Are They Building Affordable Housing These Any More?

…and if not, why not?

I notice that, in my city (Springfield, IL) at least, most all of the homes that ordinary people live in were built between the 1920’s and 1950’s. I’m talking about single-family houses in the 800-1,200 square-foot range; houses that would probably fetch around $60-70,000 or less on the open market. Eventually those houses are going to be too old to be inhabitable. However, builders in this area only seem to be building $300-400,000+ mansions in subdivisions with names like Quiet Trace or Morningwood. They’re also building duplexes and overpriced apartments.

Long-story short: since they’re not building affordable housing any more, will yer average Joe not be able to afford a home in, say, 50 years? Are single-family, affordable dwellings not profitable for developers? And, more importantly, where the hell are these people who buy these high-end mansions working anyway? Seriously, the biggest employer around here is state government, and rare is the person in state government who makes six digits (legally, anyway). One city can only support so many doctors…

>> since they’re not building affordable housing any more…

Then again, they never were. When those houses were new, back in the 20s, they cost a fortune. Builders build what sells. Market, supply, demand… The one angle here is that they’re not making any more real estate and they are making more people so demand grows while supply doesn’t. This makes real estate more expensive. Can you say “sprawl”?

In other words, they are building affordable housing now just as before. And probably today it is more affordable than before.

Around here, you can find builders building homes in every conceivable price range, and I’m sure the same is true in every city. After all, if you find a lot in a cheaper subdivision with a old home on it and want to demolish it and build a new one, someone’s gonna build it for you. And not many people are going to build a $300,000 home in a neighborhood full of $70,000 homes.

One reason you don’t see *really cheap homes in urban areas is because the economics are not there. There aren’t any $5,000 lots in a city, and no one is about to build an 800 sq ft matchbox on a $50,000 lot.

Here in Edmonton we have some of the cheapest real estate in any major city in the world. And the cheapest lot you’re likely to find within city limits will be maybe 35 ft wide, 100ft long, and cost about $35,000. If you build a $70,000 house on it, you wind up with a total price of $105,000. And there are hundreds of houses currently being built in this city in that price range.

There’s a finite limit to how cheap you can build a house, anyway. Fixtures and cabinets cost money, as does concrete, rebar, and other raw materials. Just a small kitchen can cost $5000 in cabinets, faucets, sinks, tile, etc.

Some of those really, really cheap houses you see in the city are probably old houses with major flaws that are selling at the lot price or less, because basically before someone can live on the lot they’ll have to pay to have the house knocked down and disposed of, and that’s not cheap.

I am a commercial real esate agent, but I am familar with the residential market in my area on the Eastern Shore of Maryland, where builders have new houses from $ 75,000 to 750,000. As others have noted the phenomenon you are observing is pretty much restricted to areas where the value of the land and market demand make it more profitable to build 300,000 homes. These conditions would be seen primarly in wealthier suburban areas or cities. There is plenty of reasonably priced housing throughout the US. There is usually less of it relative to the lower end of the income scale in areas where you have a lot of available dollars chasing real estate and you have a limited amount of land.

There is usually more profit and less hassle getting qualified purchasers to settlement for builders in the upscale end of the housing market. If I have a choice of building 4 75,000 homes and dealing with first time home buyers etc. or building one 300,000 home and dealing with one purchaser and I know I can sell the more expensive house reasonably quickly in the current market a rational businessman/builder will tend to the $ 300,000 end of the market.

With respect to where some of the $ 300,000 house purchasers come from:

1: DINK (double income no kids) professional couples.

2: Well paid professionals and business people. People often make more than you think and not just doctors, lawyers and Indian Chiefs. Teachers with a few decades under their belts and local and state government middle and upper management employees etc. often make very healthy salaries.

3: Younger retirees with pensions and second jobs and/or people who are on their second of third house and may only be making mid-to upper mid five figures but have leveraged the equity build up in thier previous homes and the favorable tax treatment of buying up to afford the
$ 300,000 house.

A little background: my whole job right now is analyzing the affordable housing markets in every county in Oklahoma. This includes site visits to all 77 counties and 90 some odd individual communities. Ultimately, the question is whether or not affordable housing is getting built and if not, why not? I speak with local developers, realtors, city officials, sub-state planning offices, public housing authorities, Community Housing Development Organizations (CHDOs, usually the local Community Action Agency), and more.

