I would say the the majority of the United States does not have affordable housing problems, at least not to the extent that we do in the New York City or San Francisco Bay areas. Affordable housing can include low-income housing, but the two are not the same thing. When I am talking about affordable housing problems, I mean cities where you are paying around $3,000 a month for a 1 bedroom apartment.

The general rule is that your rent must be no more than 1/3rd of your income. This is not just a guideline to avoid you getting in over your head; our broker outright asked us for proof of income to see if we would qualify for the places we were looking at. Using the 1/3rd rule, $3,000 a month means you need an annual income of $108,000. The average household income in 2014 was $53,657. When you must make double the national average household income to afford to live on your own, you have an affordable housing problem.

Affordable housing is not just housing for low-income families, but also housing for those that would be considered middle and even upper-middle class in the rest of the country. Hoboken, where I live, has an affordable housing problem.

Housing Prices

Housing is a commodity that is openly traded close to market value. With a few exceptions, which I will talk about in a moment, essentially the owner is free to choose any price at which they are willing to sell or rent out their home.

Basic economics tells us that the price of a commodity is determined by supply and demand. We have a demand of people that want to live in a particular area, and that area has a supply of some number of housing units. Let's say that at a point in time a neighborhood has 50 units on the market, but there are 1,000 people that want to live there, so the supply can only accommodate 5% of the demand. In an open market, prices are eventually going to reach a point where only the top 5% of those looking for a place in that neighborhood can afford it.

We can summarize this as:

Price = Demand / Supply

When there is more demand or less supply, the price goes up. When there is less demand or more supply, the price goes down. This is basic economics.

(Out in the suburbs where developers are steamrolling subdivision projects at near construction costs, real estate operates under a completely different set of twisted economic rules to those of an established city.)