The Urban Institute released “Why the Most Affordable Homes Increased the Most in Price between 2000 and 2019.” The report finds that over the last decade, prices for the least expensive homes appreciated faster than prices for the most expensive homes. The relative price appreciation varies among metropolitan areas, and the authors document greater appreciation of the least-expensive homes in metropolitan areas with higher employment growth, stronger zoning and land-use regulation, and scarcity of land for development.
The report draws on a Black Knight dataset of transaction prices for homes in 936 metropolitan areas between January 2000 and December 2019. The dataset classifies homes into five price tiers, from homes in the top fifth of the market (“high-tier homes”) to homes in the bottom fifth (“low-tier homes”). Nationally, the price of low-tier homes increased 126% between 2000 and 2019, while the price of high-tier homes increased 86%. Examining trends since 2012 (when prices began to rebound after the Great Recession), the prices of low-tier and high-tier homes grew at the same rate until 2015, when the growth rate of prices in the lowest tier accelerated.
The price growth disparity varies by geography. In Dallas, Los Angeles, New York, and San Francisco, the prices of low-tier homes grew faster than high-tier homes, while Cleveland saw no disparity. In just 65 of the 936 metro areas studied, high-tier homes appreciated faster. On average, low-tier home prices increased 44% more than high-tier home prices. Among cities with more than 100,000 residents, Los Angeles experienced the largest price increase for low-tier homes (313%), while Detroit experienced the largest decline (4.5%). San Francisco experienced the largest increase in high-tier homes (190%), and Saginaw, Michigan, experienced the smallest increase (42%). The price growth gap was highest in Redmond, Oregon and smallest in Detroit.
The authors compared metropolitan-level price appreciation for high-tier and low-tier homes with three market characteristics: housing supply constraints, employment growth, and the presence of investors in the transaction market. First, they found that two measures of metropolitan-level housing supply constraints (Wharton Residential Land Use Regulation Index and Saiz Land Unavailable Index) were correlated with more robust home price appreciation. Supply constraints had a stronger association with price growth in low-tier housing. The authors suggest that this supports arguments that restrictions on new home construction put upward pressure on home prices, especially on the most affordable housing. Second, in metro areas where the number of employed people grew most, home prices had the most robust growth. Employment growth was also a strong indicator of price growth in low-tier homes. Third, the share of single-family homes purchased by investors showed little relationship to price growth among high-tier homes and a slightly negative relationship to price growth for low-tier homes.
The report concludes that housing costs for owners and renters are affected by price appreciation. Between 2000 and 2019, low-income homeowners’ housing costs rose by 8.3%, while their household incomes fell by 5.7%. In contrast, high-income homeowners’ housing costs fell by 1.6%, while their household incomes rose by 8.7%. Low-income renters’ housing costs increased by 17.6%, while their incomes fell by 4%, and high-income renters’ housing costs increased by 34.2%, while their incomes increased by 7.5%. The share of households in the bottom quartile (25%) of the income distribution who pay more than 30% of their income on housing increased by 8.8% between 2000 and 2019, while the share of households in the top quartile who did so decreased by 0.5%.
The authors observe that price increases for low-tier homes were greatest in metro areas that had more land-use regulation, less available land for development, and stronger employment growth. While low-income households have become worse off in almost all markets, the appropriate response may differ—in some areas, constraints on housing supply may be the most pertinent issue, whereas slow income growth may be more pressing in others.
The report can be accessed here: https://urbn.is/36hGBST