Before I begin, here are a few rules of (my) game: my entire experience is in Oklahoma real estate markets (at the moment, it’s primarily been everything east of Oklahoma City). All real estate markets are not created equal! The situation will vary greatly even between adjacent counties, so my experience certainly isn’t going to be representative of the United States as a whole, and definitely isn’t going to be the same thing that’s going on in Springfield (although they can very well be extremely similar). PLEASE understand this if you decide that what I’m describing doesn’t at all fit your local real estate market!

Furthermore, I’m going to be working in Oklahoma dollars here… a $70,000 brand-new 1400 sq. ft. home probably buys you a tool shed in the suburbs of L.A., so whenever possible I’ll try to normalize by using the size of the house rather than the price…

Now that that’s said and done, the short answer is that in some (or many) cases, there isn’t “affordable” housing construction going on (for “affordable”, I’m going to go with stuff in the 1000-1400 sq. ft. range… or houses with either two or three bedrooms and 1-2 bathrooms). Stuff that isn’t affordable is anything with two stories, or four or more bedrooms, or really fancy and expensive construction, or for that matter almost anything custom built. I’m talking about small homes intended for first-time homeowners, with no acreage, crammed like sardines into a subdivision.

These homes are generally not being built, especially outside of major metropolitan areas (in Oklahoma, read Tulsa and Oklahoma City, plus a few other population centers above 20,000 people or so). Outside of these areas, there is NO speculative construction (literally zero spec. homes in the past 15 years) and most all of the custom jobs are of course far outside of the affordable range. I can show you entire counties where all of the new home construction is custom with an average estimated construction cost of $80-90,000 (keep in mind this is the construction cost, not the final sale price… most of this construction is for very large homes in the 2000 sq. ft. range).

Now, the question is, do these areas need afordable housing construction? There are two things that are driving demand for it: in some areas, there is decent population growth, especially towards the lower end of the wage scale. In some towns, an industry has moved in and people are moving to that area only to find that there simply aren’t any places to live. The prime example of this is probably Guymon (in the panhandle) which is seeing explosive population growth due to the hog-farming industry, even people moving mobile homes in to rent to the employees of the rendering plant can’t keep up with the demand.

The other chief sources of upward pressure on affordable housing demand are deteriorating housing stocks. In Pawhuska, for instance, I’ll bet that 80% of the housing stock is 60 years old or more (I don’t have the actual numbers in front of me). This was a town that had a pretty large population during the oil years, but has since all but dried up. There are some in the community that would like a decent house, but there isn’t anything really habitable available.

SO, you’ve got two reasons why some of these areas could use some new houses (this is not to mention all of the macroeconomic reasons why an updated housing stock is beneficial to the community). There are MANY more reasons why they AREN’T getting built: for one thing, profit margins in the affordable housing market are razor thin. Why on earth even bother with gambling with $60,000 homes in Pawhuska when two-story $150,000 homes in Broken Arrow are a sure bet? Developers go where the money is, and it’s not in affordable housing, unless you can plat an 80 lot subdivision in an area with explosive population growth and a wage base to match. But in an area with a net growth of 100 households since the 1990 census, and an average wage of $6.10 an hour, most developers don’t even bother… they can easily lose their shirts. Some resort to “serial” spec. housing (build one affordable house, see if it sells, and if it does relatively quickly build another one), but this is rare since the profit margins are still so small.

NOW, to finally answer the question, here are the sources of new affordable housing construction that I see occuring in Oklahoma:

1.) Community Housing Development Organizations: these are non-profit groups that specialize in using state and federal money to finance construction of these types of homes. One particularly notable program is “self-help” housing, which works about the same way as Habitat for Humanity: usually, a group of several households are organized and they all build the houses for the entire group. This is financed (if I remember correctly) through the USDA Rural Development division. Other CHDOs simply build the houses with federal financing and then sell them (at very low interest rates and down payments) to pre-screened low to moderate income applicants. In addition to new housing construction, they also offer weatherization and housing rehabilitation programs, as well as potential homebuyer education courses. These organizations are usually the local Community Action Agency, although not necessarily (some CAAs don’t bother with new home construction).

