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IN THE CENTER OF the Maine village where I spend my summer, a few residents live in a makeshift encampment. It consists of four popup trailers—the kind towed by cars—plus some cars, dilapidated lobster boats and a couple of pup tents, one containing children’s toys.
The residents live without running water, so they bring it to the site in gallon jugs. Their laundry hangs on clotheslines strung between trees and a lobster boat. The site looks forlorn and temporary, but this is the second year it’s been occupied.
A resident of the camp told me he lost his house in a divorce and can’t afford another place. He has family in the village who help him, and he has made money by digging clams at low tide. No doubt his life choices played the biggest role in his predicament. Yet there are also broad economic forces at work, here in Maine and across the nation, that give rise to rough living.
By chance, the place I live, Lincoln County, Maine, received a detailed report on its housing situation this May. The crux of the problem—here and elsewhere—is that U.S. housing prices have outrun the growth in incomes. In five years, the median home price more than doubled in Lincoln County, to $399,000 in October 2022 from $189,000 in October 2017, according to the housing study that was commissioned by the regional planning commission.
Meanwhile, median incomes rose 2.5% a year in Lincon County from 2017 to 2020, the latest figures available. The study’s author, Camoin Associates, estimates that county house prices are 45% above what a typical household can afford.
The situation is similar nationwide. According to Census data, home prices have risen 118%, after inflation, since 1965. Meanwhile, wages have grown just 15% in real terms over the same period, according to Labor Department data. As a consequence, in 2021, the average home costs 5.4 times the average household income, more than double the recommended price-to-income ratio of 2.6.
Lincoln County was more affordable in the past. In the 1980s, a clammer or lobsterman could afford to buy a house, with many starter homes then priced around $30,000. What changed? I can think of five factors.
First, there aren’t enough affordable houses to meet demand. “This has led to more residents living in campers or unsafe situations due to lack of other options, including even temporary shelter services,” the Camoin study found.
Homebuilding plunged during the Great Recession and has never fully recovered. Between 2010 and 2020, only 115 housing units were built In Lincoln County, compared to 2,644 in the decade before. Nationally, homebuilding starts plunged 75% during the Great Recession, according to data from the Federal Reserve Bank of St. Louis. The Great Recession, which began in the housing sector, seems to have put a permanent damper on construction.
Second, the approvals required to build a new house are hard to obtain. Only eight new houses are permitted to be built each year in our village, none within 250 feet of water. Because the rural character of the village is so well-loved, there’s a strong NIMBY culture here—not in my backyard. It’s kept the area looking like a picture postcard. Until you see the housing encampment.
Third, 15 years of rock-bottom mortgage rates allowed buyers to bid up the price of scarce housing, not just in Maine but elsewhere. “In Boston,” writes financial author Roger Lowenstein, “the median home, which had sold for a reasonable 2.2 times median income in the mid-90s, soared to 4.6 times a decade later. Similar leaps were tracked in other high-growth and coastal cities.”
The median home price is now five times Lincoln County’s median household income of $80,700. That puts the county in a league with cities like Miami, Sacramento and Seattle.
Fourth, the town won a grant to extend broadband service in 2020, just before the COVID-19 pandemic hit. This allowed remote workers with big-city incomes to move into a rural community that makes most of its money catching lobsters.
The newest home in our village is a glass building constructed by an executive from Meta Platforms. As my lobsterman friend David said with amazement, “You can see right through it.” Across the channel, popular musician Ray LaMontagne bought 100 acres on an island where he’s been building a large home for two years. It’s still not finished.
Fifth, more real estate investors have entered the housing market, with short-term rentals making up about 4% of the county’s housing stock. The house nearest the encampment is an Airbnb that does a steady business in summer. Cars with out-of-state plates cluster in the driveway. The owner put up a seven-foot stockade fence to hide the encampment from view.
