Lack of Affordable Housing

Lack of Affordable Housing

The Richmond Times-Dispatch editorializes, about the disturbing report (commissioned by the Capital Region Collaborative, which is the offspring of the Richmond Regional Planning District Commission and the Greater Richmond Chamber of Commerce) that draws attention to the lack of affordable housing.
More than one-third of area households pay more than 30 percent of their income to keep a roof over their heads. Affordable housing has been an issue since before the housing bubble really inflated, and it has remained an issue after the housing collapse — which suggests the issue is systemic. The systemic problem is that regional inflation-adjusted housing costs have increased significantly, whereas inflation-adjusted incomes have increased very little, or not at all.

Looking at the chart above, the median household income is flat to down 5% since 2001 and median gross rent and median housing costs for owners are up 15% to 20% from 2001.

Politicians bemoan the fact that there is little in the way of affordable housing, yet the “barriers to entry” is a major reason for high rents and a systemic problem.

All builders face “barriers to entry” when they pursue a project. Among their biggest obstacles when building housing units are the high development fees and other demands on construction imposed by city governments. Throughout the country, our leaders preach the value of keeping communities economically viable. Yet their development restrictions are often so onerous that builders must charge excessively high rents in order to gain a return on investment. This also applies to commercial real estate.”
High rental rates usually cause families to buy rather than rent. Traditionally, buying a home is cheaper than renting. Studies show that families who own their homes pay just 22.1 percent of their income toward housing. The high rental rates bring on new supply of apartments until too many are built and the oversupply causes rents to shrink. When rates get low enough families find it cheaper to rent rather than buy.

Across the country rents have been rising. Nationwide, demand for rental housing by people between the ages of 25 and 34 has driven up rents to the point that in 2012 renters devoted an average of 32.9 percent of their income toward housing. The cost of rental housing is up 3.4% over five years. This should be a time of rising homeownership, yet, the homeownership rate in 2014 has fallen to 64.8 percent; it’s lowest in 19 years, according to U.S. Census statistics.
It’s a crazy time.

We have a new phrase. It’s called “cost burdened.” Approximately 35% of all households in the Richmond Regional Planning District are “cost burdened.” The U.S. Department of Housing and Urban Development (HUD) established the term “cost burdened” to define households that need more affordable housing. HUD defines cost burdened households as “families who pay more than 30% of their income for housing… and may have difficulty affording necessities such as food, clothing, transportation, and medical care.” Households that pay more than 50% of their income for housing are considered severely cost burdened and may face even harder choices between paying for housing and other necessities. Approximately 15% of all households in the Richmond Regional Planning District pay more than 50% of their income for housing.
What is the solution? The Richmond Times-Dispatch suggests the solution to housing affordability is pay people more money. Housing cost burdens span all income levels, but are most common among households with low incomes (80% of AMI or lower) and moderate incomes (80-120% AMI). Of the region’s cost burdened households, more than three-fourths are in the low-income category. A family of four with a household income below $58,300 would be classified as having a low income.

If we made sure all workers made $29 per hour for a 40 hour week for 52 weeks, a worker would make $60,320 per year. No more top down approaches as the Report suggests. Just pay people more! It’s a crazy time.

Nobody thinks of the consequences, such as restrictions by Obamacare that are causing employers to hire workers for less than 40 hours per week; or the adjustments that will be made in prices. It stands to reason that if you pay a waiter $29 an hour, you will have to raise food prices to cover the cost. How about the means tested benefits a family receives because of their low income. Many of those benefits will be lost. How about higher incomes equal more taxes. I am not sure a simplistic solution of paying people more will really benefit the people you are trying to help.

Americans have worried for years and years about affordable housing. We have built housing that had to be bull-dozed because of massive failure. We have subsidized housing and passed that burden on to the 30% who pay taxes. No one has tried loosening restrictions on builders that would help them lower costs of building. Maybe we don’t need more government, but more market solutions.

One Response to “Lack of Affordable Housing”

  1. “It stands to reason that if you pay a waiter $29 an hour, you will have to raise food prices to cover the cost.”

    You will attempt to increase your prices, perhaps. Depends on the Elasticity of Demand. You will attempt to reduce the cost of all other inputs. Perhaps, cheaper meats.Which means declined value of the product.

    If you’ve been running on a four or five percent margin, chances are your best bet is to simply close your business.

    Then get a government job.
    .

Discussion Area - Leave a Comment




Copyright © 2007 Mover Mike. Design by Anthony Baggett.