Is the housing problem solvable?

It is estimated that the U.S. presently is short of anywhere from four million to seven million housing units, including both rentals and single-family homes. This is an astounding number that is growing larger every year. Housing production is lagging the demand that is being created by the family formation of the Gen Y (also known as Millennials) and Gen Z generations who are aging into adulthood.  

The severe imbalance created by the increase in demand and the lack of supply — which has been the trend in the U.S.for the past 15 years dating back to the financial crisis — in turn has led to home and rental costs that far exceed a level of affordability for the majority of Americans.

We recently went on one of those real estate websites to look at our former family home in Chelsea which our parents purchased in 1965 for about $20,000. The house, which is located in the Prattville section of the city, is a modest four-bedroom, 1700 sq. ft. home that last sold in 2011 for $305,000. Today, that home has an estimated value of $850,000. To put those numbers in perspective, inflation from 1965-2024 increased 10-fold ($1.00 in 1965 is worth $10.00 today), but that home’s value has increased by an astounding 42-fold. And from 2011 to today, inflation has increased by 40% — but the value of that home has gone up by almost 300%. Our parents’ mortgage in 1965 came at a four percent interest rate and required a downpayment of $4000. Their monthly mortgage payment (without taxes) was about $100 per month. Today, a young couple would need a downpayment of $170,000 in order to buy that home and their monthly mortgage payment would be about $4000. Our housing crisis today often is portrayed as an affordability crisis for those in the lower-income brackets. But as the numbers above demonstrate, purchasing a home today is affordable only for upper-income couples who also have families who are able to assist them with the large down payment that is necessary to obtain a conventional mortgage. Young people also face the same lack of affordability for rental housing.

Almost nobody graduating from college today, even if they have a well-paying job, can afford an apartment on their own in Greater Boston or any major city. Doubling and tripling-up is the norm for young people unless they have financial support from their families.

The last time that the U.S. faced a crisis of this magnitude came in the years immediately after WWII. Housing production during the war years had stopped and the millions of returning GIs who were forming families were in need of housing. The principal solution at that time was the construction of multi-unit housing developments — known colloquially as “the projects” — in almost every community in the country. Private developers (assisted by low-rate mortgages backed by the Veterans Administration and Federal Housing Administration) also filled the need with large-scale, cookie-cutter developments in the suburbs, the most notable example being the “Levittowns.” However, today the high costs of land acquisition, materials, and infrastructure improvements (including the need to comply with modern environmental regulations) make it all but impossible for home-builders to construct “affordable” housing, whether single-family homes or multi-unit rentals.

Affordable housing advocates often cite restrictive zoning ordinances in many suburbs as a bar to the construction of affordable housing, but even if someone could take a magic wand and eliminate zoning restrictions, new home construction would barely budge. Massachusetts has had a law (c. 40B) for many years which allows developers to bypass local zoning regulations if a community’s housing stock is deemed less than 10% “affordable.” But that law has barely made a dent in the supply of housing. Similarly, the  MBTA Communities law that has garnered so much attention in the past year figures to have a minimal impact on the housing crisis.

If it’s any consolation, the housing shortage is not unique to the U.S. It’s a worldwide phenomenon, from Europe to Australia, with much of the developed world facing a dire housing shortage. Shelter is a basic human need. For millions of Americans, especially young people, the reality today is that both the public and private sectors are failing to address the ever-growing problem of our housing crisis — and the inevitable result inevitably will have profound consequences for the future of the country.