FRB, Boston – Between 1995 and 2005, home prices in New England increased by 85 percent, compared to an increase of only 56 percent nationwide. The growth in house prices was far greater than the growth of real incomes, meaning most households in the region have seen the affordability of housing decline in recent years. As a result, there’s been speculation that young professionals are leaving New England, choosing not to move here, or facing financial strain because of high housing costs.
A recent study by the New England Public Policy Center explores whether young professional households can afford to own a home in New England using two common measures of housing affordability: (1) housing burden, defined as the percentage of household income spent on housing costs, and (2) income adequacy, which indicates whether the incomes of young professional households generally are adequate to purchase a home.
In terms of income adequacy, they looked at the ability of a median-income household to purchase a median-priced home. It would have been more interesting if they accounted for the distribution of incomes and home prices around their median values. For example, they might have looked at the question of affordability for young professional households that earn less than the median income (like the 10th or 25th percentile). There are still some interesting findings:
The figure shows that while young professional households in New England pay a larger share of their incomes on average, the percentage of households that are severely burdened is not out of line with the rest of the U.S.
They also found that although young professionals in Boston tend to earn more than their peers in other cities – like Chicago, Philadelphia, Phoenix, and Raleigh – housing is also more expensive even relative to their higher incomes.