paralleled by increasing rents. The median gross rent (including utilities) of a two-bedroom unit has risen 42 percent over the last decade and 24 percent in the last five years to $1,498.
Byrne explains that if income growth is equally distributed across the income distribution, the burden of higher prices and rents falls proportionately as the incomes of households at the lower end of distribution increase in proportion to those at the upper end.
Low- and middle-income households may find themselves financially stressed, but because of the rise in prices and rents, not the differential rate of income growth.
On the other hand, if income growth is skewed toward the upper end of the distribution, the burden of higher prices and rents fall disproportionately on the lower and middle income households, Byrne says, and they find themselves paying more of their income in housing costs.
Consequently, the gap between households at the lower and upper ends of the income distribution widens even as the influx of more affluent households drives up housing prices within the community.
Uneven pattern of income growth
Since the early 1980s, incomes have been rising fastest for the upper tiers of the income distribution throughout the United States.
The Congressional Budget Office recently reported that, between 1979 and 2018, the average real income of the top quintile of the distribution rose 111 percent, from $152,300 and $321,700, while that of the three middle quintiles rose 38 percent, from $59,000 to $80,800, and that of the lowest quintile rose 40 percent, from $16,100 to $22,500.
This uneven pattern of income growth is seen in New Hampshire. The Carsey School of Public Policy at the University of New Hampshire found that between 2007 and 2019, the median income of the three lowest quintiles decreased while that of the fourth quintile gained less than $5,000. Meanwhile, the incomes for the top 10 percent rose $5,000, the next 5 percent $14,000 and the top 5 percent by $43,000.
The NH Fiscal Policy Institute found that during the same period, wages for lower paid occupations either fell or rose less than 2 percent, while the highest wages rose 7 or 8 percent. With the onset of the pandemic, between January 2020 and August 2021, employment in occupations paying more than $60,000 increased 17 percent and in those paying from $27,000 to $60,000 increased 7 percent, while employment in occupations paying less than $27,000 dropped 21 percent. After undergoing the steepest decline, employment in low-paid occupations has been the slowest to recover.
While income inequality has grown in New Hampshire, it is the least skewed among the New England states.
The Gini coefficient measures income inequality on a scale of 0, indicating perfectly equal distribution, to 1, indicating that one household has all the income. According to the Census Bureau’s estimates, New Hampshire’s Gini coefficient rose from .4210 in 2010 to .4384 in 2019, the fourthlowest among the 50 states.
Disparity in wealth between upper-income households and middle- and low-income households is wider than that of income and growing faster. According to the Federal Reserve Bank of St. Louis, in 2019 the most affluent 10 percent — 12.9 million households — owned 76 percent of the nation’s wealth. The next 40 percent — 51.5 million households — owned 22 percent. And the balance, 1 percent, was owned by the remaining 64.3 million households, 13.3 million of them with negative net worth.
However, Phoenix Marketing International estimates that the number of households with $1 million in assets in New Hampshire grew from 29,790 in 2010 to 39,209 in 2017 — 7.4 percent of all households, the seventh-highest share among the 50 states.
Growing gap
The median income of neither homeowners nor renters has kept pace with the rising cost of housing. However, the NH Housing Finance Authority reports that in 2019 the median homeowner income of $95,000 was more than twice that of the $45,000 median income of renters and increasing faster, which matches conditions in 55 of the 100 largest metropolitan areas.
At the same time, homeowners, whose mortgage payments represent forced savings, hold far more wealth than renters, whose rents are sunk costs with no return on investment.
In 2020 the Federal Reserve Bank of St. Louis estimated the median net worth of homeowner households at $255,000, 40 times the $6,300 median net worth of renter households. Since then, home equity, the major share of household net worth for all but the very wealthiest, has increased with the rapid appreciation of home values. Real estate data analytics firm CoreLogic estimates the average New Hampshire homeowner gained $59,000 in equity in 2021.
Igor Popov, chief economist at Apartment List, has tracked the relationship between household income and housing costs of homeowners and renters through Census data from 1980 to 2017. He found that as the household income of homeowners grew, their housing costs, cushioned by financing or refinancing at relatively low mortgage rates, steadily shrunk as a share of income over time. And the higher the household income, the greater the decline in housing costs.
Among renters, Popov found increases in household income have matched or trailed rising rents. He calculated that housing costs represent a larger share of renter household income than they did in 1980 across the income distribution, with the steepest increases born by those on the lowest rungs of the income ladder.
“Housing markets,” he writes, “are exacerbating the gap between the rich and poor.”
About 30 percent of New Hampshire’s 539,116 households rent. According to NH Housing between 2016 and 2021, the median gross rent of a two-bedroom unit increased by 24 percent, to $1,498. Some 40 percent of renter households pay 30 percent or more of their household income in rent.
Median rents range between $879 in Coos County and $1,672 in Rockingham County. But in all 10 counties, renters would need more than the median renter income of the county to afford the median rent of a two-bedroom unit.
NH Housing estimates that an annual household income of $59,900, or 128 percent of the median renter household income, is needed to afford the median rent of a two-bedroom unit statewide. The NH Fiscal Policy Institute recently reported that of the one-in-five households with annual incomes of less than $35,000, 47 percent pay more than half their income in rent and another 29 percent pay between 30 and 50 percent.
In February, the Department of Business and Economic Affairs reported that 4,446 units were added to the housing stock in 2020, slightly less than the year before. Singlefamily homes accounted for nearly 60 percent of permits issued, representing an annual increase of 372 units, while the number of multifamily permits was 486 lower than the year before.
Last month, the Executive Council approved Gov. Chris Sununu’s proposal to apply $100 million of federal funds allotted by the American Rescue Plan Act to expand the stock of affordable housing. The largest share of the funding, $60 million, consists of matching grants for housing projects of more than 15 rental units, which must be affordable for households with income at or below 80 percent of the median household income of the area. Moreover, at least 20 percent of the units must be reserved for households with limited income as defined by the municipality.
Another $30 million is earmarked for grants of up to $1 million for municipalities to expedite the permitting of housing projects of five or more rental units that conform to the specified affordability criteria. Municipalities would also be eligible for grants of $5 million to tailor their zoning ordinances to accommodate affordable housing as well as grants of $5 million to demolish vacant and dilapidated buildings as part of a revitalization program.
The recent rise in mortgage rates, the steepest to coincide with rising home prices and price inflation in 40 years, has clouded the future of the housing market. “Nobody really knows what’s going to happen over the next year,” Edward Seiler, associate vice president of housing economics of the Mortgage Bankers Association told The New York Times.
Nevertheless, several predictable effects are likely to increase stresses in the market in the near term. Some prospective homebuyers will be shut out of the market by the higher financing costs and either remain in or migrate to the rental market, which will sustain low vacancy rates and high rental costs. Homeowners, who financed at lower rates, may be reluctant to list their property, which could limit the inventory of existing homes for sale. And higher interest rates will add to the already increasing costs of building new homes.
The shortage of housing for both purchase and rent may be eased in time. However, the supply of housing is a necessary, but not sufficient, condition for overcoming the housing crisis. As long as inequality in the growth and distribution of income and wealth persists, low- and middleincome households will bear an increasingly disproportionate burden of housing costs that further skews the income distribution and limits their opportunities of homeownership.
