The economy has been something of a hot topic lately. Between the economic impact of the COVID-19 pandemic and recent rises in inflation, the subject of how to spur lasting economic growth has been top of mind for many people.

Conversations about the economy typically revolve around things like jobs, interest rates, and consumer behavior. However, one factor that is often omitted from discussions about economic development is housing—specifically, affordable housing. As it turns out, the role of affordable housing in creating jobs and stimulating economic development is significant. Here, we’ll dive into how that relationship works, and why investing in housing is an important part of boosting the overall economy.

Low Housing Rates Make an Area Attractive

High cost of living is bad for business. The price of housing is a large part of what makes an area appealing (or undesirable) for individuals considering a new job or a move. Consequently, companies that are looking to hire new employees may have more difficulty recruiting employees from other areas, or may be forced to offer additional incentives to prospective employees in order to counterbalance the high cost of housing.

An excellent example of this is Los Angeles. In 2017, the University of Southern California (USC) released a study that reported “nearly 60 percent of employers surveyed cite the region’s high cost of living as impacting employee retention, and 75 percent cite housing costs specifically as an area of concern.” While the problem may be more pronounced in Los Angeles than in other areas, it’s certainly not isolated to that city.

High Cost of Living Reduces Spending Power

Families and individuals who are forced to spend the majority of their income on rent and other necessities have less disposable income. This, in turn, means that they contribute less to the local economy because they often aren’t able to do things like eat out at restaurants or shop at local businesses.

Lower spending power can also create a negative drain on infrastructure and economies. Lower-income families tend to be less healthy because they often can’t afford nutritious food or preventive healthcare. Eventually, this can result in serious or chronic illness, which puts strain on healthcare systems.

Creating Housing Creates Jobs

The process of creating affordable housing can be a huge boost to local economies, both in the short- and long-term. To begin with, the process of developing housing will require labor from contractors, construction companies, manufacturers, and more. Following completion of the construction process, housing developments will require long-term property managers, real estate agents, and maintenance crews to keep them running.

Once filled, low income housing developments may also create opportunities for new businesses in the area, as additional residents will increase demand for local retail shops, services, and more. “Simply stated, developing affordable housing creates jobs – both during construction and with consumer spending after the homes are occupied. Local economies are a beneficiary when there is a reasonable inventory of affordable housing,” said Jeff Larimore, Executive Director of Midlands Housing Trust Fund.

Affordable Housing Reduces Income Inequality

Unaffordable housing is one of the primary factors that perpetuates income inequality. According to the National Low Income Housing Coalition (NLIHC), increasing affordable housing is the most cost-effective strategy for combating childhood poverty and increasing economic mobility. Households who spend more money on rent have less funds to spend on education for children (who will then have fewer economic opportunities) or build up savings. As a result, these families are often unable to buy a house (the fastest way to build equity) or save for retirement.

Further, low-income families are at a higher risk for eviction. Eviction, in turn, can result in financial instability or even homelessness, both of which are difficult to recover from financially.

Housing and economic development are inextricably linked. And, as detailed above, many of the other factors that are often seen as determinants of economic growth—such as employment rates and consumer behavior—are in fact dependent on the availability of affordable housing. To invest in people, we must invest in housing.

Midlands Housing Trust Fund (MHTF) is dedicated to improving South Carolina communities by expanding access to quality affordable housing. We provide a variety of loan products to housing developers and contractors for the purpose of creating, rehabilitating, and maintaining affordable housing for households earning less than 80% of the Area Median Income. Thanks to flexible lending limits and competitive loan rates, MHTF’s business model presents an attractive alternative to conventional retail banking. Since 2012, we are proud to have provided more than $3 million in affordable housing financing, thereby creating or preserving 512 housing units and improving the lives of over 1,200 individuals.

Contact us today for more information about how MHTF can serve your community, or consider investing in our work.