A decline in affordable housing not only makes it difficult for homebuyers to find their dream home, but it also has a negative effect on the job market, new research suggests.
The National Association of Realtors (NAR), a trade association for real estate professionals, analyzed the top 174 metropolitan areas in the country, looking at both housing affordability and employment growth in those regions. To determine affordability, NAR measured whether a typical household earns enough to qualify for a 30-year fixed mortgage loan on a single-family home without spending more than 25% of their annual income on principal and interest.
What the study revealed is that metro areas where affordability has declined in the last five years were also likely to have seen a reduction in job growth during that same time frame. Specifically, the report noted a decline in affordability rankings in 81 metro areas. Of those regions, 34 saw non-farm-related job growth fall faster during the third quarter of 2019 than the national job growth rate over the previous five years.
"Job growth has slowed in these areas in part because limited supply is making homes less affordable," said Lawrence Yun, NAR chief economist, in a press release. In areas where housing affordability is low, workers are less inclined to move there and companies have fewer incentives to do business there, Yun explained.
Areas seeing the biggest affordability drop
The effect of housing affordability on the job market can be seen in different parts of the country.
The city that has seen the biggest drop in affordability over the last five years is Boise, Idaho, the study found. Boise ranked No. 108 for affordability in 2014 and dropped to No. 153 by the third quarter of 2019. The median sales price of single-family homes in Boise jumped by 75% from 2014-2019. The rising housing costs appear to be taking a toll on the job market as non-farm-related job growth slowed by roughly 0.8 percentage points in the third quarter of 2019 from the average growth between 2014-2018.
Tampa, Fla. is another city that has seen a marked drop in affordability, falling from No. 98 in 2014 to No. 133 in the third quarter of 2019. In Tampa, the median sales price of single family homes increased 58% between 2014-2018. Job growth in the third quarter of 2019 slowed by 0.8 percentage points from average growth between 2014-2018.
Some metro areas that boasted strong job growth between 2014-2018 have become less affordable and are now experiencing slower job growth, including:
- Grand Rapids-Wyoming, Mich., where job growth has slowed by 1.7 percentage points
- Louisville-Jefferson County, Ky.-Ind., where job growth has slowed 0.9 percentage points
- Indianapolis-Carmel-Anderson, Ind., where job growth has slowed 0.9 percentage points
- Chattanooga, Tenn., where job growth has slowed 0.3 percentage points
- Columbus, Ohio, where job growth has slowed 1 percentage point
Housing affordability is a major challenge for homebuyers looking for property that meets their needs. If you’re planning to buy a house, see how your region stacks up when it comes to affordability. You may also want to consider other factors related to an area’s overall affordability, such as the most and least costly cities for public transit.