How Affordable is Affordable?
A few weeks ago I did a post called Food, Clothing & Shelter on the issue of a decent home for all. One comment from reader & frequent guest blogger Jim Zavist read:
What’s particularly interesting locally is the perception that there’s actually a lack of affordable housing around here. Go to realtor.com, put in St. Louis and a $20,000 maximum cost and you get 298 possibilities. Do the same thing with Denver (a similar-sized metro area) and you get 1 condo for $18,450! Increase the threshold to $50,000 and you increase the total pool in Denver to 93. In either city, are some money pits? Of course! And are some in crime-ridden neighborhoods? Yes. But if the choice is between under a bridge or a roof over one’s head, the choice should be pretty obvious. And the math is pretty easy – for a $25,000 property, 10% down is $2500 and the monthly payments should be less than $200, less than many car payments! So, yeah, you can’t fix stupid/undo bad choices, but if you can find and keep a job, even a minimum wage one, you can find a place to live – the whole trick is in the job part.
That comment was followed by:
Jim Zavist: Excellent, EXCELLENT, point you raised. To talk about a lack of ‘affordable housing’ in St. Louis is a joke. A quick scan of CraigsList or Riverfront Times reveals many apartments in decent areas such as one-bedroom units in south city…while in Boston $400 can’t hardly rent a cardboard box in an alley. Actually I was told by a Boston realtor that anything less than $1,000 will be a studio in a rough area. St. Louis has some of the most affordable housing stock in America.
So what can that person making minimum wage afford? Missouri’s Minimum Wage is $6.65 an hour. Work 52 40-hour weeks and that gives you a gross income of $13,832 or $1,152.67 per month. Thirty percent of your gross income is considered the maximum amount to pay for housing – rent & utilities – and still have money for food and other living expenses. That is $345.80 for rent/mortgage & utilities. I’m doubting such places are going to have highly efficient heating & cooling systems or good thermal windows or insulation in the attic. I’d estimate at least $200/month for gas & electric, on average. So that leaves $145.80 for rent/mortgage. I’ve not seen too many places out there with that kind of rent. This also hasn’t made any provisions for renters/property insurance.
What about the person starting off as say an armed Park Ranger for the City Of St Louis with initial pay of $26,988 per year? Thirty percent of this monthly income is $647.70. If we assume the same $200/month in utilities that leaves $447.70 for rent/mortgage/insurance. This Park Ranger can probably find a place to live, good thing they already have a gun.
I’ve been in a number of sub-$50K places. Scary. Most would not be habitable by most standards, certainly not the city’s housing conservation standards. Most need further investment to get them to a very minimum level of acceptability. Getting a mortgage on such places was difficult even in the most liberal of lending times. Those days are over.
Getting a lender to do a mortgage for under $40K is unlikely.
I’ve sold one two-family building with one unit rented to a Section 8 family. While they were working they could not afford market rate rents. This place was safe and in an OK location by my standards — others would be afraid to be there. I think they paid less than $100/month with the Section 8 program making up the difference – roughly $400/month.
Affordability is a relative standard. When you can’t afford gas & insurance on an old clunker, mortgage payments relative to a car payment is meaningless. When you are looking down from a comfortable middle-class position it easy to consider those below as being stupid or the victim of bad decisions.
The fact is we have many hard working individuals & families doing jobs that simply don’t pay that well. What if all these people suddenly got better paying jobs? Who would clean your office at night? Who would serve you that latte at the drive-thru? Who would stock the shelves where you shop? We all rely heavily on the work done by many people who make low wages. Income is not a measure of intellect.
Further complicating matters is the fact that the housing they might be able to afford is often located many miles from available work. Housing near work is probably not affordable. The bus may take them 60-90 minutes or more each way.
We do have an affordable housing issue. Few jobs exist around what affordable housing we do have. When municipalities zone out small apartments & houses it is done to keep the price so that it is not affordable to the lowest income among us. Without concerted efforts we would not have the more affordable options that we do have.
What I think I would take away from that is- don’t raise minimum wage. I know you didn’t exactly say that, but the issue is not how much people make, its how much it costs those people to live reasonably. Raising minimum wage is not the answer. Helping those who are trying to raise families and make a living is. Raising minimum wage just hurts everyone else 8 months later when inflation catches up with you, but the people now affected are the remaining lower and middle class who didn’t get enough of a raise to offset the cost of living increase.
BTW- there is a nice little place on Goethe by me that is selling for $54,000 in a nice quite low crime neighborhood which is part of Princeton Heights. With the economy the way it is, you are going to see more of these “affordable” homes on the market, but at the same time people who would most benefit cannot take advantage of it because everything else they need is getting more expensive.
