HOUSING DATA AND POLICY SNAPSHOT
Housing Affordability in Greater Philadelphia
The first snapshot in this series detailed the extreme national shortage of subsidized rental housing for households with incomes at or below the federal poverty guideline. As a refresher, the National Low Income Housing Coalition calculates that these extremely low-income renters face a shortage in every state and major metropolitan area and that the United States has a total shortage of 7.3 million homes affordable and available to these households.
While the need for affordable housing may be greatest among those with the lowest income, it is no surprise that the current housing crisis is reverberating through the entire economy and impacting households at every income level. According to a Pew Research Center survey conducted in October 2021, nearly half of Americans (49 percent) cited the availability of affordable housing as a major problem, up 10 percentage points from early 2018. In the same 2021 survey, 70 percent of Americans said young adults today have a harder time buying a home than their parents’ generation did. Survey respondents also identified the availability of affordable housing as more concerning than drug addiction, the economic and health impacts of COVID-19, and crime.
Surveys like this can help us better understand public sentiment, but how do researchers actually measure the affordability of housing in a specific place? This snapshot is dedicated to exploring several interrelated indicators that can be used to help assess the cost and availability of for-sale and rental homes. Some of these indicators are simple and familiar, while others are less well known. Together, they can help illustrate how the housing crisis is manifesting itself across the country and in Greater Philadelphia. The indicators covered here describe historical trends as well as current market conditions as of the spring of 2023. Although the themes of higher prices, greater demand, and lower inventory are likely to persist into the future, the individual metrics discussed here will continue to change as market conditions evolve.
High Home Prices Push Homeownership Out of Reach for Many
It may be obvious, but one of the most basic ways to assess affordability is to chart the price of for-sale homes. Home prices are a high visibility metric that play an important role in how people perceive individual neighborhoods and even the state of the general economy. Current and would-be homeowners often eagerly follow trends in sale prices–though for different reasons. Homeowners are curious to know how much their home may be worth, while prospective buyers want to know where they can afford to live.
Figure 1 tracks the median sales price for homes sold over the last 30 years in the United States. Generally speaking, median prices are viewed as a more reliable measure because averages can be distorted by homes that sell for very high or low prices. Between April 1993 and January 2023, the median sales price of a home had risen from $127,000 to $436,800, an increase of 243%.
Within the general upward trajectory of this chart, you can distinguish increases beginning in 2007 and 2020, attributable to the housing bubble and the COVID-19 pandemic respectively. Researchers attribute the dramatic increases in housing costs to a combination of long term trends, such as growing demand and the underproduction of housing, as well as more recent factors, such as supply chain issues, material costs, and labor shortages.
Figure 1: Median Sales Price of Homes Sold in the United States (1993-2023)
In reality, however, the cost of buying a home can rarely be boiled down to a single figure. Most homes really have two prices. The sales price, as shown in Figure 1 above, reflects the cost of a home if the buyer were using “all cash” to make the purchase. However, roughly 80 percent of homebuyers finance their home purchase. That means that for most homebuyers, interest rates at the time of purchase will have a significant impact on the monthly mortgage payment price of a house. Indeed, a surge in home buying spurred by record low mortgage interest rates during the pandemic is blamed for further straining the supply of homes for sale.
Although the trajectory of Figure 1 is clear, measurements that use “nominal” dollars, can be misleading because they do not account for inflation. Researchers often use inflation-adjusted figures to more accurately measure the appreciation rate of housing in relation to other goods and services. According to the U.S. Bureau of Labor Statistics, housing experienced an average inflation rate of 2.72 percent per year between 1993 and 2023. That means that a house that sold for $127,000 in 1993 would cost roughly $284,000 in 2023. Accounting for inflation, the cost of housing increased 54 percent over the last 30 years, a smaller yet still significant number.
Another valuable way to understand home prices is to compare them to wages. Figure 2 charts the ratio of median sale price to median household income between 1993 and 2021. For example, the median home price in January 2000 was $165,300. Purchasing that home required roughly 4 times the median household income earned that year, $41,990. As a rule of thumb, many banks consider a home price-to-income ratio in the 3.0–3.5 range generally financeable, assuming minimal outstanding outstanding debt obligations for student loans, car loans, credit cards, etc.
Figure 2 shows that price-to-income ratios hovered near four for nearly a decade before they began increasing and becoming more volatile during the mid-2000s. Price-to-income ratios near or greater than 5 have become relatively common over the last twenty years. The surge in home prices associated with the COVID-19 pandemic pushed these ratios to an all time high near 6 in 2021. Broadly speaking, the upward direction of this chart indicates that wages have not kept pace with increasing cost of housing.
Figure 2: Ratio of Median Home Sale Price to Median Household Income, United States (1993-2023)
In order to better understand home price trends in Greater Philadelphia, DVRPC purchased data on real estate transactions for the region. Figure 3 depicts the median sales price for single-family homes sold in 2021 for each of the nine counties in the DVRPC region. These prices range from a high of $410,000 (Chester County) to a low of $233,000 (Camden County). Overall, three counties, Chester, Bucks, and Montgomery, had median sales prices above the regional median of $295,000. Mercer County had the highest priced homes in the New Jersey portion of the region; however, all four of the New Jersey counties had median sales prices below the regional median.
