Lee Schafer
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Last in an occasional series on the future of housing.

It just isn’t that complicated.

Housing costs more than it used to for most of us, and our incomes haven’t kept up.

That’s the full explanation of what’s meant by the term affordable housing crisis.

Maybe this seems obvious to you. But through a summer of interviews and research on our housing problem, I was struck by how little I heard about stagnant incomes for a big slice of the population. Instead, people complained about things like single-family housing regulations, construction costs or zoning policies.

To be sure, more can be done to change regulations and lower the cost of building. But without a more basic understanding of the broader economics, it will be hard for political leaders to rally support for “affordable housing” policies. It is simply too easy to think of these policies as helping low-income families make the rent. An opinion page colleague last week also made a similar point.

And it’s a much broader problem.

To understand what I mean, take a look at the period from 1985 through 1999, when a lot of baby boomers and Gen Xers bought their first homes. The ratio of median house price to median household income over this time averaged about 2.35 in the Twin Cities, according to real estate firm Zillow.

That number by now has inched up to about 3.4.

Is the rent going up, too? Oh yes. Up through the end of the 1990s, median rent in the Twin Cities averaged about 21 percent of median household income. Now, a typical monthly rent payment is 25.5 percent of the median household income, based on Zillow’s research.

Bear in mind this isn’t the price of housing. It’s a ratio of what housing costs and how much money the household takes in. Both sides of that equation matter.

Median household income, when adjusted for inflation, peaked in Minnesota during the 1990s economic boom that ended 18 years ago. Since that time, generally the only people who have done much better are at the upper end of the income ladder.

In 2000, about 37 percent of Minnesota renters were “cost-burdened” by spending more than 30 percent of income on housing. During and after the 2008 recession, that jumped to half of all renters, according to state data.

One thing that has recently helped with housing affordability is the decline in interest rates brought about by the Federal Reserve’s response to that recession. Ten years ago, a 30-year mortgage interest rate was generally around 6.4 percent, according to data from the housing lender Freddie Mac. By 2012, the 30-year rate had slipped to around 3.5 percent, cutting several hundred dollars from monthly payments.

“Obviously interest rates are starting to rise and are poised to rise,” said Aaron Terrazas, senior economist at Zillow. “But it’s important to keep in mind that, historically over the past 40 years, the typical mortgage rate was around 7 or 7½ percent. I don’t think anyone who is observing financial markets or the Fed is expecting interest rates to get up to that level in this cycle.”

While lower interest rates may have been a boon for many homeowners, the recession of a decade ago was devastating to the finances of the bottom half of American households, as ranked by household net worth.

In a working paper released this summer by the Federal Reserve Bank of Minneapolis, authors Moritz Kuhn, Moritz Schularick and Ulrike I. Steins found that one thing that really mattered during and after the recession was what kind of assets families owned.

The bottom 50 percent of Americans, as ranked by wealth, had whatever net worth they had accumulated tied up in their houses. A housing boom is great for the homeowners in this group, as home equity increases faster than housing prices, given the financial leverage of a home mortgage.

At least some of these families were new to homeownership. In Minnesota, the rate of homeownership climbed to 77 percent in the early 2000s from 66 percent a decade earlier.

When the price of houses tanked during the recession, so did the owners’ net worth.

The authors write that “the financial crisis had a substantial effect on the wealth distribution. Middle-class wealth shares collapsed across the board, while the wealth share of the top 10 percent surged by 6 percentage points within less than a decade.”

In 2016, the share of wealth of the bottom 50 percent of American households had slipped to just 1.2 percent. The share of wealth held by the top 10 percent, meanwhile, topped 77 percent. Families in the top 10 percent likely owned their house but had much of their wealth in assets like stocks. Even if they did nothing, their net worth quickly recovered as their stock market investments did.

The homeownership rate in Minnesota drifted back down to near 70 percent by 2015. And many of those chased out of the homeownership market boosted demand for rental housing.

Perhaps many renters would love to own their own home, but without much net worth, it isn’t going to be easy coming up with a down payment.

“When you talk about first-time buyers feeling that homes are very expensive, it’s primarily because of coming up with an ever-growing down payment,” said Zillow’s Terrazas. “Nationwide, home values have been appreciating 7 or 8 percent, triple the rate of wage growth.”

In the Twin Cities, the median house is more than $261,000, according to his numbers. So a 20 percent down payment means having to accumulate $52,000 in cash.

That’s a big reach for a lot of Minnesota families.