Inequality in the housing market is likely to be amplified following the COVID-19 crisis, according to a study from the Urban Institute. Researchers indicated that prices for low-priced homes have appreciated faster than higher-priced homes.
As low-price home prices rise, would-be homebuyers with low incomes have trouble finding affordable homes, so they remain in the rental market, drive up rents, and increase the demand for and price of rental properties, Urban notes. As a result, the cost for both owning and renting has gone up substantially for low-income households, while their income growth has not kept pace with that of high-income households.
“A closer look at 285 metropolitan statistical areas (MSAs) suggests that rapid employment growth combined with increased supply constraints from zoning and other regulations contributed to this disproportionate price growth for low-price homes,” said Urban researchers. “If left unaddressed, these same supply constraints will hamper the ability of low-income households to prosper as we emerge from the crisis and will exacerbate income inequality.”
Despite labor market upheaval, home prices have remained relatively steady throughout the COVID-19 pandemic. Even with rising unemployment, many lenders have tightened credit to avoid taking greater risks that may further strain their financial capacity.
Additionally, a greater share of low-income homeowners and renters are working in industries that are more vulnerable to the COVID-19 shock. Therefore, low-income homeowners may struggle more to sustain homeownership once the forbearance period is over, and many low-income renters are likely to lose the financial ability to become homeowners. At the same time, the home price trajectory is unlikely to change, as all households, both owners and renters, need a place to live.
According to Urban, if the supply constraints that existed before the pandemic remain unaddressed, both low-price home and rental prices will continue to increase faster than prices for high-price homes, widening residual income inequality between low- and high-income homeowner and renter households. This could also hurt the ability of low-income households to build financial strength and could make them more vulnerable to future economic shocks.