Jason
If you’re single and making minimum wage, the odds of buying a home are slim, especially with the fallout from the mortgage crisis. But if you’re married and both working, or have a partner or even a roommate, and you more than double your income (the utilities don’t double), the economics become a lot more doable, especially here. Compare us to that other extreme, Aspen: http://www.denverpost.com/newsheadlines/ci_10464107
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I don’t disagree that finding “nice” or “nicer” housing is tough if you’re not being paid well. But that’s the other half of the affordability issue – what you’re paid. Part of what we make is out of our control – we, individually, don’t have much impact on the macro economy. But we all make choices about career paths. We can become potters or nurses, servers in the restaurant industry or teachers, realtors or car sales people. Minimum wage is not intended to be a living wage. It’s an entry level wage paid to people starting their careers, people who bring little to the table and are paid what they’re worth. Even in the fast food industry, there’s a path up from minimum wage, with wage increases offered for seniority, improved skills and movement into management. Someone who works hard and gets promoted may not be able to buy something the first year on the job, but by the third or fifth, probably yes. And, while I’m not a big fan of unions, I’ll give them credit for trying to do two things, raise the pay for certain sectors that should be paid better (Service Employees International Union, SEIU, not SIUE) and refocusing on their apprenticeship programs in the construction trades. Both sectors offer carreer paths for people who aren’t “college material”.
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I do take exception to the statement that “When you are looking down from a comfortable middle-class position it easy to consider those below as being stupid or the victim of bad decisions.” It’s not “easy”, it’s frustrating. Part of it IS luck, part of it is opportunity, but part of it is also choice. Many people would like to be artists or outstanding pro athletes or full-time students, but the reality is that very few of us have the talent to actually stand out and be paid well enough to make it a reality. Work is work for most of us because it ain’t glamorous, but it does pay the bills. And yes, choices have consequences – make too many of the wrong ones and you’ll be poor, make enough of the right ones and you can join the middle class. Is it “fair”? Yes and no . . .
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You also state that “The fact is we have many hard working individuals & families doing jobs that simply don’t pay that well. . . Income is not a measure of intellect.” True, income is a measure of your value to your employer. If there are many other people out there willing to step into your job, you won’t be paid well – why should an employer pay any more than they have to to fill a position? If you want to be paid more (don’t we all?), you gotta bring more to the table. Get educated, hone you skills, prove your value, and yes, work hard. And if you’re that good and you’re not being paid what you’re worth, find someone who will!
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Finally, to state the obvious, our local economy, for better or worse, is, and has been for many years, moving from manufacturing to retail and services, both of which typically pay a lot less. Part of this shift can be blamed on our local leaders – they’d rather see a new shopping center go in than a new factory – they see an immediate bump in sales tax revenues and they need to listen to NIMBY concerns from their constituents. Bottom line, “affordability” is a complex issue, tied into the supply and demand of both jobs and residential units. And it’s also a matter of perspective – a long commute here, to affordable housing, would be considered a short one in places like Chicago or NYC or LA . . .
Very complex and made more so by a society that subsidizes sprawl. The “30% measure” is necessary to allow enough funds to pay for lifestyles that requires all the costs associated with auto dependencies. Failures in one area inevitably compound problems in other areas. Integrate auto costs into your formula and there is nothing left to pay for food or clothing. Housing is an investment, auto expenses don’t produce any wealth.
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Problems are compounded in a city that is losing jobs and opportunities. Few want to locate in a place that has serious crime problems, failing schools, and a dysfunctional political system. Over time, each of these problems exacerbate each other until the costs of solutions are beyond local financial resources.
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State policies (the New 64/highways, rejection of Complete Street legislation, ethanol subsidies & credits, etc) reinforces auto dependencies and the higher cost structure which further strains budgets. The City is doing much harm with zoning, regulations, city income tax, etc. policies to make matters worse. Policing is strained and remains inferior. MetroLink is poorly managed which increases auto dependencies. Is the City now in a position where the costs of correcting these problems are beyond its resources?
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Until we are all in the same boat few of these obvious problems will ever be solved. I expect most will get worse with time as budgets are strained in the City and the County. New communities west of 270 start with clean slates and are thus more attractive as highways are expanded.
There are many ways to look at the issue of affordability. Region vs. region is one way. Your own personal situation is another. The most established way of consideringaffordability is as a function of household income. If you are paying more than 30 percent of your household, then your housing expense is considered unaffordable for you.
