Home prices in Anchorage reached their most unaffordable level in 21 years last year, worse than during the Great Recession more than a decade ago, according to the latest data from the Alaska Department of Workforce Development.
State economists reported a similar trend statewide in May: Alaska home prices will be at their most unaffordable levels since 2006 in 2023.
The cost of homeownership in Alaska has more than doubled since 2018, according to data provided by the Alaska Housing Finance Authority. The average mortgage payment (principal and interest, excluding property taxes, insurance and other fees) increased 52% between 2018 and 2024.
Rents also soared during the same period.
“Price increases across the state have boosted the rental market by about 24 percent,” said Daniel Delfino, economist and planning director for the Alaska Housing Finance Corporation.
City officials are calling Anchorage's situation a housing crisis, which they point to a confluence of factors including high housing costs, low rental vacancy rates, an increase in short-term vacation rentals, a decline in residential development, rising construction costs and a labor shortage.
The new data sheds further light on how difficult it is to rent or buy a home in Anchorage right now.
It has been a central issue in recent city policymaking and discussions, and Mayor Suzanne LaFrance, who took office on Monday, has said housing is a top priority for her administration.
The city council has made multiple changes to city ordinances over the past two years aimed at encouraging more residential development, including a vote late last month to essentially abolish the single-family home zone in the Anchorage Bowl District, allowing duplexes to be built in areas previously zoned for single-family homes.
State Assembly Vice Speaker Meg Zaletel, one of the sponsors of last week's bill, said the housing crisis means people from all economic classes “don't have access to decent housing, affordable housing that meets their needs.”
“These are people who are stuck at the top of the rental market and can't move into homeownership. They're people who have to double or triple their housing just to afford the rent. That means there just aren't enough housing units to cater for all sorts of situations and needs,” she said.
Home prices rise, fewer properties for sale
The average rent in Anchorage is expected to rise 7.8% from last year, to $1,275 to $1,375 in 2024, according to AHFC data. That doesn't include utilities.
The AHFC rental data comes from an annual survey conducted by the state Department of Labor in March. The data covers the “full range” of rental housing, from studios to four-or-more bedrooms, and excludes income-restricted rentals such as those in low-income housing programs, Delfino said.
This year's increases follow a 14.2% increase in Anchorage rents in 2022 and another 5% increase in 2023, according to state data.
The U.S. Department of Housing and Urban Development defines “housing burdened” as an individual or household spending more than 30 percent of their monthly income on rent, mortgage payments and utility bills.
There is no widely used definition of a “housing crisis” among economists, nor is there a defined ideal level of home affordability, said Rob Krieger, an economist with the Alaska Department of Workforce Development who wrote the May report.
That's because what is affordable varies depending on an individual's situation and income, he said.
But Anchorage home prices are “at their most unaffordable” in the past 20 years, Krieger said, making it “very difficult for first-time homebuyers to buy a home right now and rental prices are very high.”
Across the state, “home prices are rising and there are fewer homes on the market,” Delfino said, adding that reported home sales and recorded mortgage loans have fallen “pretty significantly over the past few years.”
In Anchorage, more than 86 percent of residents cannot afford the costs of buying a new home, according to the chief economist for the National Association of Home Builders.
State economists measure home affordability using the Alaska Home Affordability Index, which uses average mortgage payments and average monthly wages to calculate the amount of income needed to buy a home.
An average index of 1 means that the average monthly salary is just enough for one person to cover the average monthly mortgage payment on an average-priced home.
The state and Anchorage had the lowest home affordability index (the most affordable housing prices) in 2020 and 2021. Mortgage rates fell significantly during that period as the federal government took steps to stabilize the economy during the pandemic, Kreiger said.
But by 2023, Anchorage's housing affordability index has jumped to 1.8, meaning it would take roughly two people working full-time at the median wage to buy the average Anchorage home.
Anchorage-specific data stretches back only to 2002, and home prices last year were the least affordable they've been in that time period.
In 2023, Alaska's overall home affordability index will be 1.66, the highest since 2006. The data goes back to 1992.
“Alaska has a problem retaining young people.”
