“The economy is in a state of transition, in which the middle-class jobs that emerged after World War II have begun to decline.”
So sayeth Arnold Kling of the Mercatus Center at George Mason University. Before reading Mr. Kling’s article, I had never given much credence to ideas associated with conservative think tanks because of their extremely partisan nature. But, as a person who believes in intellectual curiosity and rigor, I need to consider the possibility that Mr. Kling’s thesis might be (depressingly) true. If it is true that the American economy is undergoing fundamental structural change, and middle-class jobs as we know them are disappearing, then what are the implications for Virginia’s housing market and, tangentially, public policy related to affordable housing?
The loss of middle-class jobs and incomes means that fewer Virginia households will earn enough to become homeowners and to pay mortgages, even with low mortgage rates and lowered single family home prices. Those households that cannot buy homes will rent, which will increase the need for apartments and rental properties. As demand rises, supply will tighten, causing rents and multi-family rental property values to go up. As rental properties become more valuable as investments, America may see the emergence of its own “landed gentry” – a social class “consisting of land owners who [can] live entirely off rental income” and “[who work] in an administrative capacity looking after the management of their own lands.” In a sense, multi-family real estate investment trusts (REITs) are a corporate form of “landed gentry”, owning properties that house hundreds of thousands (millions?) of Americans.
In a tight market with more renters than apartments in desirable neighborhoods, many landlords will choose to raise rents. Renters will be subject to rent increases that will make it difficult to budget and save for the future. Budgeting and saving for the future become difficult when one doesn’t know how much rent may increase from year to year. To find affordable housing, renters will need to consider moving to other areas that do not necessarily meet their needs. Unexpected moves will be especially destabilizing and difficult for families with school-age children.
So how can Virginia address the housing implications of Mr. Kling’s predictions? Virginia can support the development of affordable rental housing by creating a state housing trust fund. Such a fund would provide grants and/or loans to developments that would be owned and operated by nonprofits and others who commit to long-term, if not permanent, affordability. Over 40 states already have their own state housing trust funds, including North Carolina, Maryland and West Virginia. Virginia could benefit from a housing trust fund where rental housing owners have voluntarily agreed to keep rents within set limits and who are accountable to the public and the funders of their work.
This is a guest post by Yoomie Ahn. Yoomie is a member of the Board of the Virginia Housing Coalition and Chair of its Legislative Committee. This blog post expresses Yoomie’s personal opinions only and does not represent the official views of the Virginia Housing Coalition, her employer or HOME.