Figure 3: Median Sales Price for Single-Family Homes by County (2021)
Figure 4 depicts the percentage change in median sales price for single-family homes in DVRPC counties between 2016 and 2021. For this analysis, 2016 prices were adjusted for inflation, resulting in positive percentage gains for eight of the nine counties in the region. Although Delaware County experienced a nominal increase in prices during this period, “real” prices decreased very slightly when accounting for inflation.
Philadelphia experienced the greatest increase in prices–23.8 percent–during this time period. Buoyed by the large number of transactions that took place in Philadelphia, the regional increase of roughly 23 percent tracks very closely with Philadelphia’s rate. Outside of the city, Camden (19.5 percent) and Bucks (17.9 percent) counties experienced the greatest price increases.
Figure 4: Percentage Change in Median Sales Price for Single-Family Homes by County (2016-2021, Adjusted for Inflation)
Figure 5 depicts price-to-income ratios for each DVRPC county and the region in 2021. At a regional level, the median home sold in Greater Philadelphia in 2021 cost 3.73 times the regional median household income. Three counties, Philadelphia, Bucks, and Chester, had ratios that exceeded the regional median, with Philadelphia’s 4.54 being the highest. All counties in Greater Philadelphia had price-to-income ratios below the national median, which ranged from 5.22 to 5.98, during 2021.
Figure 5: Ratio of Median Single-Family Home Sale Price to Median Household Income by County (2021)
The Number of Homes Listed for Sale Remains Exceptionally Low
The limited supply of homes is one of the key factors driving home prices and rents to unprecedented heights in recent years. The supply of homes for sale can be measured in several ways, including months of supply–essentially how long it would take for homes on the market to be sold at the current sales rate. By December of 2020, the inventory of homes for sale was just 1.9 months, the first time this measure fell below 2.0 since record keeping began in the 1980s. Economists have historically identified a balanced housing market as one with 6 months of available inventory–a state that hasn’t been attained since 2011.
Figure 6 further illustrates the constrained supply of housing using data from Realtor.com on the number of active real estate listings across the country between 2016 and 2023. The active listing count tracks the number of for-sale properties on the market, excluding pending listings where a pending status is available. According to this data, the number of active listings was at its lowest in February 2022, when there were only 346,544 active listings on the market. Between July 2016 and April 2023, the number of homes for sale fell by an astonishing 61 percent.
Figure 6: Active Listing Count in the United States
These trends have manifested themselves in Greater Philadelphia as well. Figure 7 charts the precipitous decline in homes for sale across the DVRPC region. According to Redfin, there were approximately 30,000 homes for sale across the region in July 2016. By April 2023, that number dipped to just under 10,000–a decrease of roughly 67 percent. The number of homes for sale dropped in all counties during this time, but the decrease was smallest in Philadelphia. As a result, Philadelphia’s inventory of homes for sale has represented an increasing share of the region’s for sale inventory. For example, in July 2016, Philadelphia’s 6,259 listings accounted for roughly 21 percent of the region’s total. By April 2023, Philadelphia’s 4,818 listings accounted for nearly half of the region’s total. Conversely, the decline in for-sale listings approached or surpassed 80 percent during this time period in Bucks, Burlington, Camden, Chester, Delaware, Gloucester, and Montgomery counties. The inventory of homes for sale decreased by roughly 60 percent in Mercer County during the same period.
Figure 7: Inventory of All Homes for Sale by County
To make matters worse, high prices mean that the supply of homes that are actually available for sale often don’t match what many people can afford to pay. According to research from the National Association of Realtors and Realtors.com, the Philly area doesn’t have enough homes for low- and middle-income buyers. According to their research, middle-income households in the Philadelphia metro area–those making roughly $50,000–faced the largest shortage of available, affordable homes for sale.
Here and around the country, the dramatic rise in annual interest rates on 30-year fixed rate mortgages is further constraining the inventory of for-sale homes. Many homeowners who purchased homes or refinanced their homes in recent years may have outstanding mortgages with historically low interest rates–below 4.0 or even 3.0 percent. As interest rates have climbed above 6.0 percent, these homeowners may hesitate to sell if they have to take on new loans at substantially higher rates.
Apartment Rental Rates
Similar to for-sale housing, the cost of renting a home has soared in recent years. Figure 8 tracks data from Rent.com on the median monthly rent paid in the United States. This analysis combines inventory and bedroom types into one simple median that covers all available rental units at the time. Although median rents have decreased slightly after peaking at $2,053 in August 2022, Figure 8 shows that the median rents increased 21 percent between February 2019 and April 2023.
Figure 8: Median Monthly Rent in the United States
Rental rates have risen, in part, due to increased competition for a limited supply of rental housing. Soaring home prices have kept many would-be homeowners in rental housing, contributing to the already strong growth in renter households. This growing competition is reflected in the shrinking rental vacancy rate illustrated in Figure 9. The Census Bureau has collected the Housing Vacancy Survey since 1956 (as a supplement to the Current Population Survey) to provide quarterly estimates of the rental vacancy rate and the homeowner vacancy rate. Nationwide, roughly 6.4 percent of the country’s rental housing stock sat vacant in January 2023. Although this figure is greater than the pandemic lows of 5.6, it is still lower than any vacancy rate recorded between 1985 and 2019.
