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Afforable Housing
I picked up this morning's ProJO and there on the front page an article about how RI trails the rest of the country in housing construction.
Our state came in dead last with only 1505 units added, nearly half of the 2nd to last state, Alaska, and 3rd to last, Vermont.
One so called expert quoted (Barnet from Rhode Island Housing) explained the declining numbers by blaming communities: "Most communities are wary of new housing, and that has constricted supply to the choking point," Barnett said.
I wonder if that is really an accurate statement. Are communities wary of building new housing, Or is Barnett speaking in code, when what he actually means is that most communities are wary of building affordable housing and sometimes affordable housing advocates use the term 'affordable' when they mean both 'affordable' and 'subsidized'.
Here is how this article defines affordable:
Housing is considered affordable when a household spends no more than 30 percent of its gross income on the rent or mortgage, taxes and insurance. To be affordable in Rhode Island, a housing unit must sell or rent at a below-market price, made possible with a government subsidy.
Let's do some math: in 2004 the median sales price of a home in Providence was $262,000 (the median price is the middle price in the range of all home prices where an equal number fall below the median and an equal number place above the median. The median price is considered more accurate than the average price because averages become skewered by extremely high and extremely low prices.)
The median wage in RI was approximately $45,000, per year in 2003 according to the Census Bureau, which breaks down to a monthly income of aprox $3,750, per month. If you put 30% of that toward housing you would be paying $1,125, per month for housing. For a home buyer that $1,125 would have to include mortgage (principal and interest), taxes, and insurance.
Using these figures a household with the median income of $45K would qualify for a home loan of $130,000. That price is $132,000, below the median home price in Rhode Island.
A 30 year loan of $130,000 at 6% interest would require a monthly payment of principal and interest of $779, leaving $346, dollars for taxes and insurance, and with rising taxes and the rising cost of insurance, that $346 may barely be enough.
Try to find a house in Providence for $130,000 today, and you can understand the problem people earning around the median income of $45,000 would have in buying a house. That figure is $132,000 below the median single family home price.
Let's look at that $45K wage: given a rigid 40 hour work week the wage earner would be making aprox $23, per hour. I think many people make far below that figure per hour and would in fact be happy to make 23. Imagine how difficult it is for people who make half the median, or $11, per hour. It would take a two income household making $22,500 each to equal the median wage, and they would still be hard pressed to find a home in the price range for which they qualify.
That is where the many programs for first time home buyers come in and where subsidized housing becomes so important.
Let's look at these figures another way; let's look at them from the angle of the median Rhode Island house price, $262.000. What income need be earned to qualify for that median priced house?
Working backwards, a 30 year loan for $262K @ 6% interest would require a monthly payment of $1570, and your taxes and insurance would run another approx $400, per month for a monthly total housing cost of $1,970, per month.
Let's see, if $1,970 = 30% of X, X would then = $6,566, per month or a yearly income of $78,800, that is $33,000 or 43% higher than the median income (the Median Income is 57% of the income needed to buy the Median Price house.
Let us now table these figures for easy reading.
-- Median house price in RI -- $262,000
-- Income needed to buy Median priced house -- $ 78,800
-- Median income in RI -- $ 45,000
-- Mortgage for which median wage qualifies -- $130,000
-- Difference between Median Income and
income needed to buy median priced house -- $ 33,000
-- Percent difference between the Median
Income and the income needed to purchase
a Median Priced house -- 43%
-- Median Income is what percent of income
needed to buy Median Price house -- 57%
-- Difference between the Median Price
house and the house for which a
Median Income qualifies -- $132,000
-- Percent difference between the Median
priced house and the house for which
a Median Income qualifies -- 50%
(Anyone wish to buy half a house?)
Of course these figures are approximate and calculated on a cheap desk calculator using statistics readily available, thus they should be considered only ballpark figures. Still I believe they are accurate enough to give a snapshot of the wage/home prices dichotomy.
I'm sure it is possible to build attractive and financially feasible affordable housing. I just wish that anyone debating housing would be careful to differentiate between affordable and subsidized and Mixed Use housing (both affordable and subsidized in the same development). Communities are tired of housing developers and housing advocates trying to pull the wool over their eyes by mixing up the terms.
The difference in impact on a community between affordable housing and subsidized housing is huge.
I'm no advocate of the government getting involved in our lives, but maybe it is time for govt. to step in and devise a comprehensive plan for building affordable housing that is both attractive and affordable.
We've seen what affordable looks like when left to private developers: ticky-tacky, unattractive homes, cheap construction, and diminishing property values in the immediate surrounding area.
We can do better than that with our tax dollars.
To read the ProJo article, click on link below.
R.I. trails the rest of the country in housing construction
To comment, click link below.
Posted at September 19, 2006 06:53 PM
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