Housing Affordability Crisis Deepens: South and Midwest Offer Relief as Coasts Struggle

The American dream of homeownership faces mounting challenges in 2025, as new research from multiple industry leaders paints a stark picture of regional divides in housing affordability. Recent analyses from Realtor.com, Zillow, and ATTOM reveal that while certain regions offer relative affordability, others have become virtually inaccessible to average earners.

State-by-State Report Card: South and Midwest Lead in Affordability

Realtor.com's comprehensive state-by-state housing report card assigns letter grades based on current affordability metrics and new construction data. The findings highlight a clear geographical divide in housing opportunity.

South Carolina earned the highest overall grade with an A, while Iowa and Texas received A- grades through different paths – Iowa dominated affordability criteria while Texas excelled in new construction. All "good grades" (A's and B's) went exclusively to states in the South and Midwest regions.

The report emphasized housing supply as a critical factor in addressing affordability concerns. Just seven states (Texas, Florida, California, North Carolina, Georgia, Arizona, and South Carolina) accounted for over half of all building permits issued in 2024.

• In Texas, 15.3% of new homes were permitted despite representing only 9.2% of the U.S. population

• California contributed just 6.8% of newly permitted homes while housing 11.7% of the population

• Idaho led all states with a permit-to-population ratio of 2.03

The Million-Dollar Starter Home Phenomenon

Perhaps most alarming is Zillow's finding that in 233 U.S. cities, even a "starter home" – defined as properties in the lowest third of home values in a region – now costs $1 million or more. This represents a dramatic increase from just 85 such cities five years ago.

While California accounts for 113 of these high-priced markets, the phenomenon has spread nationally, with half of all U.S. states now having at least one city where starter homes exceed the million-dollar threshold.

"First-time buyers are facing a market where prices that once seemed unimaginable have become reality," said Kara Ng, senior economist at Zillow, though she noted that nationwide, the typical starter home still costs a more attainable $192,514.

Regional Property Tax Burden Compounds Affordability Challenges

Adding to homeownership costs, ATTOM reports that property taxes on single-family homes increased by 2.7% across the U.S. in 2024, with the average annual bill rising to $4,172.

The highest effective property tax rates remain concentrated in the Northeast and Midwest:

• Illinois: 1.87%

• New Jersey: 1.59%

• Connecticut: 1.48%

Meanwhile, states with the lowest effective tax rates were predominantly in the South and West, with Hawaii (0.33%), Idaho, Arizona, and Alabama (all 0.41%) offering significant relief from tax burden.

The combination of high home values and elevated tax rates makes homeownership in Northeastern states particularly challenging, with New Jersey's average property tax bill of $10,135 nearly ten times higher than West Virginia's $1,027.

Zoning Policies and Geographic Constraints

Realtor.com's analysis specifically highlighted how restrictive zoning policies contribute to housing shortages and affordability challenges. Massachusetts, which received an F grade, exemplifies how complex zoning codes can impede housing development:

• 16 zoning districts per jurisdiction

• 131 pages of zoning code per jurisdiction

• 54% of zoned acres allow only single-family housing

• Just 12% of zoned acres allow multifamily housing

Sources:

• Realtor.com State-by-State Housing Report Card

• Zillow Housing Affordability Analysis

• ATTOM Property Tax Report