Home Prices and Income

A frequent topic on the radio focuses on the difficult to define topic of “affordable housing.” This is really subjective and terribly idiosyncratic to the local level which makes it difficult to discuss. I provide a look at index values at the national level, just to see the course of these over time. I use nominal disposable per capita income and the FHFA price index, with all values indexed to 100 in January of 1991.

There is a remarkable consistency to the track of the two data series over time with the home price data showing the clear signs of the housing boom and eventual bust. In addition the personal income data shows a spike in the monthly income series, and a drastic drop due to COVID. This data only confirms how difficult it is to evaluate the issue of affordability. The growth of income and home prices is relatively consistent over the time period, but the issue of affordability seems to come and go in a more erratic fashion.

The primary issues with affordable housing include a lack of standard for housing. How many bedrooms? How much square footage? What size yard? What color? At times in discussions on the radio each one of these questions came up as part of a caller’s criterion for affordable housing. An added issue here is that it is almost always the idea of “home ownership” that comes up, not necessarily apartment living. This is another important element to include as it gets significantly to differential situations in urban and rural settings.

At the end of all this we can go back to issues like supply and demand, and in particular the relative supply and demand of these different types of housing, how they might reach an equilibrium overall, and how local employment dynamics can drive income. The issue again is that these are very idiosyncratic features for a local economy and create significant issues for generalization.

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