Is affordable housing a myth?
Housing is becoming both more affordable and less affordable. How can this be?
This post comes from Marilyn Lewis of MSN Money.
The headline on The Washington Post's Wonkblog says it all: "Why affordable housing is a myth, in one chart."
Unaffordable? That seems counterintuitive. With house prices falling, mortgage rates unusually low and literally millions of homes across the country empty, you'd think housing would be cheaper for everyone. After all, supply and demand, right?
But no. Other, even bigger economic forces are overpowering the dropping home prices:
- Wages. They're flat and going nowhere. And it's not just the recession. It's been true for decades.
- Rents. Now that everyone's a renter, prices are rising for rental housing.
How many work hours go into rent?
The Post has a map showing, state by state, how many hours of minimum-wage work it takes to pay the rent on a "modest, non-luxury two-bedroom apartment." The map and data are from a new report by the National Low Income Housing Coalition, which advocates for publicly subsidized housing.
It takes a household income of $37,960 (nationally, on average) to afford the rent on that "non-luxury" two-bedroom unit at $949 a month, the "average Fair Market Rate."
"Affordable," incidentally, is defined as keeping your housing costs -- including utilities -- at no more than 30% of your income.
You can calculate your own "housing wage," the hourly wage you'd need to rent that "modest, non-luxury two-bedroom apartment" if you want to keep housing at 30% of your income.
Nationally, the coalition says:
(A) full-time worker must earn ... $18.25 per hour in order to afford rent and utilities on a modest two-bedroom rental unit without spending more than 30% of income on housing costs. By contrast, the average American renter earns just $14.15 per hour.
(Post continues below.)
Here's the housing wage in each of the nation's five most-expensive areas:
- San Francisco, $36.63.
- Stamford-Norwalk, Conn. $34.02.
- Honolulu, $33.98.
- Nassau-Suffolk, N.Y., $32.35.
- Orange County, Calif., $31.77.
If you're working for the federal minimum wage ($7.25 an hour), forget it. Your pay won't earn half the cost of that modest apartment, never mind enough left over for groceries, school clothes and the rest. At $7.25 an hour, a year of 40-hour workweeks adds up to $15,080. At that rate, even two full-time workers would fall about $7,000 short of the "affordable" goal.
What about the safety net?
"But," you may be thinking, "surely anyone earning that little is eligible for a housing subsidy from HUD."
Probably true. There's "public housing" or government-owned apartment buildings, and there's the Housing Choice Voucher Program or Section 8, with vouchers for spending on privately owned rentals. Trouble is, there aren't enough vouchers or public housing apartments to go around.
Take El Paso, Texas. So many people are looking for help that the housing authority is closing its waiting list to concentrate on the 18,000 people already in line. Their wait could be five to six years. Carmen Lopez, an El Paso single mother, told KFOX 14 TV that she's living in public housing now after waiting four years to get in. To apply, she recalls, "I literally camped overnight." She arrived at 4 p.m. the day before and waited overnight to be among the first in line for one of the 200 spots on a list.
Besides the shortage, the Post says, Congress last fall cut 38% of the budget for grants from the Department of Housing and Urban Development to help states and local governments create low-income housing.
Another view of "affordable"
But, wait! Did you hear recently somewhere that housing is more affordable than ever these days? Yes, you did. That news, from the National Association of Realtors, is about a different way of looking at "affordability."
The NAR says that "affordability conditions have reached the highest level since recordkeeping began in 1970." They're talking about buying, not renting. Here's the good news for buyers:
- Three years ago, in 2009, a median-priced house was more expensive than it is today -- $172,100 -- and you needed a $36,048 income to afford it.
- In January of this year, it took a smaller income -- $29,568 -- to buy a median-priced home, which itself has shrunk in price, to $154,400.
- In 2009, if you bought the median-priced house ($172,100) with a median family income ($61,082), your payments were just 14.8% of your income.
- In January, payments on the median-priced home ($154,400) consumed just 12.1% of the median ($60,944) family income.
Those numbers are from this NAR report. "Median," by the way, means that half the homes sold cost more and half cost less.
Putting the NAR's report next to the NLIHC's rent research isn't a strictly apples-and-apples comparison. The NAR's mortgage payments don't include utilities, as the NLIHC's rent example does. But it gives you the general picture, and it's a troubling one for all of us, individually and as a country. Housing is growing more affordable -- it consumes a smaller piece of your income -- if you have the down payment, earning power and good credit to buy.
But for everyone who chooses or is stuck in the rental market, housing is eating up a bigger piece of their income -- it's becoming less affordable.
More on MSN Money:
- Should you buy a foreclosure?
- Calculator:How much house can you afford?
- Why are rich people such jerks?
- Calculator:Should you rent or buy?
- 3 money tips for every income
- Estimate your credit score for free
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