Tag Archives: affordability

Housing and Transportation Affordability Index

Posted on by

The Center for Neighborhood Technology has a Housing and Transportation Affordability Index which

provides a more comprehensive way of thinking about the true affordability of place. It presents housing and transportation data as maps, charts and statistics for 917 metropolitan and micropolitan areas—covering 94% of the US population. Costs can be seen from the regional down to the neighborhood level.

The recent focus on combined housing and transportation costs is very useful when planning affordable housing policies as total housing and transportation costs provide a better guide to housing cost burden than housing costs alone.

The Housing and Transportation Affordability Index

shows that transportation costs vary between and within regions depending on neighborhood characteristics:

  • People who live in location-efficient neighborhoods—compact, mixed-use, and with convenient access to jobs, services, transit and amenities—tend to have lower transportation costs.
  • People who live in location-inefficient places—less dense areas that require automobiles for most trips—are more likely to have higher transportation costs.

The traditional measure of affordability recommends that housing cost no more than 30% of household income. Under this view, a little over half (55%) of US neighborhoods are considered “affordable” for the typical household. However, that benchmark fails to take into account transportation costs, which are typically a household’s second-largest expenditure. The H+T Index offers an expanded view of affordability, one that combines housing and transportation costs and sets the benchmark at no more than 45% of household income.

When transportation costs are factored into the equation, the number of affordable neighborhoods drops to 26%, resulting in a net loss of 59,768 neighborhoods that Americans can truly afford. The key finding from the H+T Index is that household transportation costs are highly correlated with urban environment characteristics, when controlling for household characteristics.

A lot of housing policy rests on the definition of affordability, whether it is that housing cost should be no more than 30% of household income or that housing and transportation costs should be no more than 45% of household income. It would be useful for researchers to take a fresh look at those benchmarks to ensure that they make sense in today’s economy.

Housing Affordability for Moderate-Income Households

Posted on by

The Center for Housing Policy’s most recent issue of Housing Landscape gives its Annual Look at The Housing Affordability Challenges of America’s Working Households. The Center finds that

Overall, 15.2 percent of all U.S. households (17.6 million households) were severely housing cost burdened in 2013. Renters face the biggest affordability challenges. In 2013, 24.3 percent of all renter households were severely burdened compared to 10.0 percent of all owner households. (1, footnote omitted)

The Center summarizes “the severe housing cost burdens of low- and moderate-income working households.” (1) Unsurprisingly. these households face

significantly greater affordability challenges than the overall population. In 2013,21.2 percent of working households were severely cost burdened (9.6 million households).Twenty-five percent of working renters and 17.1 percent of working homeowners paid more than half of their incomes for housing that year. (1)

The report notes some modest good news:

Since 2010,the overall share of working households with a severe housing cost burden has  fallen.This modest decline is the result of a complex combination of factors, including the shift of  some higher-income households from homeownership into rental housing. An insufficient supply of rental housing and sustained increases in rents have led to millions of working households having to pay too much for housing or live far from their jobs, in substandard housing,or in poor-quality neighborhoods. (1)

Federal and local housing policy has not yet come to grips with the fact low- and moderate-income households have been paying a significant portion of their income in housing costs year after year. Household have to make difficult trade-offs among cost, distance from employment, housing quality and neighborhood quality.

The Center notes that more can be done to support affordable housing at the federal and state levels, but it is not clear to me that there are any politically feasible policy responses that can make a serious dent in the affordability of housing for working households.

Salary Needed for a House in 27 Cities

Posted on by

HSH.com has posted a study to answer the question — How much salary do you need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in your metro area? The study opens,

HSH.com took the National Association of Realtors’ fourth-quarter data for median-home prices and HSH.com’s fourth-quarter average interest rate for 30-year, fixed-rate mortgages to determine how much of your salary it would take to afford the base cost of owning a home — the principal, interest, taxes and insurance — in 27 metro areas.

We used standard 28 percent “front-end” debt ratios and a 20 percent down payment subtracted from the NAR’s median-home-price data to arrive at our figures. We’ve incorporated available information on property taxes and homeowner’s insurance costs to more accurately reflect the income needed in a given market. Read more about the methodology and inputs on the final slide of this slideshow.

The theme during the fourth quarter was increased affordability.

Home prices declined from the third to the fourth quarter in all of the metro areas on our list but one. But on a year-over-year basis, home prices have continued to trend upward.

“Home prices in metro areas throughout the country continue to show solid price growth, up 25 percent over the past three years on average,” said Lawrence Yun, NAR chief economist.

