- As home price growth outstrips wage growth, occupations such as teachers, first responders and restaurant workers struggle to afford to live in the communities they serve. In 42 of the largest 55 housing markets studied, teachers can afford less than half of the homes on the market.
- High home prices impact affordability even where wages are in the six-figures. In the three costliest California metros –San Jose, San Francisco and Los Angeles—where first responders earn more than $100,000, these emergency workers can only afford 10.6%, 17.6% and 25.1% of homes on their respective markets.
- Among the occupations examined, restaurant workers have the toughest time in today’s housing market; in over half the markets in this study, their relatively low wages could only buy five percent or less of the homes on the market.
Increasingly, the people we rely on to educate our children, protect our neighborhoods and serve us in our local restaurants are struggling to afford a home in the same places where they work. And they aren’t alone.
Affordability woes are rampant in today’s housing market, and the cost of deteriorating housing affordability is measured both in how much households must spend on housing and in understanding who is (and isn’t) able to reasonably afford to buy homes in their communities.
The list price for a for-sale home nationwide rose 19.2% in the last three years, while wages rose only 6.7% over that same time period. Today, a worker earning the U.S. median annual salary of $38,640 would spend 46.1% of their income on a median-priced home – $285,000 nationally – up 6.5 percentage points from three years ago. The common rule of thumb says housing costs should not exceed 30% of income to still be considered affordable – and it’s important to note that a given buyer could choose to exceed this threshold in order to secure a home. But more money spent on housing means less money saved for education, emergency expenses and other expenses.
Using data on wages by occupation and location, we calculated what share of homes currently for sale in the 55 largest U.S metros (where data were available) teachers, first responders, restaurant workers and doctors could afford to buy with 30% of their income (in what follows we refer to that as “reasonably affording” a home). We found that affordability is an issue in both pricey and inexpensive markets, and that very few workers – from low-wage earners to those earning six-figure salaries – are truly immune from the difficulties.
Affordability challenges are the most extreme in the nation’s most-expensive metros. In San Jose, for example, the median price of a home on the market is currently $1,087,500. At that price point, even a local doctor – generally earning more than $200,000 per year – can reasonably afford only about half (51%) of all homes on the market.
Highly-paid first responders also struggle with housing affordability in coastal California. San Jose boasts the nation’s best-compensated first responders – local firefighters and police officers both earn around $122,000 a year – but that six-figure salary can only buy 10.6% of available homes. First responders farther north in San Francisco and farther south in Los Angeles (the second- and third-priciest U.S. markets) also typically bring home more than $100,000 a year – and like San Jose, that very respectable salary is still not enough to afford more than a quarter of available homes.
Price tags in coastal California are high enough that even well-paid workers like doctors struggle to find a reasonably affordable home, but the affordability challenges for more workaday wage earners are just as stark even in more-affordable markets. And the affordability challenges facing teachers are laid especially bare.
Consider Houston, a market near the middle of the pack for home prices and teachers’ wages. At $289,900, the median price of a home in Houston is a few thousand dollars more than the national median price of $285,000. Likewise, teachers in Houston earn $58,848 per year, on par with the national average for teachers. But given their current income and housing costs, teachers in Houston can reasonably afford just over a quarter (25.5%) of homes in the metro.
In other, somewhat pricier markets including Denver, San Diego and Seattle, however, at least 90% of homes for sale are out of reach of teachers’ budgets. And even in more moderate markets such as Raleigh and Orlando, annual teacher wages in the mid-to-high $40,000s are only enough to reasonably afford 11.1% and 19.5% of available homes, respectively.
Some of the lowest-priced metros are also among the most affordable, but restaurant workers in these inexpensive locales are nevertheless held back by low wages. In Pittsburgh, among the least-expensive markets examined and one with the greatest rates of affordability across all occupations, teachers can reasonably afford more than 64.2% of homes for sale and first responders 63.3%. But restaurant workers in Pittsburgh can only reasonably afford 24.4% of local homes for sale, just behind Memphis (25.1%) for the market with the highest share of reasonably affordable homes for restaurant workers.
And some of the same metros renowned for their restaurant scenes and foodie culture are also among those that are least affordable to restaurant workers. In Los Angeles, restaurant workers can reasonably afford a scant 0.1% of available homes. In other food meccas, the shares of affordable homes for restaurant workers are marginally higher: in Portland, Ore. it is 0.3% and San Francisco 0.4%.
Housing affordability strains have reached troubling levels, making it increasingly difficult for teachers, first responders and restaurant workers to afford to buy homes and live in the communities they serve. Even as the housing market shows signs of cooling and evidence that prices may be exhausting demand, the fact remains that home price growth still outpaces wage growth. There is a long way to go before many of those working in our communities are no longer worried about being able to afford to live where they work.
Wage figures used in this report are from the Bureau of Labor Statistics Occupational Employment Statistics for May 2018. Doctors are family and general practitioners. Teachers in this report include elementary, middle and secondary school teachers. The median wage for combined sub-categories is calculated by taking the average of these median wages of these sub-categories, weighted by total employment for those occupations by metro. Restaurant workers include chefs and head cooks, food prep and serving worker supervisors, cooks, food preparation workers, bartenders, counter attendants, waiters and waitresses, dishwashers, and hosts and hostesses. First responders include police and sheriff’s patrol officers and firefighters.
We define “reasonably affordable” as spending 30% or less of one’s monthly income on housing, and we assume a homebuyer is a single-income earner for purposes of this report. In order to find the share of reasonably affordable homes on the market for the median income earner for each occupation, we calculate the maximum amount that each person can allocate towards a mortgage payment based on their wage. We evaluated the price of each home listed on Trulia on April 15, 2019 and subtracted a 20% down payment and calculated the monthly mortgage payment using the prevailing 30-year fixed mortgage rate according to Freddie Mac’s Primary Mortgage Market Survey. We also factored in applicable HOA fees, mortgage insurance and property taxes. Based on these calculations, we determined the share of active properties that each occupation could afford without exceeding 30% of their income spent.