It is no secret that housing costs are increasingly becoming a burden for people in metropolitan areas across the country.
The U.S. Department of Housing and Urban Development defines a household as being “housing cost burdened” if its earners spend more than 30% of their income on housing costs, whether that be rent, mortgage payments, property taxes, homeowners insurance, utilities, mobile home costs, and condominium association fees.
If we use the Columbus, Ohio Metropolitan Statistical Area as a case study, we see the percentage of people who are housing cost burdened rose by 4 points from 2019 to 2023, a 16% relative increase over that time period. This means housing costs have been eating up a growing proportion of household income over that time period.
Figure 1: Housing cost burdened rate growing in Columbus MSA from 2019 to 2023
The generally accepted explanation for why housing costs have been on the rise over the past few years is that the housing market is a competitive market subject to standard rules of supply and demand. The inability of supply to keep up with demand will drive costs of housing up as more dollars are chasing fewer homes.
This seems to be the case in Columbus. The metropolitan area added 60,000 homes from 2019 to 2023. Despite this growth in housing supply, demand outpaced it–63,000 more homes were occupied in the Columbus, Ohio Metropolitan Statistical Area in 2023 than in 2019. This means there were 3,000 fewer vacant homes in 2023 than in 2019. More dollars chasing fewer homes means higher prices.
To explain this trend, I have seen a couple theories bubble up about why supply is being limited in Columbus.
Theory 1: Speculative Investors
One theory goes like this: there are big-time investors who see a chance to make money in the housing market. They see housing prices increasing, so they buy up housing and sit on it, hoping to sell it for a higher price later and make a profit on their investment.
The problem with this theory is that we have not seen a significant increase in homes that are owned but unoccupied in the Columbus metropolitan area. According to American Community Survey data, the number of homes owned and unoccupied has actually gone down by about 270 homes (about a 9% decrease) from 2019 to 2023. So if anything, the prevalence of speculator investors seems to be a decreasing problem over time.
Figure 2: The number of homes owned and unoccupied in the Columbus, Ohio Metropolitan Statistical Area fell from 2019 to 2023
There are some caveats to this analysis. We do see a significant rebound in the number of homes owned but unoccupied in 2023, suggesting speculative activity could be increasing. That seems strange given the increase in interest rates, making housing investments less profitable than they were during the 2010 heyday of dirt cheap housing interest, but there may be something at play here.
The other caveat is that these overall numbers do not tell us about the geographic distribution of housing speculation. There could be concentrated speculation taking place that would not be captured by looking at overall numbers across the metropolitan area.
Whatever the trend is here, speculation is dangerous business for the speculator. Buying an asset and letting it sit with no one occupying it is taking a loss until you sell that property. Smart speculative activity should be creating more housing by providing rental housing at least. While this may allow big speculators to increase prices if they exercise enough market power, rental prices are also very “sticky” so there is a countervailing force against that trend. Speculators are not likely a primary cause of increases in housing prices in central Ohio.
Theory 2: Short-term rentals
Airbnb has become a bit of a bogeyman to many in the housing space. What a company like Airbnb represents is a market innovation that repurposes housing supply for another use: short-term stays. The theory is if Airbnb and other short-term rentals become more abundant, they crowd out the supply of housing for long-term purposes. Basically, if a home wasn’t being used as an Airbnb, it would be available for rent, thus increasing the supply. According to this theory, Airbnb is a threat to housing supply.
I’ll admit, I have been skeptical of this argument in the past. Full disclosure: Scioto Analysis may not exist if it weren’t for Airbnb. When I was starting this practice in 2019 and begging clients to give me a chance to do policy analysis for them, I was staying at friends’ houses or my parents’ and renting my home to visitors to our city. Airbnb was a significant source of our income that year. Some of the steps the city of Columbus took to clamp down on Airbnb activity that year made it a lot harder for me to have that as an income stream and was part of what caused me to move late that year. So I have a bit of a personal issue with burdensome regulation of the platform.
That being said, we have seen a significant uptick in homes used for seasonal, recreational, or occasional use (the category that encompasses homes used solely for Airbnb) from 2019 to 2023. There were about 2,600 more homes that are vacant due to these reasons in 2023 compared to 2019, a 65% increase.
Figure 3: About 2,600 more homes were vacant for seasonal, recreational, or occasional use in 2023 compared to 2019.
The big driver: supply shortages
When isolating homes that are for sale or for rent, we can see an even more dramatic decrease in available housing supply. The total number of houses for sale and for rent decreased by nearly 8,100 units from 2019 to 2023–a 36% total decrease.
Figure 4: The number of houses available for rent or to purchase in Columbus, Ohio Metropolitan Statistical Area has fallen by 36% over five years.
The most straightforward way to slow this problem of rising prices is to increase supply. That means reducing zoning and permitting barriers to construction of new homes. Over this time period, about 650 more homes built per year would have kept vacancies level. Lowering barriers to building could increase supply and ease the increase in prices.
There is another way, though: helping with the demand side. Housing subsidies like vouchers or cash transfers like child tax credits can be ways to provide relief on the demand side of the equation. The benefit of the latter is that cash transfers could also provide relief for households to pay for other necessities like food, transportation, and child care. Giving people money won’t solve every problem, but it will solve the problem of not having money.