Along with affordable home prices, mortgage rates fell across the board which caused the required salaries for our metro areas to decline (again, except for one).

“Low interest rates helped preserve affordability last quarter, but it’ll take stronger income gains and more housing supply to help meet the pent-up demand for buying,” said Yun.

On a national scale, with 20 percent down, a buyer would need to earn a salary of $48,603.82 to afford the median-priced home. However, it’s possible to buy a home with less than a 20 percent down payment. Of course, the larger loan amount when financing 90 percent of the property price, plus the need for Private Mortgage Insurance (PMI), raises the income needed considerably. In the national example above, a purchase of a median-priced home with only 10 percent down (and including the cost of PMI) increases the income needed to $56,140.44 – just over $7,500 more.

This sounds like a pretty reasonable methodology, but there are a lot of assumptions built into the ultimate conclusions. They are generally conservative assumptions — buyers will get a 30 year fixed rate mortgage instead of an ARM, buyers will have 28% debt ratios. I would have liked to see some accounting for location affordability, because transportation costs can vary quite a bit among metro areas, but you can’t have everything.

As always, I am particularly interested in NYC, the 24th most expensive of the 27 cities.  NYC requires an income of $87,535.60 to buy a median home for  $390,000. By way of of contrast, the cheapest metro is Pittsburgh, which requires an income of $31,716.32 to buy a median home for $135,000 and the most expensive was San Francisco, which requires an income of $142,448.33 to buy a median home for $742,900.

Reiss on Housing Unaffordability

Posted on by

TheStreet.com quoted me in Homeownership Unaffordable For Most Americans in Major Cities. It reads in part,

Homeownership remains unaffordable for most Americans who are living in major cities.

A median-income household can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas, which is actually an improvement from 2013, according to a report by Interest.com, the Chicago-based consumer financial information website.

The most affordable metro areas area Atlanta, Minneapolis and St. Louis while San Francisco is the least affordable since the median income in the city is 46% less than what is required to buy a median-priced home in the area. Median-income households in San Diego, New York and Los Angeles don’t fare much better.

*     *     *

Many potential homeowners should evaluate what kind of mortgage they really need, said David Reiss, a law professor at Brooklyn Law School. Since most homeowners only stay in their house for an average of seven years, getting a traditional 30-year mortgage may not be the solution and an adjustable rate mortgage which resets after a period of years could be more affordable.

“This advice holds particularly true for families that are thinking about having more kids, since they may move sooner than they think if they come to realize that they want more space,” he said.

Location Affordability

Posted on by

Following up on an earlier post on NYC’s (Affordable) Housing Crisis, I turn to the Citizen Budget Commission’s report on Housing Affordability Versus Location Affordability. The report opens,

How much more would you pay for an apartment just a short walk from your job than for an equivalent apartment that required an hour-long commute by car to work?

This question highlights two important points about the links between housing costs and transportation costs. First, transportation costs typically are a major component of household budgets, usually second only to housing. Second, a tradeoff between housing costs and transportation costs often exists, and taking both into account can provide a better measure of residential affordability in an area than only considering housing costs.

In recognition of these important points, the U.S. Department of Housing and Urban Development (HUD) has developed a Location Affordability Index (LAI) that measures an area’s affordability based on housing and transportation costs relative to income. This policy brief uses the HUD data to compare costs for a typical household in New York City to those in 21 other cities . . .. (1, footnote omitted)

The report finds that “Low transportation costs and high incomes make New York City relatively affordable: New York City is in third place in location affordability. Housing and transportation costs for the typical household are 32 percent of income in New York City, with lower ratios only in Washington, D.C. (29 percent) and San Francisco (31 percent). This is well within HUD’s 45 percent affordability threshold for combined costs as a percent of income.” (1)

This report makes a very important point about the cost of living in different cities. It should also reframe some of the national discussion about affordable housing policy. It would be great if there were a way to account for length of commute in the Location Affordability Index to make a better apples to apples comparison among cities when it comes to the housing choices that are available to households.