What the state data doesn't show or quantify is how the sharp rise in housing costs is affecting the general population, Delfino and Krieger said in separate interviews.
“Given how big and how fast things are moving these days, I think what's really pressing when we're talking about affordability is what's behind the data sets that impact real people,” Delfino said.
Before passing the zoning bill last month, the council heard a flood of testimony from Anchorage residents, many of whom said they were struggling to find a home to rent or buy, and who shared stories of loved ones being moved away because housing was scarce and expensive.
“From my experience as a young person in Anchorage and as a renter, it's very hard for young people to find decent housing in Anchorage. If you have pets, give it up,” said Sean McDowell, a renter in the South Addition, who said he lost his previous home after the owner converted it into an Airbnb for the summer.
“We all know Alaska has a problem retaining young people. If young people don't have a place to live and it's hard to find long-term rental housing in Anchorage, they're going to continue to leave,” McDowell said.
“To what extent does housing influence people's decisions to leave or stay here? We don't know,” Krieger said.
As homeownership becomes more expensive, people are shifting from renting to buying further out, Craig said in the May report.
“That gap is getting wider and wider and the transition is getting harder, so we're seeing people who would have been homeowners six years ago now stuck in an increasingly tough rental market,” Delfino said.
And then there's the wages.
For some Alaskans, salary increases and regular cost-of-living increases are helping ease the strain of skyrocketing housing costs.
But for many residents, wages are unlikely to rise sharply enough to make up the difference anytime soon, Krieger said.
“If you look at recent inflation, I think how quickly people's wages have kept up with the rising cost of living is impacting how acutely people are feeling the difficulty of buying a home,” Delfino said.
According to an annual report from the National Low Income Housing Coalition, an Alaskan worker making the minimum wage of $11.73 an hour would need to work 75 hours a week to afford a modest one-bedroom apartment at fair market rent statewide.
A full-time worker in Anchorage would need to earn at least $27.96 an hour to afford a two-bedroom apartment with a fair market rent of $1,454. A minimum wage worker would need to work 96 hours to afford the same apartment, according to the report.
Return to the mean
Another factor driving up housing costs is the sharp rise in mortgage interest rates, which Kreiger said are a “significant factor” in making housing increasingly unaffordable.
Falling interest rates during the pandemic “have brought a lot of competitors and buyers into the market who otherwise wouldn't have been able to participate,” Kreiger said.
The average sales price of a single-family home in Anchorage increased 26% between 2019 and 2023, from $389,477 to $490,596, according to state data.
“I think prices have gone up because there's a lot of buyer demand, there's a lot of competition, there's a limited number of homes for sale and there's limited construction,” Krieger said.
Since then, the average interest rate on a 30-year fixed-rate mortgage has seen an unprecedented increase, according to a May report from Crager.
Alaska's average rate is 6.33%, the highest since 2006.
Not only will it be more difficult for first-time homebuyers to purchase a place to live, but high interest rates can lock people into a home they've owned for several years.
“When costs go up, especially for people who are locked in at 2.5 percent interest rate and are looking to move, it becomes a question of if you had to buy a home today, could you afford it?” Delfino said.
For many residents, the answer is probably no, he said.
This is another effect that is difficult to quantify.
“We know these things are happening,” Krieger said, “… We know there are people in need, but we don't know how many.”
Still, for many long-time homeowners who have built up equity, the market has never been stronger, Krieger said in the report.
Krieger said home affordability won't change much in the short term. Wages will rise over time, but not dramatically. Home sales prices “will plateau and maybe go down a little bit,” but they won't fall significantly, he said.
He said interest rates are the most realistic variable that could drag the index down again.
Barring another major pandemic-like event, interest rates “are not going to fall to where they were before,” Kreiger said. “And depending on what happens with inflation, it may not actually happen for quite a long time, but eventually interest rates will come down and we'll have a more normal situation.”
The average Home Affordability Index in Anchorage from 2002 to 2023 is 1.47.
To return to average home affordability, wages would need to rise by 22.5% or home sales prices would need to fall by 18.4%, or about $90,000.
If only the average mortgage interest rate were to change, it would need to fall to 4.5%.
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