Housing Affordability in Pottawatomie County and Beyond

By: The Pottawatomie County Economic Development Corporation (PCEDC) | 9.12.24

Housing affordability has become a widespread issue across the United States, affecting both urban areas and small rural communities in the Midwest. Several factors contribute to the current unaffordability of housing, even in places where housing was traditionally more affordable.

Here are the key reasons:

1. Rising Construction Costs

Materials and Labor Shortages: The cost of construction materials, such as lumber, steel, and concrete, has risen significantly in recent years due to supply chain disruptions, global demand, and inflation. In addition, labor shortages in the construction industry have driven up wages, increasing the overall cost of building new homes.
Regulatory Costs: Compliance with zoning regulations, building codes, and environmental requirements adds to the cost of housing development. These costs can disproportionately affect smaller developers in rural communities, where economies of scale are harder to achieve.

2. Land and Infrastructure Costs

Land Prices: Even in rural areas, land prices have been increasing. The scarcity of available land for development, driven by factors like zoning restrictions or agricultural preservation, has pushed up land costs, making new housing more expensive.
Infrastructure Development: In many rural areas, the infrastructure needed to support new housing developments (e.g., roads, utilities, water and sewage systems) is outdated or nonexistent. The costs of extending or upgrading infrastructure can make housing development more expensive.

3. Limited Housing Supply

Underbuilding After the Great Recession: The 2008 housing crash led to a significant reduction in homebuilding, and the industry has not fully recovered since then. This has created a housing shortage, which is being felt even in small towns and rural communities where new construction has slowed.
High Demand, Low Inventory: In many rural areas, there simply aren’t enough homes available to meet the demand. People who might have moved to urban areas in the past are now seeking housing in rural communities due to remote work opportunities, lower living costs, and a desire for more space, exacerbating the shortage.

4. Migration Trends

Population Shifts to Rural Areas: The COVID-19 pandemic accelerated migration from urban to rural areas, as remote work became more common and people sought larger homes, lower costs, and more outdoor space. This influx of new residents has driven up housing prices in small towns that weren’t equipped to handle the sudden increase in demand.
Second-Home and Investor Purchases: In some rural and vacation areas, wealthier individuals from urban centers have been purchasing second homes or investment properties, further tightening the housing supply and driving up prices for local residents.

5. Interest Rates and Financing Challenges

Rising Interest Rates: Although mortgage rates were historically low for much of the 2010s and early 2020s, recent rate hikes by the Federal Reserve have increased borrowing costs, making it more expensive for homebuyers to afford mortgages. This reduces purchasing power, especially for first-time buyers and those in lower-income brackets.
Financing Gaps for Rural Development: In smaller rural markets, financing for new developments can be more difficult to obtain. Lenders may view rural projects as riskier due to lower population density, lower resale value, or fewer comparable sales. This can deter new housing developments and contribute to supply shortages.

6. Income Stagnation and Affordability Gaps

Stagnant Wages: While housing prices have risen significantly, wage growth has not kept pace, especially for low- and middle-income workers. This growing gap between housing costs and household incomes has made it difficult for many people to afford homes, even in traditionally lower-cost rural areas.
Job Market Realities in Rural Areas: Many rural communities have a higher percentage of jobs in lower-wage industries such as agriculture, retail, and manufacturing. This means that while housing costs have risen, incomes have not increased proportionately, making housing less affordable.

7. Lack of Affordable Housing Development

Few Incentives for Affordable Housing: Developers often find it more profitable to build higher-end homes, as the margins are better, even in rural areas. This leads to a shortage of affordable or workforce housing. Additionally, there are often fewer public or private incentives to build affordable housing in rural areas compared to urban markets.
Aging Housing Stock: In many rural communities, the existing housing stock is old and in need of significant repairs. However, updating these homes can be costly, and many are not affordable for buyers. Without new affordable housing development, the overall supply of livable, affordable homes continues to shrink.

8. Speculative Investment and Institutional Buyers

Real Estate Speculation: Institutional investors and private equity firms have increasingly been purchasing large numbers of single-family homes, including in rural and small-town markets, with the intent of renting them out or flipping them for profit. This speculative activity drives up home prices and reduces the supply of homes available for local buyers.
Rising Rental Prices: As institutional investors purchase homes and convert them into rental properties, rental prices have also increased. In rural areas, where the rental market is often smaller, this can put additional pressure on people trying to find affordable housing.

9. Demographic Changes

Aging Population: Many rural communities have an aging population that remains in their homes longer, limiting the number of homes available for younger buyers. Additionally, as older homes fall into disrepair, fewer properties are available in good condition, further reducing affordable housing options.
Decreasing Household Sizes: The trend toward smaller household sizes means that more housing units are needed to accommodate the same population. This creates increased demand for housing, even if population growth is slow or stagnant.

10. Regulatory and Zoning Barriers

Zoning Restrictions: In some rural areas, zoning laws limit the type or density of housing that can be built. For example, large minimum lot sizes or restrictions on multi-family housing can prevent the development of more affordable housing options.
NIMBYism (Not In My Backyard): Even in rural areas, there can be resistance from existing residents to new housing developments, especially affordable or multi-family housing. This can slow down or block projects that could increase housing supply.

The current housing affordability crisis in the United States, even in rural Midwest communities, is driven by a complex mix of factors. These include rising construction costs, land shortages, population shifts, wage stagnation, and regulatory barriers, among others. Addressing these issues will require coordinated efforts from local governments, developers, and community organizations to create more affordable housing options and support sustainable economic development in these communities.

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