Sara Stevens and Dan Nee took the plunge into homeownership a year ago, closing on a modest bungalow in Arlington, Va., less than five miles from the Capitol. With its fireplace, inviting front porch and friendly neighbors, the house felt like a perfect place to start a family. “When we pulled up and I saw that house I was immediately, like, I mean, smitten,” Sara said. “I keep saying it has charm coming out the wazoo, but it does.”

After some typical ups and downs—a leaky roof, renovations—Sara, 32, and Dan, 33, are preparing for their first Christmas in the house. There will be a wreath on the door and a tree in the window, just like Sara had imagined. Their first child, Noah, will be 9 months old. “The house has become a home,” Sara said.

While this story might seem typical—a young couple reaching for the American dream one rung at a time—it’s anything but.

Sara and Dan are, by most standards, wealthy. Their starter home came with a $755,000 price tag, which they could afford because their household income is more than twice the Arlington median of $104,000 and their student loans are paid off. And Sara’s dad—who until recently led the Mortgage Bankers Association in Washington—pitched in with more than half the down payment.

TOP: The 1145-square-foot bungalow that Sara Stevens and Dan Nee bought in Arlington, Va., after getting help with the down payment from Sara’s father. BOTTOM: The couple on a final walkthrough of the house with their realtor. | Evelyn Hockstein for POLITICO

For generations, homeownership has been a toehold on the ladder up for middle-class Americans, helping them build nest eggs and prepare for retirement. Now, an epic housing shortage has collided with the largest cohort of young adults in the country’s history. That has sent prices into the stratosphere and put homebuying out of reach for many, especially in job centers.

The perverse result: Only affluent first-time buyers are able to capitalize on the wealth-building tool of homeownership.

“The farther millennials fall behind on sustainable homeownership, the more unequal America gets,” said Karen Petrou, managing director of Federal Financial Analytics. “More Americans are standing by the side of the road looking into the windows of nicer and nicer housing across the income divide.”

The problem threatens to get worse as interest rates rise and construction lags demand, especially for starter homes. Many, if not most, millennials are being priced out of homeownership, especially near job centers like Washington. (The announcement of a new Amazon headquarters near Sara and Dan’s neighborhood is likely to put houses there even further out of reach for most.) Hemmed in by high prices in cities, some would-be buyers also are denied ownership where they can afford it, in less-expensive outer suburbs or smaller cities, because they can’t save for down payments or qualify for loans.

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What can be done? Fundamentally, the only real fix for a housing shortage is more supply, but local politicians have little incentive to act. Seattle is running up against entrenched NIMBYs—a class of not-in-my-backyard, single-family homeowners—as it tries to boost construction of townhouses and condominiums. In Austin, Denver and other job centers, YIMBY groups—the countervailing “yes-in-my-backyard” movement—are growing in number but struggling to get political traction. On Nov. 6, San Francisco voters rejected a Board of Supervisors bid from YIMBY candidate Sonja Trauss , who had run on a promise to ease zoning restrictions.

Conventional wisdom suggests that the housing collapse a decade ago would have made homeownership more affordable. That was true for a while, but it didn’t account for a slowdown in new construction and the simultaneous rise of coming-of-age of millennials, the biggest cohort in U.S. history. About 1.2 million new single-family houses are needed this year to replace aging stock and keep up with population growth, but builders are on track to start only 880,000, according to the National Association of Home Builders.

Now, young couples starting families, like Sara and Dan, are faced with a tough new set of decisions about what, for generations, has been the biggest no-brainer investment in America. The story of their first house is a window into social and market dynamics that are concentrating wealth in inner cities, triggering migration from major job hubs and even slowing the broader U.S. economy.

SARA WAS JUST out of college in 2009 when President Barack Obama put her father, David Stevens, in charge of the Federal Housing Administration, a Depression-era agency established to help working-class Americans obtain mortgages. While her father did battle on the front lines of the housing collapse, Sara and her friends loaded up on grad school debt and struggled to find work. Homeownership was a distant aspiration.

David Stevens, Sara Stevens’ father, served as commissioner of the Federal Housing Administration under President Barack Obama before becoming president and CEO of the Mortgage Bankers Association. Stevens, who recently stepped down from the MBA, provided part of the downpayment to help his daughter buy her first house. | Ramin Talaie/Corbis via Getty Images

In 2011, home prices had yet to hit bottom and millions of Americans owed more on their houses than they were worth, but the market free fall had stopped. Sara’s dad left government that year to lead the Mortgage Bankers Association, a trade lobby. He championed homeownership for a living; his daughter held back .

She and Dan rented a series of apartments in Washington and nearby Arlington while they paid off student loans and established themselves professionally. Despite pressure from her father, they didn’t even consider buying a house. But they did watch friends buy and spent hours surfing real estate websites.

Their front-row seat to the collapse colored Sara and Dan’s decision-making even when they did start house hunting in 2017. Lenders qualified the couple for an $850,000 mortgage, enough to buy a townhouse in downtown Washington, which they quickly rejected as too much debt. With help from Sara’s dad, they opted for a smaller loan, a less-expensive house and a sizable down payment that would keep their monthly mortgage comfortably low.

