Conceptually, the law of supply and demand is simple. If you’re selling something buyers want, but there’s not enough to meet demand, prices go up. Welcome to Wisconsin’s housing market today. Limited supply was the dominant theme of Wisconsin’s housing market throughout 2018, with median prices up between 5 and 8 percent each and every month when compared to the previous year.
While housing inventories vary based on location, price points and other factors, the lack of new construction certainly didn’t help. Fewer new homes were the result of a combination of regulations and the availability of land, lending, lumber and labor.
Thankfully, growth in family incomes and low interest rates helped to keep housing in Wisconsin relatively affordable. The Wisconsin Housing Affordability Index (HAI) shows the percent of a median-priced home that a buyer with median family income qualifies to buy in Wisconsin, assuming a 20 percent down payment and a 30-year fixed-rate mortgage. In January, that index stood at 206, which, while not bad, was down from 227 a year earlier.
As we reported back in January, when demand is strong and supply is low, it’s the price that becomes the pressure release valve. That’s why home prices grew two to three times the rate of inflation throughout 2018. Assuming this trend continues, Wisconsin could face a serious housing affordability problem in the not-too-distant future. This isn’t just bad news for our industry and those families wanting to buy their first home or move up to a new one — this is bad news for the entire state economy, which is facing real labor shortages. Without adequate and affordable housing, Wisconsin will have a hard time retaining or attracting the workers needed to meet our current and future labor demands. This is why the WRA is working hard to inform policymakers that housing affordability is a big deal and why we will be presenting lawmakers and others with ideas to help.
A soon-to-be-released, WRA-commissioned study by a renowned UW-Madison professor in urban and regional planning examines the shortage of workforce housing in Wisconsin. The study defines workforce housing as the supply of affordable housing in a community — with a variety of housing types, sizes, locations and prices — that meets the needs of the people who work in that community. The report shows that Wisconsin has a significant workforce housing shortage, caused mainly from lack of supply, rising construction costs and outdated regulations, resulting in rising prices, increasing rents, decreasing homeownership and decreased affordability. These problems are particularly acute among younger adults and first-time homebuyers as well as African American and Hispanic families, according to the study.
The WRA also asked members of the general public for their views regarding housing affordability in Wisconsin. In a statewide WRA-sponsored survey conducted in early April, we asked citizens for their thoughts on housing costs and the homebuying experience. Among the major obstacles to buying a home, 50 percent of respondents cited getting a mortgage loan, 63 percent cited uncertainty about job security, and 82 percent cited college debt from student loans. But nearly eight out of 10 respondents, or 79 percent, identified the lack of money for a down payment and closing costs as major obstacles to buying a home.
It is on this last point that the WRA has focused a great deal of attention over the past several months. With the strong support of the WRA, Gov. Tony Evers has recommended the creation of a first-time homebuyer savings account in his 2019-21 state budget proposal to the legislature. If adopted, the proposal will make it easier for first-time homebuyers to save enough money for a down payment to purchase a home.
The plan is similar to the existing Edvest college savings plan. The legislation would allow first-time homebuyers to establish a special savings account, at any financial institution, to help save enough money to buy a home. The prospective homebuyers can contribute up to $5,000 per year, or $10,000 per year for joint filers, up to a maximum of $50,000. These contributions, and the interest earned, can be withdrawn tax-free. For more details, see Tom Larson’s article, “Bridging the Gap to Homeownership,” on pages 26-27 in this magazine.
The WRA will be working hard to convince lawmakers that this legislation will help address Wisconsin’s real and growing housing affordability problem. It’s not a stand-alone fix, but it will certainly help minimize a significant obstacle to homeownership for many Wisconsin families. It will also be a tool for Wisconsin employers to retain and attract the workers their companies need and the state’s economy requires.
As you can see, we’ve been busy working on ways to improve housing affordability and availability in Wisconsin. Helping first-time homebuyers with their down payments is only the beginning. Over the next several months, the WRA will be proposing a host of other proposals, based on our academic and public opinion research, that aim at minimizing obstacles to homeownership in Wisconsin. We will be encouraging lawmakers and regulators at all levels of government to join us — but we’ll need the help of every REALTOR® in Wisconsin. Stay tuned and stay engaged.