The Widening Home Wealth Gap among U.S. Communities
As a whole, the United States housing sector is rebounding from the depths of the Great Recession. However, for homeowners in 2,200 of the nation’s largest cities, the impact of the rebound varies greatly.
As reported by the Demand Institute earlier this year, and summarized in an article by Citylab, home values for owner-occupied properties vary greatly across communities in the United States – and are predicted to become still more uneven in the years to come.
In a trend that echoes the growing levels of income inequality across the United States, housing wealth is increasingly concentrated among a small number of wealthy cities and towns. According to the report, 220 cities and towns – just 10 percent of all communities analyzed – account for 52 percent ($4.4 trillion) of the nation’s housing value. These cities include “Affluent Metroburbs” such as Rutherford, NJ and Huntington Beach, CA – prosperous, vibrant communities that are located near big cities and offer many of the advantages of city living.
Meanwhile, 880 communities – 40 percent of all communities analyzed – hold just 8 percent ($700 billion) of the nation’s housing value. These communities include “Endangered Communities” such as West Memphis, AR that are struggling to improve prospects in the face of depressed home values, the highest levels of poverty in the country, and rapid contraction of job opportunities.
In between these two extremes are hundreds of cities and towns that can be divided into seven distinct community types – such as “Traditional Suburbs,” “Transitional Cities” and “Deflated-Bubble Communities.” Home values vary greatly across these community types and each community faces unique challenges in maintaining and increasing the median value of homes.
The findings have profound implications across the American economy. First, the report makes clear that significant differences in median home price will continue for years to come, both at the state and metropolitan levels. Economic recovery will not be evenly felt. Over the next five years, the report estimates that home price gains will be more than three times larger in the nation’s strongest markets than in the weakest ones.
This discrepancy is driven in part by the current economy’s global nature. A community’s economic health is more connected to the strength of its human capital rather than the local geography, such as natural resources, sports, and climate.
On a national level, the report projects modest growth in home prices and home construction rates in the coming years. As a result, the sector’s contribution to the nation’s economic growth and recovery from the Great Recession will be modest.
Finally, the report counts around 11 million households in the U.S. as falling in an “aspirations gap” – with a goal of homeownership but a reality of renting. The post-crisis trend towards renting is expected to continue, creating opportunities to meet households’ ownership aspirations in non-traditional ways. Growth potential exists, for example, in lease-to-own programs, shared equity programs, and peer-to-peer lending. To meet demand, multifamily rentals may increasingly offer amenities, such as private laundry and outdoor access, previously associated with single-family homes. Having a large cohort of renters also presents challenges for policymakers to address, including aligning energy-efficiency incentives for non-owner-occupants, ensuring zoning allows adequate construction of rental homes, and addressing the consequences for retirees who may otherwise have leaned on wealth from home equity.