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Illustration: Sarah Grillo/Axios

Middle-income housing across America — particularly in big coastal cities — is growing scarcer than ever, as the wealthy bid up properties that might once have been considered "affordable."

Why it matters: The pandemic's effects on the housing market may turn out to be permanent — and could widen the gap between rich and poor. Renters and buyers alike face rising prices that outstrip income growth and favor people with cash savings.

Driving the news: The median price of a single family home in California crossed the $700,000 mark this summer — a record — setting a new standard for what the American Dream might cost.

Housing experts say it's a trend that's accelerated over the last five months and tied directly to the pandemic: Low interest rates — which the Fed seems inclined to keep, thanks to coronavirus — are lulling people into the market at a time when everyone's craving more space to live and work.

  • "Starter" homes in cities that attract young people are almost nowhere to be found.
  • They're also growing harder to find in exurbs. People leaving San Francisco, where the median home price is $1.1 million, will still have to pay nearly $500,000 if they move to Sacramento.
  • "Affordability has been a challenge that predates this crisis, and it’s one that’s been accelerated by this crisis," Jordan Levine, deputy chief economist for the California Association of Realtors, tells Axios.
  • "It seems like finding a house is a bit like trying to buy the new PlayStation 5,” says Ryan Lundquist, a Sacramento home appraiser.

Nationally, the story is the same: The cost of buying a house was up 7% in September, the Case-Shiller index showed recently.

  • Phoenix, Seattle and San Diego were the cities with the biggest price leaps, Case-Shiller found.

How it works: The last five months have seen a real estate frenzy. Even as many Americans have struggled to pay rents and mortgages, the wealthy have paid above-asking prices for homes that used to be worth a lot less — leaving the low end of the market hollow.

  • From there, a chain reaction keeps low and middle-income people in rentals and leaves fewer financial incentives for developers to build anything but high-end homes.
  • "Supply appears to be the tightest for low and moderate cost homes," said Alexander Hermann of the Harvard Joint Center for Housing Studies, an author of a recent report on the current housing scene.

"It's not a California issue — it's a nationwide phenomenon," said Lawrence Yun, chief economist at the National Association of Realtors. "In terms of the relationship between people's incomes rising and home prices rising, we are at a historical lack of synchronicity."

What's next: The best solution will be to enact policies that encourage homebuilding, policy experts said. Since mortgage rates are likely to remain at historic lows — continuing to encourage home sales — the easiest fix may be to build our way out.

  • Single-family housing starts have remained stubbornly under 1 million for over a decade, but there's hope they will rise in 2021, given the obvious demand.
  • "The only way to fix a deficit of supply is to build more homes, and to make it cheaper to build new housing," says Jenny Schuetz of the Brookings Institution, who wrote a report on housing stress on the middle class.


Go deeper

Guaranteed income programs are proliferating

Illustration: Brendan Lynch/Axios

Cities around the country are starting up guaranteed income programs, which pay low-income residents around $300–$600 a month to help improve their lives.

Why it matters: If successful, backers hope these experiments — which bring the idea of guaranteed basic income from the progressive drawing board to reality — could set the stage for a day when unconditional cash stipends are a ubiquitous national safety net.

Bryan Walsh, author of Future
Jan 20, 2021 - Politics & Policy

President Biden faces a deeply broken America

Illustration: Aïda Amer/Axios

As President Biden begins his term in office today, he'll be tasked with leading a country beset with deep, long-term problems.

Why it matters: Though the pandemic has made them worse, existential challenges around inequality, social alienation and political division in the U.S. were in place well before SARS-CoV-2 arrived on American shores. The country's future will depend in large part on whether the choices made over the next four years can flatten the curve of American decline.

Dan Primack, author of Pro Rata
33 mins ago - Economy & Business

Scoop: Red Sox strike out on deal to go public

Illustration: Sarah Grillo/Axios

The parent company of the Boston Red Sox and Liverpool F.C. has ended talks to sell a minority ownership stake to RedBall Acquisition, a SPAC formed by longtime baseball executive Billy Beane and investor Gerry Cardinale, Axios has learned from multiple sources. An alternative investment, structured more like private equity, remains possible.

Why it matters: Red Sox fans won't be able to buy stock in the team any time soon.