By: Chelsea Osei, Research Associate
Introduction
Across the nation, and particularly in Connecticut, many residents are feeling the effects of the housing affordability crisis. Connecticut ranks among the top ten states with the highest median income. It has one of the highest incomes per capita in the country, and it is among the top five states for income inequality. This unequal distribution of wealth has made it more difficult for many residents to keep up with rising home prices and rents, particularly for those on the lower end of the income spectrum. Since the pandemic, rising housing costs have made it increasingly difficult for both homeowners and renters to afford adequate housing, contributing to a decline in overall housing affordability.
The cost burden rate is often used to evaluate housing affordability by illustrating the relationship between how much a household earns and how much of its income is spent on housing. Housing is generally considered affordable when occupants spend no more than 30 percent of their gross income on housing, including utilities. In addition to home prices, other factors such as mortgage interest rates and inadequate housing supply also contribute to the decline in overall housing affordability in Connecticut.
The United Way’s Asset Limited, Income Constrained, Employed (ALICE) report defines cost of living as the minimum cost of achieving a given standard of living over a given period, relative to the minimum cost of achieving the same standard during a base period. According to the report, housing costs in Connecticut increased by up to 76% between 2007 and 2023, placing a growing financial strain on households. It also estimates that a family of four requires over $100K to cover basic living costs, and that renters need to earn $35 an hour to afford a two bedroom apartment. This highlights the growing affordability challenges Connecticut residents face in maintaining a standard of living comparable to previous decades.
As the cost of living continues to rise, many look back on previous decades with nostalgia, believing life was much more affordable then. Gen Z and Millennials, in particular, often express frustration over the difficulty of affording housing compared to Baby Boomers, who were able to purchase homes at significantly lower prices. Although both home prices and median household incomes have increased over the past several decades, it is not always clear to what extent these patterns of growth kept pace with each other. By examining historical and current housing affordability, this analysis seeks to better understand why obtaining affordable housing has become increasingly difficult.