I’m not faulting the landlord. Rental homes produce real income at a time when bonds have lost ground. Vanguard Total Bond Market ETF returned 1.4% annually over the past 10 years, lagging the 2.7% inflation rate. It’s easy to see why rental homes that produce income, along with rising home equity, are so attractive.
What can be done? The best thing would be a building boom, not just in Maine but nationally. According to a study by economists at housing lender Freddie Mac, the U.S. is 3.8 million housing units short of what’s needed to house its population. Lincoln County, with 36,215 residents, needs 401 new housing units in the next decade just to handle its expected population growth and a total of 1,048 year-round units to prevent housing affordability from getting worse.
The housing needed most are starter homes—single-family houses below 1,400 square feet that don’t cost a fortune to build, buy or rent. Currently, they make up just 7% of new homes built nationally, compared to 40% in 1980.
To get more starter homes off the ground, building codes need to be relaxed. The NIMBY movement has discouraged homebuilding by, for example, requiring that new houses be built on big lots. The rising cost of land, lumber and labor have made starter homes more difficult to build and afford. Tiny houses, which are just 400 square feet, often aren’t allowed by code.
Many of the houses in the village were built by their owners long ago. The farmhouse that I live in was built in 1876 by an ancestor of the man in the encampment. That do-it-yourself spirit is still strong here, and people should be encouraged to homestead by building homes incrementally, as they have the money to do so.
Last, we’re due for a housing price correction. When homes cost more than the local population can afford, something has to change. The tide may already be turning now that 30-year mortgage rates are reaching 7%, double what they were a year ago. Nationally, rent prices fell 1% in June, according to Realtor.com data, suggesting the overheated housing market may be starting to cool off.
Greg Spears is HumbleDollar’s deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.
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No work without representation.
It is totally perverse that Trustafarians
have an enormous say in a community.
While a firefighters risking their life to protect that community have zero say if they can’t afford to live there.
If those firefighters had a vote to elect community leaders, there would be more pressure to build affordable housing.
Informative article, Greg. To give you an idea of the (un)affordability situation in California,16% of California households can afford a median-priced home in the State today, down from a peak of 56% in 2012 (Source: 8/21/23 edition of Barron’s).
Greg, if you had the choice what community near the coast would you reside, north of Portland to a place such as Yarmouth, or south to perhaps Wells or Scarborough? Or would you go as far as Bath/Brunswick? I like the idea of access to the Amtrak train? Any thoughts?
I’ve got an idea. Why don’t we limit population growth in this country before we run out of land and resources.
My son lives in North Conway NH, which is a ski/tourist town. There is no affordable housing for the retail and restaurant workers due to all the ski condos and Airbnb rental houses. A large percentage of the housing is “occupied” by the tourists and thus the residents get the short end of the stick.
This is a big issue in California where I live, too. Besides the reasons you listed, “natural” disasters are exacerbating housing shortages. The devastating fires in Sonoma County in 2017 left a pretty unsolvable shortage. Tragically, the same has just happened in Lahaina, Maui, which is/was not really a resort community like Ka’anapali or Kapalua—it had modest, working class homes, now gone, along with people’s businesses/livelihoods. A lot of the surviving locals are wondering if they’ll be able to keep living on Maui—some have been there for generations. The fear is that developers/investors will buy up the land and price most people out.
This is the issue on Cape Cod as well. There are programs for the lower end of the pay scale but the teacher, police officer, firefighter, nurse? Nope, out of luck. My fellow boomers are arriving and entering bidding wars for homes backed by cash-in-hand offers. A good friend was selling his deceased mother’s house and was immediately and privately contacted by “entities” for cash offers, I’m assuming these are REIT-styled rental companies. Some “off Cape folks” are buying their future retirement homes and turning them into expensive AirBnBs until they retire.
I am a card-carrying capitalist. But something has to give. But in the meantime, I can see Cape Cod being without teachers, cops, firefighters, and nurses. Shoot, even doctors are finding it hard to live here.
