Decreased Housing Supply Continues to Lessen Affordability: Zillow

Housing affordability has shrunk as the issuing of new housing permits has failed to keep pace with population growth in cities across the country, according to research from Zillow.

The cities that have maintained affordability the best are those that have either experienced low rates of population growth or have kept in step with that growth by building more housing units, according to the report published March 27 by Zillow.

On the other hand, cities that failed to account for their population growth with more housing have seen affordability plummet. One such city is San Francisco, where the city has permitted merely 193 new housing units for every 1,000 residents, according to Zillow. As a result, residents in San Francisco can pay around 44% of their income on rent or 39.2% on a monthly mortgage payment.

"As the economy continues to improve, more Americans are slowly moving off of their buddies' couches and out of their parents' basements into homes of their own, first likely as renters and then eventually as homebuyers," said Zillow chief economist Stan Humphries in the press release announcing the study's results. "Unfortunately, the supply of affordable homes, especially affordable rentals, is insufficient in many areas to meet this growing demand."

The U.S. Zillow Rent Index rose 3.4% year-over-year in February to $1,355, while the Zillow Home Value Index increased 4.9% year-over-year to $178,700. Still, renters can expect to spend a greater share of their income on rent than homebuyers on mortgages, at a rate of 30.1% of monthly income for renters versus 15.3% for homeowners.

Competition can drive up rents, Humphries added. At the same time, Zillow found that as getting mortgages becomes easier, more renters should transition to homeownership, which will decrease the strain on affordability in the rental market along with increased construction of new housing.

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