Population Density, Urbanization, and Economic Forces
Four North Carolina cities and towns voted on housing bond proposals in the 2024 general election. (Photo: Clayton Henkel)
By Joshua Peters
North Carolina, renowned for its scenic mountains, coastal beauty, and vibrant cities, is grappling with a growing affordable housing crisis. As population density rises, rural areas shift toward urbanization, and economic forces escalate housing costs, many residents find it increasingly difficult to secure affordable living spaces. Understanding the interplay between these factors is crucial in crafting solutions to ensure housing remains accessible to all.
The influx of residents to North Carolina has placed immense pressure on the housing market. Cities like Charlotte, Raleigh, and Durham have experienced significant population growth, driven by job opportunities, cultural appeal, and a comparatively lower cost of living than other states. However, this population boom has led to heightened demand for housing in urban centers, resulting in skyrocketing home prices and rents.
Over the past five years, North Carolina has experienced significant increases in home prices, particularly in its metropolitan areas. According to the Federal Housing Finance Agency's All-Transactions House Price Index for North Carolina, the index rose from 373.12 in Q2 2018 to 673.82 in Q2 2024, marking an increase of approximately 80.6%. This substantial rise in home prices has made it increasingly challenging for low- and middle-income families to afford housing in these regions. The rapid appreciation in property values, coupled with stagnant wage growth for many residents, has widened the gap between housing costs and household incomes, exacerbating affordability issues.
Traditionally a rural state, North Carolina is undergoing a rapid urbanization process. Rural residents often migrate to cities in search of better employment opportunities and access to amenities. This rural-to-urban shift has left smaller towns with declining populations and reduced economic activity, while urban areas struggle to accommodate the growing demand for housing and infrastructure.
For those who remain in rural areas, housing challenges persist. Many rural regions face a lack of investment in housing development, and existing homes are often older and in disrepair. Additionally, the economic disparity between rural and urban areas makes it difficult for rural residents to afford upgrades or new construction. This dual challenge—urban housing shortages and rural housing disinvestment—requires tailored strategies to address the unique needs of each area.
As urban centers become denser, the need for multifamily housing developments has grown. Yet, zoning regulations in many municipalities restrict the construction of high-density housing, limiting supply and exacerbating affordability challenges. North Carolina faces a significant affordable housing shortfall, with estimates indicating a deficit of hundreds of thousands of units statewide. This shortage is particularly acute for extremely low-income (ELI) households—those earning at or below 30% of the area median income. According to the National Low Income Housing Coalition's 2023 report, "The Gap: A Shortage of Affordable Homes," North Carolina has 343,385 ELI renter households but only 135,548 affordable and available rental homes for them, resulting in a shortage of 207,837 units.
Economic factors are compounding North Carolina's housing affordability issues. Rising construction costs, driven by labor shortages, supply chain disruptions, and inflation, have made building new homes more expensive. Developers often focus on luxury or market-rate housing to maximize profits, leaving fewer options for low-income residents. Moreover, an influx of out-of-state buyers, particularly from regions with higher home prices, has increased competition in the housing market. These buyers often pay cash, pushing prices beyond what local residents can afford. Coupled with stagnant wage growth for many North Carolinians, the gap between housing costs and household incomes continues to widen.
North Carolina's attractive living conditions have drawn buyers from states with higher home prices. In the first half of 2022, out-of-state investors accounted for over 4% of home sales in Raleigh and Durham, and more than 6% in Charlotte. These buyers often make cash offers, increasing competition and driving up home prices, making it challenging for local residents to compete.
The construction industry in North Carolina is experiencing significant cost increases, driven by labor shortages, supply chain disruptions, and inflation. A survey by the Associated General Contractors of America highlighted that 89% of contractors reported higher-than-anticipated costs, with 86% facing difficulties in filling positions. These challenges have led to project delays and increased expenses, making the development of affordable housing more difficult. To offset rising costs, developers often prioritize luxury or market-rate housing, which offers higher profit margins. This trend results in a limited supply of affordable housing options for low- and middle-income residents, exacerbating the housing shortage.
While home prices have surged, wage growth has not kept pace. A study found that, in North Carolina, wages increased by almost 25%, whereas housing prices rose by over 47%, creating a disparity that strains household budgets.
Addressing North Carolina's affordable housing crisis requires a multifaceted approach that balances the needs of urban and rural communities while considering economic realities. Below are some strategies that local and state governments can consider:
Reform Zoning Laws: Local governments can update zoning regulations to allow for higher-density housing, such as duplexes, townhomes, and apartment complexes, particularly in urban areas. This would increase the supply of affordable housing and make more efficient use of available land.
Incentivize Affordable Housing Development: State and local governments can provide tax credits, subsidies, or low-interest loans to developers who prioritize affordable housing projects. Programs like inclusionary zoning, which requires a percentage of new developments to be affordable, can also help.
Invest in Rural Housing: Targeted investments in rural housing development and infrastructure are essential to revitalize these areas. Programs to repair or rebuild aging homes, as well as incentives for developers to build in rural communities, can address housing challenges outside urban centers.
Expand Public-Private Partnerships: Collaborations between governments, nonprofits, and private developers can leverage resources to create affordable housing. For example, land owned by the state or municipalities could be used for housing projects at reduced costs.
Preserve Existing Affordable Housing: Efforts to preserve affordable housing, such as providing funding for renovations and preventing the conversion of affordable units into luxury properties, are critical. Rent control or stabilization measures could also help prevent sudden increases in housing costs.
Support First-Time Homebuyers: Programs that assist first-time homebuyers with down payments or low-interest mortgages can help North Carolinians achieve homeownership, reducing competition for rental units and stabilizing communities.
North Carolina's affordable housing crisis is a complex challenge fueled by rising population density, urbanization, and economic forces. However, through thoughtful policy changes and strategic investments, local and state governments can alleviate these pressures and create a more equitable housing market. By embracing innovative solutions and fostering collaboration across sectors, North Carolina can ensure that its growth benefits all residents, preserving its reputation as a state of opportunity and promise.