Housing is quickly moving out of reach for the average American in many places, and not only in superstar cities like New York and San Francisco. Here at CityLab, my colleague Tanvi Misra recently showed that the average American needs to earn $19.35 per hour to afford the average two-bedroom apartment—more than two and a half times the minimum wage.
But the growing wage gap means that the housing crunch hits low-paid service and blue-collar workers harder than more highly paid knowledge workers. To get at this, my Martin Prosperity Institute colleague Charlotta Mellander and I did a simple calculation of how many years of working wages it takes to cover housing costs for three very different groups of workers: the highly paid creative class, the much lower-paid service class, and the declining ranks of blue-collar workers. Our analysis covers roughly 300 metros, using data on estimated home values from Zillow, and on wages from the Bureau of Labor Statistics.
A caveat: Our calculations look at the number of years of working wages it would take to pay for the purchase-price of a home, and do not take on the added expense of mortgage interest, which would drive the cost (and thus, the number of years it would take to pay for a home) up even higher.
While exploring our maps and data, keep in mind the basic rule of thumb that the price of a home should be roughly be 2.6 times one’s take-home pay. The metros where households need to devote more years of wages to purchase a home are in purple, while those where people need to devote fewer are in light blue.
The first map, below, charts how many years of wages it takes to pay for a home for the average American worker. Look at the dark purple on both coasts: Workers are devoting 10 or more times their take-home pay to buy a home in these areas.
In Santa Cruz, it would take the average worker 13.1 years’ worth of wages to buy a home. In Honolulu, it’s 12.8 years of wages, San Jose 11.5 years, and San Francisco 11.0 years. Other metros where housing is far out of reach for the average worker include New York (6.6), greater Boston (6.2), and Washington, D.C. (5.6), on the East Coast. There are also some expensive surprises: Bismarck, North Dakota (6.0); Fort Collins, Colorado (5.9); and Missoula, Montana (5.9).
There are very few places where workers can buy a home for less than the 2.6-years’-worth-of-income rule of thumb—mainly metros in the Rustbelt. Across the nation, it takes nearly four years’ (3.9) worth of wages for the average worker to buy a metro home.
Now let’s look at the pattern by class, starting with highly paid creative-knowledge workers. As the map below shows, the most expensive metros are still mostly along the coasts. But notice how much less extreme the pattern is: Far fewer metros stand out purple, showing that members of the creative class do not have to devote nearly as many years of wages to pay for a home.
In Honolulu, it would take the average worker 8.4 years of wages to afford a home, Santa Cruz 8.1 years, San Jose 7.6 years, and San Francisco 7.1 years. Other expensive metros for creative-class workers include Boulder (4.8) and Fort Collins (4.3), Colorado; Flagstaff, Arizona (4.5 years); Santa Fe, New Mexico (4.2); Bellingham, Washington (4.1 years); and New York and Boston (both 4.1 years).
But the number of years it takes to buy a home is much lower for knowledge workers than for others. On average, it would take creative-class workers just 2.5 years of wages to afford a home—below the rule of thumb for affordability and more than a third less than average workers.
Now let’s look at the pattern for the shrinking ranks of blue-collar workers, who once made up the backbone of America’s middle class. The map below has much more purple: Housing is much less affordable for blue-collar workers in many places across the country. Indeed, the average home would cost these workers 4.5 years’ worth of wages, almost double that for the creative class.
It would take blue-collar worker a whopping 18.5 years of work to buy a home in San Jose, in the heart of the Silicon Valley, and 16.4 years of work to buy one in Santa Cruz. Blue-collar workers would need 8.4 years’ worth of wages to buy a home in New York, and 8.3 in Boston. Using the 2.6-years’-worth-of-wages rule, there are just 21 metros that are affordable for blue-collar workers across America, mainly in the Rustbelt and Deep South.
The situation is much worse for the nation’s 65 million service workers, who make up nearly half of the workforce. Across the country, it would take the average service worker 5.5 years’ worth of wages to pay off a home in the average metro, more than double that of the creative class.
In San Jose, for example, it would take the average service worker a staggering 20 years’ worth of wages to buy a home, and 18.6 years to buy one in Santa Cruz. It would take 17.0 years’ worth of wages for a service worker to buy a home in San Francisco, and 15.0 years’ worth of work to buy one in L.A. A service worker would need 9.7 years worth of wages to buy a home in New York, 9.4 in Boston, and 9.0 in Seattle. There are just two metros in the entire United States where the average service worker could buy a home for less than 2.6 years’ worth of wages: Anderson, Indiana (2.6 years) and Saginaw, Michigan (2.4 years).
The problem is not just that U.S. housing is less affordable. The burden falls most heavily on the service and blue-collar workers that make up roughly two-thirds of America’s workforce. America’s growing housing divide compounds its growing inequality, making it harder and harder for everyday Americans to afford homes in the nation’s most economically dynamic regions.