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.”