Monday, December 15

Another affordability factor

Charlottesville is having an important discussion over some new census stats on the affordability of housing. Almost half of the renters in the city are paying over 35% of their income toward housing, which is considered by affordable housing advocates to be an undue burden. Some have pointed out that the student presence here may be skewing the numbers, but these are thought-provoking numbers nonetheless.

There's a major element to this that hasn't come up: housing and transportation costs are inextricably linked. To measure housing without taking transportation into account is like asking for the price of one shoe without checking the price of the other. Rather than setting an affordability threshold at 30% of household income for housing, a better rule of thumb is to set , say, 50% for housing and transportation combined.

Failure to include automobile costs makes cities seem to have a higher cost of living, leading to the myth of "drive till you qualify" as you travel out through rings of suburbs. The reality is quite different. New York City, for example has notoriously high housing prices. 37.8% of the average household income went toward shelter. However, NYC actually has a lower overall wage-adjusted cost of living than the rest of the country, because transportation costs only consume 15.4% of the budget - more than making up for the higher housing costs.

It's fascinating to me how much the average U.S. household expenditures have shifted during the late 20th century. According to Bureau of Labor Statistics, food was the biggest expense for a family in 1950. Since then, both housing and transportation have shot well above the food budget.

In 2008, AAA estimates the average annual car ownership costs at $5,576. Operating costs are an additional $7K (assuming 10,000 miles driven a year). Because of contemporary land use patterns, most families are required to own one vehicle for each driving-age person. However, living arrangements that allow a family to own one fewer car can translate to significant cost savings.

All of these numbers are needed to consider the economic health of a community.


Zed said...

Are people 'buying' more house than they used to? That is, does the average renting family live in more space than they used to? Do they have more rooms, more garage space, more garden, and separate bedrooms for every family member?

Not that I am suggesting renters should live in sub-standard conditions. But, I think there needs to be some consideration as to the difference between needs and wants. When we choose to spend more of our income on wants, then it is not quite the simple equation it once was.

LH said...

Daniel - good post and nice pie charts! Btw, location efficient mortgages (whereby lenders adjust their usual "% of income" formulas to account for commuting costs) are gaining steam.

To Zed's point, according to this website, new houses built in 1950 provided 290 SF of space per person; by 2003, it was 900 SF - 3+ times more! Granted, this is new construction, but the point is that we're consuming a lot more house than we used to.

Daniel Nairn said...

I completely agree, Zed. It's tough to sort out how much housing is a 'necessity' and how much additional space is a 'luxury' but if a city wants to take affordable housing for its residents serious, this really should be done. Larger houses are also more expensive to heat/cool.

And, LH, those are some pretty stunning numbers!

LH said...

Daniel, I'm glad you've made the connection between affordable housing and living space. Typically, governments with successful affordable housing programs allow for the affordable units to be greatly reduced in size; that plus a density bonus plus an overall landscape that is attractive to build in usually gets you enough affordable units.

(In a report we did for New Jersey's affordable housing agency, we estimate that an affordable unit half the size of a market unit gets you a 40% cost reduction on those units right off the bat - not 50% because there are certain fixed costs associated with various systems that every house needs, like HVAC or kitchen - and then from there, it doesn't take too generous of a density bonus to completely offset the burden to the developer of constructing the affordable units. I'll have to send you a pic of a development in Fairfax County, just a couple of hours from you, where the twin affordable units are nicely designed so as to look like one market unit, and therefore blend right in.)

Daniel Nairn said...

please do send that pic. Sounds like you have some extensive experience in affordable housing policies.