Cost-burdened: The $50,000 gap between Nashville's wages and housing costs

The cost of housing has far outpaced wages, according to a recent report from digital real estate company Redfin Corp., and Nashvillians are feeling that gap more than most cities.

Music City residents earn about $50,000 less than they need to pay the mortgage on a median-priced home, $3,102, the company reports. Incomes in the city would need to grow by 19% year-over-year, Redfin reports, to keep pace with the cost of housing.

There are two elements causing home prices to continue to climb: high interest rates and low inventory. Mortgage rates reached 7.57% earlier this month, the highest they’ve been in two decades, which has forced many would-be buyers out of the market. Despite the decrease, prices are still rising due to a slowdown in the rate of new construction.

“In [an] ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. But that’s not what’s happening now: Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates – and that’s propping up prices,” Chen Zhao, Redfin’s economics research lead, said in a press release. “Buyers – particularly first-timers – who are committed to getting into a home now should think outside the box. Consider a condo or townhouse, which are less expensive than a single-family home, and/or consider moving to a more affordable part of the country, or a more affordable suburb.”

Financial stress

The United States Bureau of Labor Statistics reports that wages in Davidson County have increased by 16% since 2020. Meanwhile the price of a home has grown by 35%, according to data from the Federal Housing Finance Agency.

About 63% of workers plan to ask for a raise before the end of the year, according to the 2024 Salary Guide from Robert Half. Thirty-nine percent of those respondents pointed to inflation, 26% said they took on more responsibility and 16% said they felt underpaid.

A recent study from housing data provider Attom found homeownership expenses in Davidson County account for 36.8% of the average worker’s pay – 1.8% higher than the national average.

The United States Department of Housing and Urban Development defines cost-burdened families as those who “pay more than 30% of their income for housing,” and “may have difficulty affording necessities such as food, clothing, transportation and medical care.”

“The dynamics influencing the U.S. housing market appear to continuously work against everyday Americans, potentially to the point where they could start to have a significant impact on home prices,” Rob Barber, CEO of Attom, said in an interview with the Business Journals earlier this month.

“We clearly aren’t there yet, as the market keeps going up and the slowdown we saw last year looks more and more like a temporary lull. But with basic homeownership now soaking up more than a third of average pay, the stage is set for some potential buyers to be priced out, which would reduce demand and the upward pressure on prices. We will see how this shakes out as the peak 2023 buying season winds down.”

Redfin economist Daryl Fairweather said the housing affordability crisis has had an outsized impact on members of Gen Z and millennials, who are much less likely to own a home than older generations.

“Many young people don’t have a choice between renting and buying,” Fairweather said in a press release. “They’re renting their home because even through rent payments have increased, too, it’s still more affordable than buying in much of the country – and renters don’t need a down payment.”

Housing inventory struggles

Regional homebuilders last year reported they were backing away from projects due to higher costs and a lower number of potential buyers.

President of Regent Homes LLC David McGowan said his company has also been reducing the square footage of its homes to lower the price for buyers.

“We used to build a 3,000-square-foot home, now we build a 2,600-square-foot house, which gets the price down into the [$600,000] range. We introduced a new townhome, which we’re selling in the mid- to high-$300,000 range,” McGowan said. “I think [developers] all kind of move in a trend, so instead of trying to build a 2,600-square-foot house we might go down to 2,200, so we can hit the price point the customers want to be in.”

Even with reduced square footage, the overall cost of development is keeping prices high, and limiting the number of developments his company can undertake.

“The interest rates they’re charging at banks and the equity requirements are slowing down the development of new lots,” McGowan said. “The cash you’ve got to put into the front end of the deal is definitely affecting the marketplace. There are apartment jobs and commercial and residential jobs that people are putting on hold.”




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