There’s an interesting article in WSJ this week about making homes more affordable by reducing many of the amenities we’ve become accustomed to. No dining room, perhaps just one bathroom without a tub, etc. Kind of like the little house I grew up in during the fifties. It was just fine.
It seems similar to the quest to find a simple cheap car. Maybe someone could write an article on that topic. It’s hard to find a car that doesn’t come with a moonroof (I’ve never used the one I was obligated to buy), automatic tailgates, 6-way adjustable memory seats with heaters, climate control zones, satellite systems, etc.etc. The cost of replacing a broken side mirror these days is astonishing. They have cameras, turn-signals, motors, sensors, and widgets galore. $2000 dollars !?!
So different from where I reside with seemingly every square inch is being devoted to a new housing development. There are 6 or 7 new housing subdivision developments within a stone’s throw and many others within a few miles. It is a source of endless consternation among the community residents on NextDoor.
An excellent and thought-provoking article, Greg. I would offer one slight correction in that it’s not building codes that enable NIMBYism to restrict starter home development, but zoning codes. And those are very difficult to change, given the passion the issue generates in the community. Some of the most liberal people I know are the fiercest in opposing neighborhood Section 8 housing for the local workforce.
I also question whether the cooling of home prices will really have the desired effect of making more starter homes available. My hunch is that most of the chilling effect will be seen where the heating was most extreme, at the high end of the market. In my area the lowest-priced houses are still snapped up in days, almost regardless of age or condition. With entry-level housing so hard to find, it’s hard to see that trend cooling. Ever.
Econ 101: Supply and Demand.
I live in a town that used to have 7 lumber mills. Down to one now. Every single proposed bid for logging National forest land is automatically stalled out by lawsuits filed by well-heeled environmental groups. Mill workers were the blue-collar backbone of the community and they’re all gone.
It appears that grizzly bears, lynx and trout are doing quite well while the forests burn anyway. Communities are dying and nobody can afford ever more scarce lumber. I don’t hate environmental protection but I’ve always noticed that trees magically regrow.
“I don’t hate environmental protection” but you seem to be blaming it for the housing crisis.
I’d say there are about 15 factors more critical to housing affordability than the price of wood, many of which are addressed by Greg’s article.
It’s possible to be pro-environment and anti-frivolous lawsuits. The forest service budget was designed to hire rangers, fight fire, maintain trails, service the public need and so on – not fight continuous lawsuits often based on specious grounds. I agree that the cost of housing is multi-factorial; I was simply addressing one issue which has impacted construction of homes in my area to an extensive degree, if you talk to the contractors.
I concur, Doc Savage. I live in California, where we have a “CEQA” (California Environmental Quality Act) law that has been weaponized by those with their own agendas, such that any new development plan anywhere in the State has a significant chance of facing litigation before a shovel ever gets close to going into the ground.
Interesting. Perhaps it’s a regional phenomenon. I live in the Pacific Northwest, which once depended on logging. As an HOA officer of a large development in the final stages of construction, I speak regularly with the builders (and their foremen). They blame their lumber challenges on supply chain issues, which certainly differ by region, and the increased US tariffs on Canadian lumber. They say there’s plenty of wood available, but it’s unreasonably priced.
I would note that the federal courts appear not to find the lawsuits against the Forest Service “specious”, because the success rate of those suits is pretty high.
Lumber prices are currently 1/3 of what they were in May 2021 and about the same as what they were 5 years ago.
If you can get it. Innumerable construction projects around me are stalled out by a lack of wood-product availability. As a woodworker, I notice a phenomenal increase in the price of wood in the past 20 years. 2021 is not a good comparison.
You live in a beautiful part of Maine so no surprise housing prices have also soared there. There are so many houses in affluent communities in this country that have been bought as 2nd homes and are either used very infrequently or AirBnB’d. I’d be happy to see those properties have a higher property tax rate where the additional tax can be used to build homes for locals who need an affordable place to live. And it’s funny that everyone is against NIMBYs until they buy a home in a community they want to live in and then all of a sudden they become a NIMBY themselves!