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Another way to look at the issue is the percentage of a region’s residents who can afford the median priced home. As a rule of thumb, most people consider 3X your annual income to be your house price range.
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Median household income for the St. Louis region hovers just below $60,000 per year. X3 = $180,000. The median priced home in the St. Louis region is around $200,000, so, based on these estimates, most households in the St. Louis region can afford the median priced home here.
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Such is far from the case in “high cost areas” like Boston, NYC, or Seattle, Portland, or San Francisco. In those markets, typically 10 percent or so of the region’s population can afford the median priced home.
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Such a mismatch between incomes and housing prices makes it very difficult for places like SF to attract young professionals.
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The young midwest professional would move from a place like say, Des Moines, where they own a nice home in a nice neighborhood to living in a tiny apartment in the worst part of town by a train track and under a highway overpass. Why would they do it?
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So yes, by comparison, STL is very affordable. We are rated one of the most affordable housing markets in the country. But whether housing is affordable to you, that depends on your personal situation.
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Lose your job, and all of a sudden, housing at any price is no longer “affordable”.
Affordable housing becomes increasingly viable when a person can make a firm distinction between wants and needs. And once they resolve to lose the wants then those extra resources can then be allocated to their needs. In addition, some cultures place a strong emphasis on the extended family. If two incomes can go a long way in procuring affordable housing then four incomes would be ideal. Of course, that is a decision each person must wrestle with, it’s not always easy living with extended family.
And lastly: “When you are looking down from a comfortable middle-class position it easy to consider those below as being stupid or the victim of bad decisions.†Castigating the majority of American’s doesn’t help matters any. We should not “look down†on anyone, even on folks who make statements that fit the very definition of the point they were attempting to make.
It’s misleading to think that most of the people that work at minimum wage jobs derive all of their income from such jobs. Most of those making minimum wage are part-time workers seeking to supplement their income — people like students, retirees, and stay-at-home spouses. No one pretends minimum wage is anything one can live on, so it should be irrelevent to the issue of affordable housing.
The park ranger example shows just how affordable St. Louis housing is. With a roommate, the park ranger could easily afford a 2 BR apartment in the CWE — one of the most livable neighborhoods in St. Louis and covenient to public transportation.
One. It is virtually impossible to hire someone for minimum wage today. No body wants them. If they do it is because they are low skilled and that precisely what the minimum wage is for, its a training wage. Show a little sticktoitiveness and promotions come.
Two. Very few people are supporting a family with a single full time minimum wage.
Three. Don’t forget about the Earned Income Tax Credit that puts money in the low wage earners pocket for being gainfully employed. Same goes for other forms of transfer payments, disability, food support, rent support etc.
Four. Do a google of spending power vs declared wages in low income areas. If memory serves a typical figure is spending power exceeds wages by 125% or so. This is the black market cash economy that does get recorded and the IRS will never be able to corral.
Five. My first home in Benton Park many moons ago would have been considered substandard. But a lot of sweat equity and working weekends allowed my to advance my position. I have done the same with 5 other buildings now. I think in the end that is what Jim Zavist is alluding to.
CORRECTION: This is the black market cash economy that does NOT get recorded and the IRS…………………..
I don’t agree. Your Park Ranger could find a suitable apartment in the Forest Park Southeast neighborhood for between $400-$500 monthly. If he was lucky I would have a vacancy and he could rent a studio for $475 with in unit washer and dryer, garbage disposal, free cable and in the esteemed Gibson Heights portion of the neighborhood (don’t get me started on that distinction). Regardless he could find a place within walking distance from work (or have a fellow ranger pick him up) and access to the metro link, bus stops, a grocer (if that’s what Manchester Market is), and restaurants. Maybe this is just a fluke but I think if people have the information they can find suitable housing in the City. Sometimes and I won’t say all the time you can find it near your job or within easy access via mass transit. The question is how they acquire the information. It’s easy for me because I have ready access to computers and I know how to look for it. How to we get those skills to the people that need them? That I believe is a more relevant question. However, to your credit, finding affordable rent in Oklahoma City is much easier. When I first moved here, my Oklahoma friends were amazed at the prices. My final question is whose responsibility is it to provide “affordable†housing?