They also nixed the farther-out Virginia suburbs of Ashburn, Fairfax and Falls Church, where they easily could afford more house at the cost of longer commutes. Like many millennials, they wanted a short trip to work and easy access to public transportation. And they wanted to avoid the more volatile home price swings that take place the farther you buy from the center city. “We wanted something insulated from a lot of the financial ups and downs,” Sara said.

The way she and Dan saw it, they had three options. They could buy a pricey house in a cool neighborhood close to downtown. They could keep renting. Or they could ditch Washington altogether for a cheaper city such as Richmond, Va. “We didn’t view moving to Fairfax as the compromise. We viewed ‘we can’t afford a house yet’ as the compromise,” Dan said. “We’ll be living in Denver before we live in Fairfax.”

They faced one of the worst possible markets for buyers. The supply of homes for sale had been falling since early 2015 and was near a record low, a shortage that had led to double-digit price increases. In October 2017, median home prices rose 5.5 percent, the 68th-straight month of year-over-year gains, according to the National Association of Realtors. Reality set in quickly, with bidding wars, high prices and few choices.

Sara Stevens and Dan Nee receive a gift from their realtor, and the keys to their new home, as they close on their new house in Arlington, Va. | Evelyn Hockstein for POLITICO

“We had been watching the market and not much was coming on,” Sara said. “Every time something new would come on it was us and maybe 10 or 15 other people.”

In late October, they found the Arlington bungalow. Sara and Dan offered more than the $744,900 asking price and took the risky move of contracting to buy the house even if they couldn’t get a loan. The strategy worked. They paid $755,000 for the 1,145-square-foot home, which had last sold in 2004 for $468,000.

THE YAWNING GAP between home equity haves and have-nots has been widening since at least 2012, when national house prices hit rock bottom. Since then, wages have risen 17 percent, while median home prices are up 76 percent, according to ATTOM Data Solutions, a real estate data provider. In job centers, millions of millennials can only dream of something their parents took for granted.

Sara and Dan know they’re well off. They know they couldn’t have become homeowners without the help from Sara’s father. And after a lifetime career in housing, even David Stevens doesn’t know how to fix the policy conundrum that his own daughter represents.

“Sara and Dan are lucky that they have parents with means to help them. If I hadn’t been there they wouldn’t be owning,” said Stevens, who retired in August. “I don’t know how you solve it.”

Perhaps most telling—and most alien to previous generations of Americans—is that Sara and Dan didn’t think of the house as an investment. “My dad always talked about real estate as an investment,” Sara said. “If you bought a house, it was an investment, it would pay off and you’d be able to buy more space or a better lifestyle and it was this building block toward whatever your future was going to be. I questioned, I still question, whether that’s what this is.”

“This house hopefully breaks even and we have a good down payment for the next house,” she said. “That’s different than the notion that it’s going to appreciate.”

On that front, she might be too pessimistic. Houses in sought-after markets like Washington’s inner suburbs—and Boston, San Francisco and New York—do appreciate, and as assets they survived the housing crisis quite well. It’s houses in less-prosperous areas, like rural communities and smaller cities, that have taken a hit as investments. The difference is yet another force driving asset inequality.

Stevens and Nee tour the garage at their new house during the pre-closing walkthrough with their realtor. | Evelyn Hockstein for POLITICO

“It’s going to create unequal outcomes,” David Stevens said. “I benefited from having a successful, long career and saved enough money to help them. Others may not have that same ability and that’s going to affect their children’s ability to buy.”

Federal policy could make things worse. Interest rates are set to rise in the coming years as the Federal Reserve winds down its easy money policies, which could discourage homeowners with cheap mortgages from selling, and exacerbate the shortage of houses for sale. And last year’s GOP tax plan made urban homeownership more expensive by capping federal tax breaks for people who pay local property taxes.

But housing didn’t even come up in the congressional midterm elections. Even if Washington policymakers were paying attention, they have few tools to fix the housing shortage. This month, the National League of Cities convened a task force to drum up ideas and develop state and federal policy recommendations.

In one small sign of progress, Housing and Urban Development Secretary Ben Carson has has joined the YIMBY ranks and has launched an assault on restrictive land-use ordinances with a proposal to link federal housing funds to local building codes that drive up construction costs.

“I want to encourage the development of mixed-income, multifamily dwellings all over the place. And how can we do this? By rewarding the local authorities who loosen up zoning rules that artificially drive up the cost of housing and multifamily development,” Carson said in a Sept. 14 speech . “While we cannot control local zoning, we can have influence by incentivizing local officials—who would like a big juicy government grant—to take another look at their zoning.”

As for millennials themselves? More are moving to escape high housing costs, even to cities with less professional opportunity. Before buying, Sara and Dan went through the mental exercise of moving to Chicago or Denver, where living is cheaper. They’ve already lost friends to Oklahoma City, Kansas City, Columbus, Ohio, and Richmond.

“You’ve got this massive resorting,” said Sam Khater, chief economist at Freddie Mac, who has studied first-time buyers. “You have more affluents sorting in the inner suburbs and cities.”

In Arlington, Sara and Dan know they have good reason to be grateful. “We’re lucky in the way your dad helped us,” Dan said.

“We’re really lucky,” Sara said. “We know how lucky we were.”

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