I think that there must be a demographic component to this problem. Everywhere, in all parts of society, there is a shortage of bodies to do things. All the police departments here are short staffed. They no longer enforce traffic rules. There is a shortage of checkers creating lines at grocery stores in spite of self-checkout stations. Help wanted signs are everywhere. Who is going to build additional housing? When the last baby boomer was born in 1964, the generation of baby boomers represented around 36% of the population (190M approx). When the last Gen X person was born in 1980 they represented about 28% of the US population (226.5 M). For Gen y the percentage is 27%. The youngest Baby Boomers reach 65 in 2029. This problem (not enough workers) is not going to go away. We are going to have to get much more creative in how we build housing. It takes too many people to make stick-built houses. We are going to have to accept lower quality (if you define quality as stick-built) to house everyone.
Good quality furniture used to include things like dove-tailed drawers, and solid wood. Virtually no one today can afford to buy
https://nypost.com/2022/11/02/disturbing-rise-of-the-nilfs-men-not-in-the-labor-force/?utm_source=url_sitebuttons&utm_medium=site%20buttons&utm_campaign=site%20buttons
Good article, Greg. I’m wonder how a labor shortage in construction and trades plays into the situation. Similar to the situation with cars, when the cost of building a new house of whatever size keeps going up, the prices of “used” houses get pulled along as well.
The reality is that a critical labor component in construction is illegal immigrants who do most of the wall board work and hard labor jobs.
And the irony there is that home construction company owners, like farmers, tend towards political conservatism but suffer directly from the often-abrupt labor shortages brought on by immigration crackdowns.
Good analysis of an important problem. I agree with Dick, but there’s a lot of emotion surrounding the very divisive NIMBY issue. Where we stand on it can be uncomfortably revealing about our character and concern for the whole community.
When we moved into our condo I could look up the side of a mountain and see a forest. Two years later it was all gone and covered in 160 new homes selling for $800,000 to $1,000,000. They had no trouble selling. There was a remaining strip of tree covered land up the hill. The state forced the town to add affordable housing so now those woods are 60 units of affordable housing. I have to admit they are well designed and the architecture is suitable to the community, plus the grounds are well kept.
What I object to is the destruction of more and more open and forested land which where I live is in very short supply. I would like to see more effort in repurposing buildings/land that already exists. In addition, these efforts often put a great strain on small community infrastructure.
Yes, in my small town there are plenty of in-city areas to put new housing but they prefer raw land outside of town. There is existing older duplex and quad housing stock that make great affordable housing, but builders are not building any new ones.
Losing your view. – I have heard many retiree stories of buying retirement homes based on a location with a view only to lose it at a later date due to development. Cautionary tale for those considering their dream retirement home. A realtor should provide a warning. They are supposed to know the local area, right? But based in their incentive structure, most only care about the current transaction.
I agree with your last two points, but to solve them takes away the autonomy of the land owner, which is what makes it such a tough issue. Not a problem, unless I’m the land owner. Conflict over land use has been a problem since the beginning of human communities.
I think you mentioned one key factor, we need more so-called starter homes and more people to start out with them. Do people starting out need 2-1/2 baths, family room, finished basement and four bedrooms in 3000 sf?
Lots of people, including some in my family, are not looking for or feeling the need for a 3000 sf home. But the supply of smaller homes is minuscule and those that do hit the market get bid up rapidly. I don’t think builders have enough incentives to focus on building smaller homes. Must be more profit in making a few large homes than a dozen starter homes, even if the latter is what the community really needs.
Where I live , lots start at $300,000 and usually are more. No builder wants to put a small house on such an expensive lot . When I was starting out 40 years ago , land was typically one third or less of the total price of the house .
You’re probably right.