Homeownership—the cornerstone of the proverbial American Dream—is coming back to life... slowly. According to U.S. Census Bureau data, homeownership in the U.S. dropped significantly between 2005 and 2016, where it bottomed out at just under 63%. Over the past three years, however, rates have begun a slow ascent, reaching 64.8% in Q3 2019 (the latest data available at the time of this writing). 

While Wisconsin's average homeownership rate (67.9%) is higher than the national average, the Badger State faces a unique challenge: our workforce is growing as our housing inventory stagnates. While our state unemployment rate hovers around 3%—an historic low—those same workers are struggling to find homes they can afford, as the median sales price of a Wisconsin home skyrocketed from $131,737 in 2011 to over $200,000 in summer 2019. 

Despite the challenges in Wisconsin's workforce housing market, there is reason for optimism. Stakeholders in all areas of the housing market (including bankers, builders, and lawmakers) are working together to find and implement solutions.

The Prevailing Challenge: Inventory

The primary cause of the housing market's current challenges is a lack of inventory. So, why aren't there enough affordable homes for Wisconsin workers? The basic economics of supply and demand is one reason. "Because of the large demand and lack of supply, the price of housing is rising faster than wages," explained Doug Gordon, CEO of WaterStone Bank, Wauwatosa. "More houses are moving out of the 'affordable' category because of the demand." In addition to a growing workforce, demand is also rising because Wisconsinites are living longer, healthier lives, and as those older-yet-healthy citizens see their kids off to college and downsize, they are competing for the same inventory as first-time homebuyers. 

It has also become more expensive to build a new home, which contributes to the current shortage of workforce housing. Regulatory expenses (such as permits, fees, and code requirements) and an uptick in lumber prices both make the final sticker price of a new home higher. Another factor is rising labor costs due to a shortage of workers in the skilled trades post-recession. During the housing crisis, many builders closed up shop and apprenticeship programs are rare today. 

It also takes much longer to create more inventory of houses than, say… cell phones or coffee mugs. "The big issue in some markets is the fact that we had a number of years where it took a long time to move some lots that had stagnated during the housing crisis," said Brad Boycks, executive director at the Wisconsin Builders Association. "With housing, it takes time to create new inventory, especially on the land development side."

Finally, many Wisconsin workers struggle to purchase a home because they don't have enough bandwidth in their finances to make a significant downpayment due to the rising cost of non-house expenses such as healthcare and childcare. "When those expenses continue to rise, it makes it difficult to find housing that's affordable," explained Paul Kohler, president & CEO of Charter Bank, Eau Claire. A contributing factor is many potential homebuyers are millennials, who tend to be more debt-averse. "Millennials are much more conservative, with average debt-to-income ratios in the mid-30s," explained Gordon. "Rents have gone up so much it's hard for them to save enough for a downpayment."

Coalition of Stakeholders Seek Solutions 

Bankers, builders, and lawmakers must work together to guide Wisconsin's economy past its workforce housing challenges. For bankers, that means serving as expert advisers, both to homebuyers and developers. Mortgage lenders should encourage borrowers to work with government housing authorities if they qualify for those programs, and commercial real estate lenders should know all the ins-and-outs of their local market so they can guide their developer clients through the process in the most efficient way possible. In addition, innovative loan products could help first-time borrowers enter the market. "Banks try to do everything we can to help," Gordon explained. "We're in the business of providing financing for homes. The state housing authorities are great avenues for first-time homeowners. We continually work with mortgage insurers to come up with products that are insurable at a higher loan-to-value ratio, too."

In the Chippewa Valley, Kohler says bankers joined forces with developers, city council members, and other stakeholders to form a housing task for in 2018 to brainstorm solutions. In addition to potentially creating and expanding revolving loan programs, Kohler says it's also important to encourage renovation of existing properties. "Building new homes is only part of the solution," he explained. "It's cheaper to improve and remodel an existing structure. If we can come up with programs to incentivize individuals to do that, that will help." In another area of the state, local lenders work with community advocates, educators, and businesses to fund and operate the La Crosse Promise program, which offers scholarships to homeowners who buy, build, or renovate in select La Crosse neighborhoods.

On the other side of the equation, builders have worked with lawmakers at the state and local level to find ways to reduce expenses, including code updates and legislation to improve the building permit process. "Over the last eight years there has been a lot done at the state level to bring down the final cost of the home and for local units of government to be more transparent in what fees they are charging to construct a new home, like impact fees," said Boycks. Additionally, builders are working to recruit more workers into the skilled trades. There are dozens of programs (both state and local) designed to encourage students to enter the trades and then train them once they're there. For example, Associated Builders and Contractors of Wisconsin (ABC Wisconsin) has apprenticeship programs for 12 trades and 1,500 apprentices in over 880 Wisconsin companies.

While builders and bankers have important roles to play, the greatest potential for positive impact is in the hands of local governments. "Local government has the greatest ability to speed things up and reduce cost and encourage new residential housing," Boycks explained. Even relatively small price reductions have a tremendous impact on workers' ability to purchase a home. The National Association of Home Builders (NAHB) estimates a $1,000 increase "prices out" 4,081 families from the market in Wisconsin.*

Reducing regulatory burden could have a massive impact on those prices, considering regulatory expenses account for over 24% of the cost of building a new home, according to a report from the Wisconsin REALTORS® Association. Kohler says local governments should adopt more flexible zoning, and Boycks recommends adjusting lot size requirements. "If you want more workforce housing but have a minimum lot size of 2-3 acres, that math is never going to work," he said. 

Tax reform is another potential tool to reduce costs. Kohler says lawmakers should consider developer tax credits for low-income housing, and Gordon suggests making interest deductions more widely available. "With the most recent tax laws it's difficult to have interest deductibility," he said. "That hurts affordability."

Victory: Housing's Economic Impact

Addressing and overcoming Wisconsin's current challenges in workforce housing will benefit the entire state. Residential construction generates substantial economic activity, including income and jobs for residents and state and local tax revenue. In 2018, NAHB estimated the one-year economic impact of building 1,000 homes in Wisconsin to be 4,451 jobs, $56.3 million in tax revenue, and $298.8 million in income for residents. 

With those numbers as motivation for the public and private sector alike, consumers should be optimistic about the housing market. Boycks says there's been more conversation about the need for workforce housing in 2019. "It's out there and being talked about," he said. "The key for 2020 is to look for ways to act on that and try to improve the circumstances."

* Similar data, including median new home price, income needed to qualify, and households "priced-out" is available for all 50 states and over 300 metro areas on NAHB's website here.

Seitz is WBA operations manager and senior writer.