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Low-Cost Housing Shortages in the Inner City of Massachusetts
Introduction
The Federal Reserve Bank of Minneapolis (2010) argues that the United States is in the midst of an affordable housing shortage or even worse, an affordable housing crisis . The biggest concern now for the country is the fact that the majority of the people are living in unaffordable houses, putting into consideration their levels of income. Despite an increased focus on housing, the problem persists, a problem believed to be arising from stagnated income levels. The issue has been a subject of heated debates, especially with regards to how affordable should be defined.
According to National Real Estate Investor (2010), a house should be considered unaffordable if a household has to spend more than 30% of its income on it . Statistics reveal that from 2001 to 2007, the number of Americans spending more than half of their income on housing has increased from 2 million to 20 million (National Real Estate Investor 2010). Today, the same statistics reveal that a third of Americans spend more than a third of their income on housing. In Massachusetts, the cost of housing is bigger than most cities and half of the households spend almost half of their income on housing. With such figures, it is clear that the problem must be treated as a priority. The skyrocketing housing prices also raise concern over how many Americans in the Massachusetts areas will afford a house in the next few years.
This problem affects both the residents of Massachusetts, developers, business people in other industries, policymakers, and the government. When people spend half of their income on housing, they have no money to educate children, to invest, or to save. The other industries also suffer since people have little money to spend on them. The level of poverty is also bound to increase,
Solutions criteria
To overcome this problem, the government, developers, and non-government organizations need to work together. The solutions considered and implemented must meet certain criteria. The solutions need to address the needs of the people and put into consideration those of investors. Constructing cheaper houses may sound like the most viable solution but its practicability is in question. Cheaper houses may mean poor quality of material used for construction or losses for the developers.
Both the long and short-term solutions must meet the governments regulations on housing. Among the laws put in place to govern the housing industry include the Fair Housing Act Law. Housing quality is determined by each states housing authority. The governments concerns include safety, quality, and price. Apart from being consistent with the law, the solutions must also be acceptable among policymakers. Political differences and attitudes play an important role in solving many of the countrys problems and as a result, the solutions must be salable to the political group to allow room for discussion and debate.
The most important criteria that available solutions should meet is their ability to create affordability. Today, a mortgage applicant needs an annual income of at least $120,000 to buy a median-priced house in Massachusetts, more than double the average salary of a middle-class worker in the region (National Housing Conference, 2010). The solutions must provide an affordable option for both those who want to buy or rent houses. Affordability must also be assured without comprising quality.
Solutions
Changing government regulations
The private market is perfectly capable of producing low-cost housing units. One way they do this is by filtering, a process through which already existing houses drop value as their quality goes down. Although this seems to be a viable solution for many people looking for affordable houses, it faces a major drawback. In the housing industry, the actions of one developer or household have the potential to affect what happens in the neighborhood. For example, if one developer allows his property to drop value, the whole neighborhood may have to do the same as incentives to interested clients.
The government can help use this as a viable solution by using its local regulations. The local government has the power to regulate land use and the type of houses built. For example, the local regulations can restrict the types of houses built in different neighborhoods, as well as their attributes. If the government regulates the number of units put up in a community, there will be fewer houses, more demand, and higher prices, as is the case in Massachusetts. The government can reverse these regulations to ensure more houses, better quality, and more affordability as there will be more houses in the market.
This solution has the advantage of ensuring better estimates of the cost of land use. More houses in a peace of land means more returns for the developers and cheaper houses for the people. The solution could be disadvantageous if proper planning is not done. Allowing more units for developers could also mean poor quality of other facilities such as sanitation.
More government funded projects
The role of the government in the economy has been a long term dispute now. Its power to regulate market prices for different products has also given rise to tough debates. In the housing industry, the projects funded by the government are much cheaper than those by private investors. As opposed to private developers and investors, profits are not the biggest drive for government projects. The government also has capacity to buy raw materials in bulk at a reduced cost, allowing it to build houses at a cheaper cost.
The government can also offer support to private developers by giving them access to funds and loans at low interest rates. This solutions advantages include the fact that the government can afford to sustain bigger projects, meaning more affordable units for more people. Its disadvantages include the fact that some people would not favor the governments support for a particular state, in this case the Massachusetts. Government initiatives also suffer a lot of political resistance and debates, which may cause delays. Governments bureaucratic way of doing things also causes delays and projects are completed in a much longer period than they should.
Addressing income as a potential cause of housing crisis
The fact that a majority of the people in the United States are middle income earners, means that most housing units at current market rates will be unaffordable for them. Most people may only have enough to cater for their basics. As a result, even the cheapest possible houses in the market would still be considered unaffordable.
According to the National Housing Conference (2010), looking at income levels to solve the housing crisis is not a novel proposition for policymakers . Increasing the levels of income may even lead to an increased market price for houses, since more people will afford houses and the demand will go up. This solution will also be a slow one, since the levels of poverty in the country are still high. Raising them to a place where the housing industry can feel the effects may take long.
Summary of solutions
Recommendations
A shortage of affordable accommodation has been a persistent issue for a long time. The recent global crisis made things worse by reducing the level of employment and increased prices for houses. Majority of the residents of the inner cities of Massachusetts are average income earners. As a result, it is becoming increasingly hard for the residents to afford mortgages and even rent. The biggest concern right now is the fact that housing prices continue to rise while income levels remain constant.
Statistics reveal that a third of Americans spend more than a third of their income on housing. In Massachusetts, the cost of housing is bigger than most cities and half of the households spend almost half of their income on housing. With such figures, it is clear that the problem must be treated as a priority. The skyrocketing housing prices also raises concern over how many Americans in the Massachusetts areas will afford a house in the next few years.
The best solution for this problem will be more government funded projects and other forms of government interventions. Projects funded by the government are much cheaper than those by private investors, since government investments are not necessarily driven by profits. The government also has capacity to buy raw materials in bulk at a reduced cost, allowing it to build houses at a cheaper cost.
The government can also intervene by offering support to private developers. Interventions will include by giving them access to funds and loans at low interest rates. Since the government can afford to sustain bigger projects, there will be more affordable units for more people at a lower cost.
Reference list
National Housing Conference, 2010. Housing shortages. Web.
National Real Estate Investor, 2010. Affordable housing shortage. Web.
The Federal Reserve Bank of Minneapolis, 2010. The affordable housing shortage: Considering the problem, causes and solutions.
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