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Solving the U.S. Middle-Class Housing Crisis

By: Rob Shapiro

July 10, 2024

middle class family in their house, trying to pay bills

Explore actionable strategies to address the growing shortage of affordable homes for the U.S. middle class.

Defining the U.S Middle Class: The Missing Middle

There isn’t one standard definition of the middle class but a generally accepted one is households that earn between two-thirds and double the median U.S. household income, which was $74,580 in 2022.

Historically, the middle class has been the engine of American economic growth and enjoys a comfortable standard of living, economic security and some work autonomy. Members of the middle class belong to diverse groups which overlap with each other. However, all of this is going away as inflation goes up and the housing crisis deepens.

The concept of the Missing Middle refers to the lack of medium-density housing that members of the American middle class could historically afford. These housing types are growing increasingly absent from many American cities, creating a gap in housing options for the middle class. Ultimately, they're being phased out of homeownership.

This gap is not only defined by affordability but also by the form and scale of homes. Townhouses, duplexes, triplexes and courtyard apartments are all examples of missing middle housing that can provide diverse, affordable options for residents.

Identifying U.S. Regions with the Largest Decline in Middle-Class Households

As the Missing Middle crisis continues to impact cities across the United States, it’s crucial to identify which areas are experiencing the largest decline in middle-class homebuyers.

A 2015 report by the Pew Research Center stated that the share of adults living in middle-class households fell from 61% in 1971 to 50% in 2021, illustrating the contraction of the middle class over the past five decades.

An illustration of the U.S. middle class. Two houses with lots of people miling about on lawns and the street along with cars and cyclistsBy focusing on cities with significant decreases in affordable housing options for the middle class, policymakers and housing advocates can target their efforts toward implementing solutions that address this pressing issue.

But which states are squeezing out their middle class?

Residents in New Jersey, Maryland and Massachusetts require the highest household income to be part of the lower-middle class. In those states, you need to gross around $65,000 annually. In Maryland and New Jersey, you are ranked on the higher end of the middle class if you make about $200,000. Not long ago, a household income of $200,000 would put you well ahead of most members of the middle class and would make you a comfortable homeowner.

Incidentally, Mississippi, West Virginia and Arkansas have the lowest income required to be in the middle class as your household income needs to only be between $35,000 and $37,000.



Is Inflation to Blame for the Decline of the Middle Class?

While inflation certainly has an impact on housing affordability, it’s not the sole factor contributing to the Missing Middle crisis.

The growing income disparity is as much to blame as inflation. The share of aggregate U.S. household income held by the middle class has steadily decreased since 1970, while the share held by upper-income households has increased.

Four people in a grocery store looking confused about the prices. There's a graph showing the increase in prices from inflationAs for inflation, it can lead to higher costs for construction materials, labor and land, which in turn makes housing more expensive for buyers. Other factors, such as zoning laws, land use regulations, a lack of investment in affordable housing development and a tight housing supply also play crucial roles. Supply must take some of the blame too as inventory shortage, particularly for entry-level homes, is contributing to inflated prices and making homeownership more challenging for first-time buyers.

These systemic barriers can prevent the construction of Missing Middle housing types, driving up prices and limiting options for middle-class families. Addressing inflation alone will not solve the crisis; a multifaceted approach across political levels is required to create more diverse and affordable housing options.

The Economic and Social Impacts of the Middle-Class Housing Crisis

The middle-class housing crisis has significant economic and social implications. Economically, the lack of affordable housing options can lead to increased living costs, hinder economic mobility and contribute to a workforce that is unable to live near their jobs.

Disparities in income gains among different income tiers exacerbate these issues, with the top 20% of earners enjoying substantial income gains while others struggle. Socially, it can deepen inequality and create a generational gap in homeownership.

Communities suffer when middle-class families are priced out of the housing market. It can lead to a decrease in neighborhood diversity, school funding challenges and a reduction in local civic engagement. The median income of different demographic groups plays a crucial role in determining their economic status and ability to afford housing. Addressing this crisis is essential for the health and sustainability of communities.

Strategies for Local Governments to Foster Middle-Class Housing 

The future of living for many middle-class households may reside in how local governments navigate the housing crisis. Local governments have the power to implement strategies that can foster the development of Missing Middle housing. They can revise zoning laws to allow for a wider range of housing types, streamline the approval process for home builders, provide tax incentives and implement inclusionary zoning policies that require a portion of new construction projects to be affordable.

Another strategy is to invest in infrastructure that supports denser housing, such as public transportation and community amenities. By taking proactive steps, local governments can create an environment where Missing Middle housing can thrive and become accessible to middle-income families. 

Future Trends in Middle-Class Housing Development

The future of middle-class housing development is likely to be influenced by a combination of market trends, policy changes and new construction projects. As awareness of the Missing Middle crisis grows, we may see a shift toward more compact, mixed-use new construction projects that offer affordability without sacrificing quality or location.

Sustainable building practices and new technologies may also play a role in reducing construction costs and increasing the supply of affordable housing. Additionally, the rise of remote work could lead to a redistribution of where people live, potentially revitalizing smaller cities and towns with new housing opportunities for middle-income households.

Is New Construction the Answer for the Shrinking Middle Class?

New construction is a vital part of fixing the shrinking middle class’s housing woes. By focusing on building more Missing Middle housing, home builders can provide affordable, quality homes that fill the gap between subsidized housing and luxury developments. 

However, new construction projects must be accompanied by policy reforms and community engagement to ensure that they meet the needs of middle-class residents. Collaboration between the public and private sectors is essential to make new construction a viable and sustainable option for expanding the middle-class housing stock.

Additionally, the disparity in income levels among different demographic groups, particularly the increasing share of aggregate income held by upper-income households, must be considered in these efforts.