2.) Private developers: there ARE some developers that specialize in affordable housing construction (in Oklahoma, one of the major ones is “Housing 2000”). They often use manufactured homes and then sell the home for slightly less than the cost of a new home built on site: this allows them to provide fairly affordable homes and still make a decent profit. At the same time, manufactured homes (and of course double-wide mobile homes) suffer from a great stigma, and there are some communities that have strict zoning restrictions placed on them, so they aren’t nearly as popular as I think they ought to be. Furthermore, there are SOME local developers that build affordable homes out of their own moral considerations… I don’t see these very often, but it DOES exist. Finally, there are developers that take advantage of the Low Income Tax Credit program, which matches the developer dollar for dollar in construction costs with tax credits on the condition that a certain percentage of the houses/apt. units be devoted to persons with a low income (I think the definition is 50% of the area’s median household income, but I could be wrong).

3.) Public Housing Authorities: of course, these used to be the answer to this problem. Some (certainly not all) are ineptly managed and consist of a lot of uninhabitable housing, but there are some that are actually involved in affordable housing construction using those same programs available to developers and CHDOs. They also screen their applicants so that the houses are sold to people that will take care of them… the PHA of Broken Bow, Oklahoma is in many senses a national model for this kind of work: the director is a builder himself, and builds houses largely financed by USDA Rural Development that are about 1300 or so sq. ft., and sell for $60,000 with zero down and 7.5% 30 year mortgage rates. Although they are all in a similar style (intended to fit with the area’s mountainous landscape) he designs each one differently, often to the specific needs of the potential owner. The PHA owns much of the equipment needed for construction (including an Air Force surplus wood planer) in order to keep costs down… I think this man spends every waking hour trying to figure out how he can build houses more efficiently. The houses are put in in-fill lots (he has demolished entire slums to put these things in, and years later the difference is still unbelievable). This kind of work, unfortunately, is definitely not the rule…

4.) Sub-state planning offices: A few (by a few, I mean only one that I know of, namely the Central Oklahoma Economic Development District) are also in the real estate market… financed by the Oklahoma Housing Finance Agency I believe).

Well, if you’ve read this far, either you really care about affordable housing or you’re REALLY bored. Bear in mind that I’m just barely summarizing a LOT of work and study, and this isn’t organized like I would a thesis (although it may end up being my thesis…) I know I’ve forgotten all kinds of important facets, and I know I’ve probably written something that says something other than how I had originally intended it… be gentle! If you want to read more about this kind of stuff, the agency I’m doing this work for (the Oklahoma Housing Finance Agency) is at this web address: http://ohfa.state.ok.us

Somewhere on the site are some housing market analyses that are similar to the kind of stuff I’m currently doing.

NOTE: I just previewed this, and read Sam Stone’s reply: prices for lots are another important point here, although in Oklahoma $5,000 lots CAN be found… in some cases, forward-thinking cities will let developers have condemned properties for a song and even demolish the house is they’ll just build a decent house on them. However, lots in newly developed subdivisions frequently do go for $10-12,000, and like he says this is a big deterrent to affordable housing development.

But in response to one of his comments, and a point I’d like to reiterate, is that houses CAN be found in every size in shape given a sufficiently large population in Oklahoma. But once cities dip below 20k people, THAT’S when the spec. housing dries up and quite literally all you see is very expensive custom construction.

And finally, in response sailor: yes, it’s also very important to consider the whole “life cycle” of houses. A $90,000 1400 sq. ft. home isn’t all that affordable to a person making $8/hour (although the biggest hangup is usually just the down payment and closing costs). But in 20-30 years or so, it might just be… unfortunately there are towns like Pawhuska that have completely missed out on entire generations of the “life cycle.”

Typical 1920s American family - Joseph and Mary Schrumpelhauser, and their three children Ethel, Ester and Elmer. Joseph works at the New York Central switching yard, while Mary stays at home. Joe brings home a whopping $25 a week, or about $240 adjusted for inflation. They live in a brand spankin’ new two bedroom, one bath bungalow in Buffalo’s Kensington neighborhood – 800 square feet on the first floor, and an unfinished attic upstairs. The people building that house were recent immigrants from Germany, who were paid $10 to $15 a week for their hard work. Cities like Buffalo, Cleveland and Detroit were the Silicon Valleys of the day, with some of the most expensive real estate in the United States – that bungalow sold for a whopping $5,000, or the equivalent of $48,000 in 2001.

