Housing Trilemma

By Kevin Chambers

In 2016, Josh Lehner, an economist for the State of Oregon, compiled a database for the Oregon Office of Economic Analysis of the 100 largest metro areas in the US. He compared them using three dimensions: affordability, quality of life, and economic strength. After reviewing the data, he created a paradigm called the Housing Trilemma. His argument is that after the 2008 crisis, most Americans have to give up one or two of the factors when choosing a metro area in which to live. Only a few cities in the nation are balanced in all three.

Most of the tradeoffs occur due to market forces and are fairly logical. People want to move to places that have strong economies and high quality of life, so those popular places become less affordable. On the flip side, cities that are struggling financially usually have more affordable housing options.

In the diagram above you can see a representative number of cities. All 100 fit within the diagram. Portland is a good example of a city that has a good balance of economic strength and quality of life, but poor housing affordability. For Portland, this is driven mostly by its very low vacancy rate and low house price to income ratio. Houston is an example of a city that has a strong economy and affordable housing. However, it scores low on quality of life. Cincinnati is the third extreme: a city with high quality of life and affordability, however, their local economy is struggling.

There are a few cities that have a good balance of the factors. Boise, Des Moines, Omaha, and Oklahoma City all have good scores for all factors. Only 8 cities in the country ranked in the top half for all dimensions. No city ranked in the top 20 in all three dimensions.

Source: Oregon Office of Economic Analysis