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July 22, 2011

A housing affordability problem

Housing costs are a big piece of most people's budgets. Too big, in many cases.

The rule of thumb is to keep them at or below 30 percent of your before-tax income. But the Center for Housing Policy's newest look at metro areas finds that it's difficult to impossible to do that on one salary alone for workers in a large variety of jobs

Here's what the Center's Paycheck to Paycheck analysis found for the Baltimore region:

--To afford the typical rent on a one-bedroom apartment (just over $1,000 a month including utilities, according to HUD), you need to earn $42,000

--To afford the typical rent on a two-bedroom apartment (almost $1,300 a month including utilities), you need to earn $50,000

--To afford to buy a typical home for sale at $220,000 (using a 10 percent downpayment and a mortgage with a 5 percent rate), you need to earn $65,000

The average salary in the Baltimore metro area: $55,000, according to the state. Yeah, $10,000 less than the threshold to buy the typical home -- not the average home, mind, which is more expensive -- and just $5,000 more than the two-bedroom threshold.

The center analyzed 72 occupations in the Baltimore area, jobs like nurse and truck driver that typically require no more than a bachelor's degree, and found that three-quarters don't pay enough to afford the rent on a typical two-bedroom unit. All but a few don't pay enough to buy that $220,000 house. (The center used median salary data for workers with several years of experience, so it's not entry-level.)

This week's story on the report mentions some of the popular coping strategies, such as getting smaller digs, commuting longer distances and ratcheting back on non-housing expenses. The most common is probably the dual-income strategy. But as the center's Maya Brennan notes, you can't always count on both you and your spouse or significant other having a job.  

She and report co-author Laura Williams offered up suggestions from a housing-policy perspective. Help more people purchase homes through employer-assistance programs that contribute toward downpayment and closing costs, for instance. And make sure apartment construction isn't being held up by bureaucracy, since too little supply drives up rents.

The other side of the coin is income.

I talked about the findings with Dean Baker, co-director at the Center for Economic and Policy Research (and one of the few housing economists who predicted the housing bust early in the boom). High unemployment does not create an environment where workers see wage growth, he said. But salary stagnation has been a problem for a long time, he added.

"It makes it very tough for people to make ends meet," he said. "If wages had kept pace with productivity growth over the last 30 years, wages would [now] be 25 to 30 percent higher for most workers. Then they would be able to afford a decent place."

He sees trade as part of the explanation, and one that doesn't effect everyone equally. International competition brings down costs for consumers and other end users, but for workers in fields directly exposed to that competition, it also pressures pay, Baker said. The trend has especially pummeled jobs that don't require college degrees.

"So lawyers, doctors, economists are still in largely protected labor markets," he said. "Manufacturing workers generally are not."

Other factors he sees putting downward pressure on wages: less unionization (from 20 percent in the private sector in 1980 to 7 percent now) and more deregulation (think telecommunications and airlines).

So is this our future, or can income trends change?

"We could start trying to level the playing field" by trying to subject doctors, lawyers and other more educated workers to international competition, he said. And if the value of the dollar fell to allow for more balanced trade, that could add millions of manufacturing jobs, boosting wages, he said.

More job creation in general would really help, too, naturally.

Speaking of downward pressure, that's the effect on home prices when a lot of people don't make enough to afford many of the homes on the market. But Baker wouldn't count on that solving the affordability crunch anytime soon.

"Prices tend to be very sticky," he said. If sellers can hold out, they often do.

More about the Paycheck to Paycheck figures, in case you're wondering: The affordability calculation for homebuying included principal and interest plus estimated taxes and insurance. Because that payment doesn't include utilities (like the rent figures) or maintenance, the analysis used 28 percent as the affordability threshold for buying vs. the 30 percent for renting.

What percentage of your before-tax income are you paying on housing? Are you making the numbers work on one salary?

If you think there's an affordability problem for homeownership and/or renting, what's your solution?

Posted by Jamie Smith Hopkins at 6:00 AM | | Comments (7)
Categories: Affordable housing


If you can't afford your house or apartment, thank the Republicans. You know, those "job creators".

"If you think there's an affordability problem for homeownership and/or renting, what's your solution?"


"Prices tend to be very sticky," he said. If sellers can hold out, they often do."

They cant- which is why this affordibility problem will solve iteself.,0,3637923.story

As predicted and explained by me many times on this blog....MD was late to the housing bubble party and we will be among the last to deflate. When the GOV't passes, cut/cap balance- all the employers that have been living high on the hog with their proximity to DC will suffer and our unemployment rate will match the rest of the nation. The more this goes on, the more i believe that the housing prices may reach all the way back to 96 prices and excepting upsidedown sellers, who woudnt be positively giddy about that?

how about a non profit that builds homes for the middle class? Or a coop that would be a group of people who help to build one anothers home? There's to much of a markup on new homes.

I think price levels will go back to 2001 or 2002, not 1996, but I generally agree that the bubble is still deflating. It will take a little longer period of bad unemployment numbers, difficult mortgage lending conditions, and sellers having their hands forced. But people who need to sell eventually will sell. Whether its to take a different job or because of health reasons (a lot of older people will need to sell to be able to move into nursing homes), the sales can't be avoided forever.

Housing should be a steady but unexciting line of business--all the crazy prices during the bubble and all the flipping... that was ultimately wasteful and bad for the economy. What really creates wealth is applying limited resources to serious problems. The focus in the US needs to go back to that. The more we do to "prop up" the housing market, the longer we as a nation postpone progress.

And, by the way, things that "prop up" prices are actually at the expense of working people and young families who need and want good stable housing. Sure, it was easier to get the loans in the bubble... but it also meant much higher sales prices and more volatile interest rates (as typified by ARMs and interest only/negative amortization loans)

A return to company towns?

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie

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