Typical 2000s American family - Derek and Kristin Schrumpelhauser, and their only child, a son named Hudson. Derek is a systems administrator for Qwest; Kristin works as a marketing specialist for Ivesco. Their combined weekly income is around $3,000. Derek and Kristin own a 3,000 square foot house with five bedrooms and three bathrooms in Highlands Ranch, Colorado. The folks who built that house are migrant laborers, but they make a good $10 to $15 an hour. Despite the high cost of living in Denver, the Schrumphausers have no problem with house payments – they paid $450,000 for their new house, and have bucks left over for a pair of SUVs. (If Derek and Kristin were with their relatives back in Buffalo, that house would only set them back about $200,000.)

The folks who are driving forklifts, patching drywall or watching the assembly line on the third shift? There’s plenty of housing for them – two bedroom, one bathroom houses built in the 1920s and 1950s.

By the way, desdinova, excellent post. C’mon and visit the other planners over on the Cyburbia bulletin boards.

By the way, desdinova, excellent post. C’mon and visit the other planners over on the Cyburbia bulletin boards.

Great post, desdinova!!

Your scenario looks very similar to Texas, specially South Texas.

Just in case the OP is interested in knowing more about CHDO’s, here is one from San Juan, Texas called Proyecto Azteca and an organization that works on low-income housing:

Proyecto Azteca info.:
http://www.fanniemaefoundation.org/grants/casebook10/pa-profile.shtml

Texas Low Income Housing Information Service
http://www.texashousing.org/txlihis/

XicanoreX

Affordable housing being built? Hummmm. Let me think about this for a bit because it depends on what you term affordable. For the upper class most definitely. For the average class, not really. Probably not. I don’t think so especially if you want something new but you can find scads in the 1950s to 1960s era type CBS home. There are lots of those around because while built cheaply (normal sized lot and house for $5000 total and two or three bedroom at that) they survived a whole lot over the years. Note: Some self built ones used antenna wire, two strand, used for TV antennas as electrical wire. In the 50s, do it yourselfers were not real smart with electricity.

The rule of thumb was once that house payments should not take up more than one quarter of a man’s income. If it did, then he was over paying and this was in an era where only the husband worked, Now it takes up almost half of the income of both man and wife working, and they are over paying, but, inflation bedamned, builders and Realtors are charging more than ever before.

The best way is to build it mostly yourself, but you need this 50 pound book to read up on all of the regulations now and have to know how to talk to inspectors, who often ignore minor infarctions of code for builder beer buddies. They’ll even check the sand to mix ratio in your cement if you do not use a cement contractor.

Now just a second… Isn’t it just possible that tastes have changed? Here in Edmonton, 90% of the affordable housing is in multi-family buildings. Duplexes, Fourplexes, townhouses, and condos.

It may just be that people on the lower income side of things have evolved into multi-family units for logical reasons - protection from expensive home repairs, no yard to maintain, etc. Maybe people just don’t want to live in 800 sq ft. standalone homes when they can share a roof and walls with someone else and get more livable space for the same money.

Define ‘affordable’.

Until recently I worked in the Community Lending Division of a Major Financial Institution.

Essentially we provided construction loans for projects that would count towards our institutions compliance with the Community Reinvestment Act.

My department mostly handled multi-family, senior, and SRO projects and funded many thousands of such units each year. My knowledge of the single family projects indicates that a couple thousand homes were funded by us each year.

Keep in mind, however, the Feds define “affordable” based on relation to the Area Median Income. In Palo Alto, California, a single-family “affordable” home can still run $375,000-$400,000.

Many cities or county governments will include an affordable requirement when approving the permits on a large development (if you want to build 200 market price homes, you need to build 35 affordables, for example).

Then there is Section 8 housing with its subsidies and Low Income Housing Tax Credits which are used to encourage construction of below market rentals.

Is there enough affordable housing? No. But then, when you try to enforce enough affordable housing you tend to find yourself with a housing shortage and atrocious conditions for renters.

A lot of people in Montreal are pissed right now about the housing situation. In addition to the fact that the federal government hasn’t paid for a single social housing unit since 1993, and that the provincial gov’t is cutting their social housing budget by 12 million dollars, and that the number of households eligible for social housing is ten times the number of social housing units in Montreal, many housing units, especially in what used to be the more affordable areas, are being replaced with condominiums and other more expensive housing options. This causes an upswing in the prices of other housing and of basic goods and services in the area, making it more difficult for poorer people to survive there. There’s also the problem of out-and-out discrimination on the part of landlords against young people/students, single mothers, alternative people (punks etc.), gays and lesbians, and what have you.