There sure is a lot of defensiveness coming out from those who just don’t want to admit that sometimes there are people doing the best they can and it still doesn’t get them where they would like to be. It’s a lot easier to think those people made stupid choices because then you can comfort yourself into believing that because you aren’t stupid this won’t happen to you. There are a lot of us out here struggling and it isn’t because we want to be full-time students or artists, it is because the economy sucks, health insurance costs are astronomical along with gas prices, and even with two incomes it is just way harder to make ends meet. I am sure plenty of you will continue to believe that any financial issues I have are because I am stupid and if I made better choices I would be all comfortable like you. Well, I hope you don’t learn the hard way that karma is a b—h. Not every job is going to pay the big bucks, as has been pointed out, but if everyone did what you all want them to do and make the right choices, then what? Everyone is qualified to do a great job, but that doesn’t mean all the jobs will be great. There are only so many well paying jobs to go around. Doesn’t matter how many great choices you made if no one is hiring.
A.S. – Yes, the economy is in the crapper right now, and employment options are more limited than they once were. I don’t know your situation and what choices were made getting to where you are today. My perspective is driven by two issues/conclusions. One, I moved here four years ago from Denver. Housing costs there are 50%-100% higher than they are here, while wages are only slightly higher. My perception is that housing IS more affordable to more people here than there – you spend less, get more and don’t have to drive as far to find affordability. For a good minority of the population, it’s going to be a stretch for them to pay the rent or the mortgage every month, for a variety of reasons. I rarely judge them individually, but I’m going to push back on the concept that there is a dearth of “affordable” housing, especially here. Which gets me to two, the difference between what we want and what we can afford (and there is a big difference). Rarely will a younger person be able to afford a home or a neighborhood as nice as their parents’, the one they’re moving out of. There’s also a difference between clean, serviceable and relatively safe and either living in the ghetto or living in the lap of luxury. We all have to reach that equilibrium between what we’re used to, what we aspire to and what we can afford on the (meager?) wages we’re currently earning. It may not be “fair” and it may be a struggle, but it is reality. My wife and I struggle, as you do, with paying higher prices for everything as well – blame whoever you want, but the current economy is impacting a whole lot of people besides you and me. The unfortunate reality, however, is that government simply isn’t the answer when it comes to “creating” affordable housing or imposing rent controls – housing is worth what people are willing to pay for it, and if socialism creeps in (which those two scenarios are), all it will do is exacerbate the lots of the haves and the have nots!
What I think government should do is not bail out these companies that build hugely expensive housing and mortgage companies that give the loans so they can foreclose a couple of years later. Because why is it when an individual makes the bad choices that lead them to need help that’s their own stupid fault they are on their own, but when a company does it (or many of them, as we see this week) that isn’t a failure of the private market (which we all know is the answer to everything) but is obviously necessary. I don’t need to keep up with the Jones’, but I also don’t need to be a neverending taxpayer fund for private market failures.
I know all about the difference between needs and wants so I’m not complaining about why I am where I am. I have what I need. But I resent people telling me that if I’m not totally financially secure it has to be because I made stupid choices all along and not recognizing that other factors do, in fact, affect us all.
And as far as the park ranger scenario and the Forest Park housing–yeah, he could pay to live in the studio. I didn’t see food factored in his monthly bills though. He won’t need the whole year lease if he can’t eat, only a month or two.
A.S. – I think the theoretical park ranger will be able to buy food with the 70% of his or her net income remaining after shelter and utilities.
A.S. – I don’t know anyone who is pretenting that the latest downturn on Wall Street is not the result of market failure. Also, private citizens have gotten help from the federal government. I don’t know what you would rather have the feds do with regard to Fannie and Freddie. If there is no bailout, no one except the rich is able to get a home loan on good terms, or perhaps, at all.
I’m as frustrated with government bailouts as anyone else – failure is an unfortunate side effect of the free market system. The reduction in regulation of the mortgage industry over the past decade (lack of understanding of the disclosures on ARM’s, lower or no qualification standards, constant pressure to refinance and to pull money out), combined with the false assumption that housing prices are always going to go up, combined to create the mess we’re in today. We do have disclosure requirements. What we don’t have is much education on the realities of real estate and real estate financing. Many years ago, I was able to take a Homebuying 101 class, taught by a great realtor through a free university – without it, I’d be a lot less knowledgable today. The fundamental problem today is that too many people owe more to their lenders than their house is worth on the open market – if you can’t sell and you can’t refinance and you’re stuck with an ARM you assumed that you wouldn’t be stuck with, and its paymets keep ratcheting up, you’re essentially screwed. At this point, trying to place blame is kind of irrelevent – it’s like sex or driver education, it’s one of those areas that is hard to justify funding up front, but doing so pays huge diviends in the long run.
It may sound classist, but people with money can afford and get higher education. While I don’t think education is necessarily a full measure of intellect, it certainly does help.
I wonder sometimes what would happen if Darwin played out economically rather than genetically… would that be a better or worse world ?