3 REAL Reasons Houses are So Expensive (It's Not What You Think) | Ep. 18
Let me start by stating the obvious – if you've been looking for a house recently, you already know this to be true: housing affordability has never been at a lower point. It has never been harder to afford a home than it is right now, at least not in living memory. While some people reference the 1980s and high interest rates, when we look at actual housing affordability – the relative cost of a house compared to the average household income – we are so far away from housing being attainable that it's become ridiculous.
In this episode of the DIY Home Buyer Podcast, I want to dive into three particular areas contributing to this housing affordability crisis. This is a complicated mess, and I don't pretend to have all the answers. Everything I'm sharing here is informed by people much smarter than me, but I'll try to break it down for the everyday home buyer. My hope is that this will help you think about your next steps and weigh whether houses might become more affordable in the coming years.
Understanding Today's Housing Market
The conventional wisdom has always been that a home should cost no more than three times your annual income. In the United States, with an average household income of around $75,000, that would mean an affordable home should cost about $225,000. However, the average purchase price of a home in the United States is now around $360,000 – well above that threshold.
Good luck finding a quality home that you want to live in and raise a family in for under $300,000 pretty much anywhere in America. And if you're living on either coast, finding anything under half a million is nearly impossible. Even builders cannot construct houses that affordably, which raises the questions: why, what happened, and how do we fix it?
The Impact of COVID on Housing
The current crisis largely stems from the extraordinary financial circumstances during COVID and government intervention during the pandemic. Several factors converged:
People were stuck at home, thinking about their living spaces and starting to work from home
There was a renewed sense of how important housing and homeownership were
The government was printing money and giving out stimulus checks
Interest rates reached historic lows, with some people securing 2% interest rates for 30-year mortgages
This created a perfect storm: a huge number of potential buyers, limited supply of homes, and extremely affordable borrowing conditions. Now we have homeowners who:
Have seen incredible increases in equity
Either bought or refinanced when interest rates were low
Feel comfortable with their monthly payments
Don't need to sell
The Three Key Factors
1. Zoning Regulations
Zoning, particularly regarding housing density, is perhaps the biggest barrier to creating more affordable housing. Many homes built in the 40s, 50s, and 60s are relatively small houses (1,200-1,400 square feet) sitting on quarter-acre lots. While having more property is wonderful, it's not an efficient use of land, especially when these lots are zoned exclusively for single-family homes.
Some encouraging trends are emerging. Washington State, for example, has been a leader in housing affordability. They recently passed legislation requiring cities with populations over 75,000 to adopt new zoning codes allowing up to two ADUs (Additional Dwelling Units) on each property. These can be converted garages, basement apartments, or tiny homes, which can be either rented or even sold separately through condominiumization.
2. Regulatory Barriers
The regulatory processes for zoning changes, subdividing, and development are both time-consuming and expensive. Some issues include:
Backed-up city permitting offices
Long wait times for approvals (4-5 months just for building permits)
Extensive environmental and community impact studies
Multiplying fees when subdividing lots
Cities using development as a revenue source
Over-engineering of homes due to constantly increasing standards
Interestingly, larger builders often push for more regulations as they can better absorb the costs, while local builders struggle to compete. This ultimately hurts housing affordability and local economies.
3. The NIMBY Factor
The final piece is deeply human: the stigma around affordable housing. While everyone supports the concept of affordable housing in theory, NIMBYism ("Not In My Back Yard") often prevents practical implementation. We need to:
Recognize the role of privilege and luck in homeownership
Cultivate compassion for first-time buyers
Get creative with housing solutions
Rethink how we market affordable housing projects
Looking Forward
For housing to become more affordable, we likely need to see some price correction in the coming years – perhaps 10-15% or even 20% in some markets. The goal should be to return to the three-times-income standard, where families earning $100,000 annually can find good options around $300,000.
This won't be easy, and we should be wary of quick fixes like government down payment assistance, which might actually worsen the problem by driving prices higher. Instead, we need long-term solutions that address the fundamental issues of zoning, regulation, and community acceptance.
For more detailed information and resources, join our free school community at skool.com/diyhomebuyer