The result was that last July 1 (when everyone in Montreal moves), some 250 families were left homeless simply by being unable to find a residence. The result was the Overdale squat protest.

This is not a trivial problem. The estimated number of homeless in Montreal is some 15 000. Now think “December”.

I work for a company that provides cheap housing.

yeah

These provide inexpensive housing.
My sister bought a lot in the country and put up a manufactured home. It is very nice.

Sam Stone, in some areas, tastes have changed some such that you see a lot of people that would prefer renting to owning… of course, there is absolutely positively NO new multifamily construction in these areas because it can be even less profitable than new home construction! A large part of the housing market is rather in privately owned rental homes, which are almost entirely sub-standard shacks rented for maybe $125/month. I can show you literally dozens of communities in Oklahoma where the highest quality rental units available are those of the public housing authority, because they spend more time screening their applicants than the rental owners do and spend more time maintaining them, what with all the federal regulations and all… When I talk affordable housing, I mean both affordable new homes and affordable rental construction, and local realtors will tell you (and demographics available from the 2000 census will show you) that there is a tremendous un-met demand for these units, especially in smaller communities under 50,000 people or so.

elmwood, thank you, I took a look around at the website but I’m probably out of my league there… I’m just an economist doing a market study. In some senses I prefer it that way, because it gives me a somewhat unbiased view of these communities… if I took every city planner at his word, every town in Oklahoma could be the next Broken Arrow if it weren’t for the housing situation!

Realtors and developers, ya gotta love 'em. <NOT!> I watched the land and housing costs blast up into the stratosphere almost over night thanks to these two vermin/blight upon the world because they sold some acreage to a wealthy community. Acreage once considered too crappy to be used for more than fish farming and now every foot of saltwater swamp is worth astronomical prices!

$5000 houses doubled in price over time almost over night while 5 miles away, the closest small city suffered no such change and they have the same geology, same beaches, same cross section of population and even more available square acreage.

There is now, after a flattening out of the housing curve for around 20 years, a major boom here in town, with 5, count 'em, 5 gated communities going up where the cheapest house starts at $110,000 and goes up to around $200,000! Mine, built in the 1950s, and with three extensions plus a property improvement added on over the decades, is worth $45. One of the developments is across the street and I noticed, as they built the place in record time, that these houses have small bedrooms and bathrooms and big living and social rooms. They look real good, but are actually relatively small.

They bought up and bulldozed down a 50 year old, prime grapefruit grove to put these places in. I think they put in a whole 8 spindly trees, if that many. I know the owner/builder casually and he builds fast, cheap and sells high. Since these communities have come in where I live, 5 so far, they drainage ditch of over 60 years of age, which once ran clear and fresh and was nice is now a polluted mess of garbage, trash and strange things.

I’m real happy about that. :frowning:

Proofread, proofread, proofread! Sheesh.

That should be my house is worth $45,000 and ‘they’ drainage ditches equals ‘the’ drainage ditches.

I’m not awake yet.

Housing is much different now than back for our folks.

For example in 1976 the year my father died he made $25,000 a year. Our home was valued at that.
Or about 25% increaase per year (25,000/10,000/10years)

He bought the house for $10,000 in 1966. In ten years a 15,000 profit.

This was in the south suburbs of Chicago. At that time a very happening place with industry and good blue collar jobs.

Today in 2001 the house would be around $65,000. A $40,000 dollar increase from 1976. or about 10.4% increase each year(65,000/25,000/25years)

So the prices aren’t going up as much per year as you think. HOWEVER my father if alive and still in his current job would be making about $80,000 a year (according to current job guidlines)

So in that since so in that sense my fathers income when he died was equal to his house now it would be greater.

A third issue is the south suburbs of Chicago are now dead basically. A similar house in say Elk Grove Village would fetch probably 130,000. So a number of factors figure in.

Also people now are willing to take losses. For example when I was first starting out I would look for an apartment to rent and I would go thru back ads and see which ones had been for rent. I would call and offer the owner less. Saying I will rent month to month till you can get your rent that way you won’t be out. Almost all would take this deal and once I was in, because I was a great tenent I was never asked to leave.
(this was the early 80s)

Now NO ONE will go for that.

In Chicago we are building high priced housing all over downtown and it is getting filled so someone MUST have the money.

Another interesting phenomenon is out by Schaumburg we have empty mini malls a lot of them. And instead of lowering rents they remain empty while MORE mini malls further northwest are being built so tenents can afford them.

Weird huh?