NYC’s (Affordable) Housing Crisis

Posted on by

The Citizen’s Budget Commission is releasing a series of Policy Briefs on affordable housing in New York City. They raise interesting questions. The first policy brief, The Affordable Housing Crisis: How Bad Is It in New York City, compares the affordable housing situation in 22 large American cities and finds that NYC is not the worst, notwithstanding how many New Yorker’s feel about it. Some of the particular findings included,

  • New York City relies more heavily on rental, as opposed to owned, housing than all other large cities; more than two of every three occupied housing units are rental.
  • The increase in housing supply since 2000 was slower in New York City than in every other large city with population growth.
  • New York City does not have the highest average rents. New York City median rent ranks sixth most expensive among the 22 cities, slightly worse than 2000, when it ranked seventh.
  • New York City is not the most unaffordable: New York City ranks ninth worst in rental affordability, defined as the percent of households spending more than 30 percent of income on gross rent. This is slightly better than its eighth worst ranking in 2000, although the share of renters with burdensome rent increased from 41 percent to 51 percent.(1)

For me, the real story is the second bullet point.  New York City had the fourth slowest growth in the number of housing units out of the 22 cities, notwithstanding the fact that it has always had a limited supply and compounded by the fact that its population has been growing significantly for quite some time. It is depressing to learn that “the number of housing units in New York City increased” only 5.8 percent between 2000 and 2012. (2) This leaves New York City with a vacancy rate of 3.6 percent in 2012, which means that we are a long way off from making a serious dent in the affordability problem. The de Blasio administration has made affordable housing a centerpiece of its agenda. This report reminds us that part of the solution to the affordable housing puzzle is just building more housing overall. We have lots of pent up demand, we just don’t have the supply. That is one reason the rent is too damn high!

Real Affordability for All New Yorkers?

Posted on by

The Real Affordability for All campaign has issued An Affordable Housing Policy Platform for Mayor de Blasio. A stated goal of the campaign “is to ensure that Mayor de Blasio’s housing policies prioritize and deliver real affordability for the most economically vulnerable households” in the CIty. (1) As with many such studies (this one, for instance), it does a good job of identifying the problem — incomes are not sufficient to keep housing costs affordable — but its solutions do not match the identified problem.

I am not going to focus on all of the good things in the report (for instance, enhancing enforcement of housing laws to protect tenants), but on fundamental flaws in its proposal that the City implement a 50/50 model for increasing the supply of new affordable housing units. The report states that

Affordable housing developers, private sector developers and housing experts agree on two broad 50/50 scenarios that are viable and pragmatic, based on existing developments, current real-estate market assumptions, and the latest mathematical modeling:

1) For high-cost areas of the city (particularly Manhattan), depending on the level of up-zoning, new developments can ensure that 50 percent of the units are market rate and 50 percent are real affordable units targeted to low-income households: specifically, households of four earning 30-60 percent of Area Median Income.

2) For the outer boroughs, where land costs are lower, 100% of new developments can be affordable: 50 percent of the units can be for low-income households (those earning 30-60 percent of Area Median Income) and 50 percent for moderate income households (those earning up to 100 percent of Area Median Income). 100% real affordability can be achieved by increasing current per unit subsidies in the outer boroughs and applying those subsidies to real affordable housing units for low-and moderate-income households. (3)

The first fundamental flaw is an assumption that if the government requires something of developers, developers will do it. For-profit developers will only build if they can make a profit. Otherwise they will just not build.  Given the low rates of new housing construction that we have seen in NYC over long periods of time, this is just a fact of life.

This leads to a second flaw — the proposal leaves fewer market rate units to cross-subsidize more affordable units. Given that the costs of development are relatively fixed, this proposal would have to come up with some real new cost-cutting measures for new developments or new sources of revenue to add to the existing subsidies. But the recommendations put forward by the report don’t really do either of those things. Their recommendations are

  1. Use Subsidies More Wisely to Drive Real Affordability.
  2. Implement a New Low-Income Real Affordability Framework Across All Housing Programs.
  3. Enable Not-for-Profit Developers and Owners to Play a Strong and Active Role in the City’s Housing Agenda.
  4. Prioritize Permanent Affordability for All City-owned Land Dispositions.
  5. Require that Developers and Investors Receiving Any Type of City Subsidy Provide a Reserve Fund that Creates a Safety Net for Excessively Rent-Burdened Tenants.
  6. Flip Tax.
  7. Non-Occupancy Tax.
  8. Water and Sewer Tax Reform
  9. Property Tax Overhaul.
  10. Density Bonuses.(4-5)

Many of these recommendations amount to moving things around, not to reducing costs or increasing subsidies. The ones that do raise revenues, raise relatively small amounts. For instance, the flip tax proposal is estimated to generate between $100 million and $150 million per year.  Using a conservative cost estimate of $200,000 per unit of new housing, $150 million in new revenue would only produce 750 new units of real affordable housing per year, a drop in the bucket.

Many have been trying to shape the Mayor’s housing agenda in recent days (here for instance). But few have seriously faced the real market and political constraints that the City faces as it attempts to increase the supply of affordable housing. There is reason to think that the Mayor’s housing team will grapple with these issues seriously, so let’s wait patiently for their plan to be released . . ..