The cost and availability of housing have made it difficult for a growing number of people to find housing that is safe and affordable. It might be easy to blame the COVID-19 pandemic for these issues, but our current housing crisis has complex roots. These roots include economic and socio-demographic trends we’ve been watching for decades.
In this article, I’ll review some of the factors that impact current housing trends in the state. This does not mean that the pandemic did not affect housing – clearly it did. However, I offer a few takeaways from Compass data that help interpret the ways the pandemic did impact the housing landscape of our state.
Saving money for a house has been historically difficult
People who rent have much of their income tied up in paying for housing, compared to people who own their homes. Households are housing cost-burdened when they pay more than 30% of their income for housing. Almost half of renter households are housing cost-burdened (48%), while less than 20% of home owners pay too much for housing (19%). For renters, the fact that so much of their income is going towards rent can make it particularly challenging to save for a down payment.
The proportion of households that are housing cost-burdened remained relatively stable between 1990 and 2000, but began to increase steadily beginning in 2000. Rates of housing cost burden peaked during and following the Great Recession (2008-2011), and then decreased back to early 2000 levels. However, the proportion of households paying too much for housing began to tick up again with the pandemic (2020-today), in line with national reports detailing the ways that Americans are struggling to afford housing. This increase appears to be particularly pronounced among renters. Given that being housing cost-burdened can make it difficult for renters to save for a down payment, there could be long-term effects of this increase.
Declines in homeownership rates predate the pandemic
Saving for a down payment typically requires time to work and save money, so we tend to see higher proportions of Minnesotans over age 35 buying homes. Low rates of homeownership among young householders is nothing new, but we have seen a decrease in the proportion of young people buying homes. This trend precedes the pandemic, with the decrease in young homeowners beginning around 2006, reaching its lowest point in 2012, and remaining low since then. We also saw a similar decrease in the proportion of 35-64 year olds purchasing homes during this same period, indicating that difficulty purchasing a home is not confined to only the youngest Minnesotans.
Homeownership rates for Minnesotans of color have risen but still lag well behind white households
A larger proportion of white adults are homeowners, relative to adults of color. We saw increases in homeownership across races and ethnicities between 1990 and 2008, but a decrease beginning with the onset of the Great Recession in 2008. This decrease was much steeper among Minnesotans of color than their white counterparts. Interestingly, homeownership rates have rebounded to pre-2008 levels among Minnesotans of color, but the same trend is not apparent for white Minnesotans. Regardless, homeownership rates of Minnesotans of color lag about 30 percentage points behind white Minnesotans, which will continue to result in generations of racialized gaps of wealth accumulation if left without intervention.
Looking at data over the past two decades, we see that large shifts in the landscape of homeownership actually began between 2006 and 2008. We do not see evidence of the pandemic impacting rates of homeownership overall or for certain socio-demographic groups. Where we do see evidence of the pandemic is in the rates of individuals who are paying too much for housing. To put these rates in perspective – we are currently seeing rates of being housing cost-burdened that are similar to the Great Recession among renters, but still well behind Great Recession rates of cost burden among homeowners.
Promising efforts across the nation aim to support households via assistance with rent, down payments, or low-interest mortgages. Additionally, many cities are considering policies that will encourage affordable housing development. It is important to continue to monitor these trends, since it may take years for the effects of current trends to fully emerge in data.