Large rent increases contribute to the housing unaffordability spiral by making it difficult for would-be buyers to save for a downpayment, further delaying their transition to homeownership. Furthermore, the increased competition for rentals has contributed to significant declines in the supply of low-cost rental units. The Joint Center for Housing Studies of Harvard University (JCHS) estimates that the market has lost 3.9 million units with contract rents below $600 between 2011 and 2021. The loss of these units leaves the most vulnerable with few options and has helped to fuel a nationwide increase in unsheltered homelessness since 2015.
Figure 9: Rental Vacancy Rate in the United States
Rental rates have steadily increased across Greater Philadelphia as well. According to CoStar, a commercial real estate data provider, the average asking rent per unit in Greater Philadelphia in April 2023 was $1,653–an increase of 37 percent from January 2013 (see Figure 10). Figure 11 shows how the average asking price per unit varied across the region as of the second quarter of 2023. Mercer, Chester, and Montgomery counties all had average asking rents exceeding $1,800. Average rents in Burlington County and Philadelphia were near the regional average, while average rents in Bucks, Gloucester, Camden, and Delaware counties all fell below the regional average.
Figure 10: Average Asking Rent per Unit in Greater Philadelphia
Figure 11: Average Asking Rent per Unit by County (2023 Quarter 2)
Cost Burdens Reach Record Levels
As noted in the first snapshot, a household is considered cost burdened if it spends more than 30 percent of its income on housing. This benchmark–introduced in 1981 by the federal government to help guide public housing programs and mortgage lending standards–is one of the most widely used measures of housing affordability. Nationwide, the share of renter and owner households with cost burdens had been steadily declining during the 2010s.
However, this trend was reversed during the pandemic. Analysis conducted by JCHS indicates that the rising housing costs and pandemic-era income losses helped produce the most significant drop in housing affordability in years. Between 2019 and 2021, the number of cost-burdened renters increased by 1.2 million to a record 21.6 million. Of these, 11.6 million renters were severely cost burdened, spending over half of their income on housing. Likewise, the number of cost-burdened homeowners increased by 2.3 million to 19 million.
Renters are far more likely to be cost-burdened than homeowners, especially those earning lower incomes. Figure 12 uses analysis conducted by the National Equity Atlas to at present a national snapshot of renter cost burdens by race and ethnicity. In 2020, 50 percent of all renters at all income levels were cost burdened. This analysis helps to illustrate how housing cost burdens fall disproportionately on people of color. In 2020, Black and Latino renters were most likely to be cost burdened among all other racial and ethnic groups identified by the census.
Figure 12: Percentage of Cost-Burdened Renter Households in the United States (2020)
Figures 13 through 15 use data referenced in DVRPC’s Tracking Progress Indicators Dashboard to help assess housing affordability in Greater Philadelphia. Figure 13 compares rates of cost burden between renter and owner households between 2011 and 2021. Throughout that time, the share of renter households that are cost burdened has remained above 50 percent. Roughly 367,000 renter households throughout the region were cost burdened in 2021–nearly 19,000 more than existed in 2011. In percentage terms, however, the share of cost-burdened renter households peaked at 55 percent in 2011. Rental cost-burden rates slowly decreased between 2011 and 2019, before rising very slightly again by 2021.
Already significantly lower than renter burdens, the share of cost-burdened owner households dropped more substantially–from 34.6 percent to 23.2 percent–between 2011 and 2021.
Figure 13: Cost-Burdened Households by Tenure in Greater Philadelphia
Figures 14 and 15 compare the shares of cost-burdened households by tenure for individual counties in Greater Philadelphia in 2021. Owner cost burden rates were greatest in Camden County and Philadelphia. Delaware, Bucks, Montgomery, and Chester counties all had owner cost-burden rates less than the regional average of 23.2 percent. Three counties had renter cost-burden rates that exceeded the regional average of 51.1 percent: Delaware, Philadelphia, and Burlington. The share of cost-burdened renter households was lowest in Bucks and Chester counties, both near 45 percent.
Figure 14: Percentage of Cost-Burdened Owner Households by County
Figure 15: Percentage of Cost-Burdened Renter Households by County
For More Information
The indicators discussed here help illuminate various aspects of the housing affordability crisis, yet they only tell part of the story. Among other indicators, researchers also study trends in foreclosures, evictions, and homelessness to understand the overall health of the housing market as well as household levels of stress and stability.
In addition to DVRPC’s Regional Housing Submarket Analysis, there are a variety of tools and resources that can help individuals better understand the housing market in a given place. For more information on the state of housing affordability in your community, consider using the Housing Needs Assessment tool found on the Local Housing Solutions website. Local Housing Solutions is an online reference tool maintained by the New York University Furman Center’s Housing Solution Lab. The Housing Needs Assessment tool allows users to generate a report on housing needs in a community using nationally-available economic, demographic, and housing stock data.