Affordability issues are local

Today, Harvard’s Joint Center for Housing Studies released a report on affordable housing and rentals.

I don’t mean to insult the many bright people at Harvard (… much; I went to Brown).

More important, I don’t mean to make light of our very painful situation, in which the least of our brethren pay 50 percent of their incomes for housing. Nevertheless….

Housing “affordability” is a slippery subject. Circular. If local tenants cannot afford local rents, then they have some capacity to double- and triple-up.

As far back as data goes, during hard times, household sizes increase — then, in good times, we spread out. These are, theoretically, good times, so good that the Fed is about to raise its overnight rate. However, many have correctly observed that we are two economic nations more than ever before.

If you’re in IT, any technical business, in education or health care, motivated and educated, or employed in some venture connected to global trade — then life is good.

If you’re not any of those — the lower 60 percent — your real income is probably going down.

Once tenants have done all the compressing they can do, then they cannot pay more. Rents in any large locality cannot rise above “affordable.” “Tolerable” might be a better word.

Once that limit is reached, tenants may move to lower-cost areas (but face a longer commute) or change jobs. Every metropolitan area has, for many decades, faced those tradeoffs.

Employers located in housing-short areas may have to raise pay scales or impress on local government the need for zoning for more housing or assisted programs.

Adding supply is exactly what’s happening, in largest part because higher rents make apartment construction more economic to investors.

Construction of new homes is still not fully recovered (credit is tough, land is scarce), but the ratio of multi-family construction to single-family is approaching 50 percent for the first time since the baby boomer demand for entry housing in the ’70s and ’80s. That was a happier interval — jobs and advancement were plentiful, both heavily limited today by global competition — but in the aggregate the same situation as today. Added supply is the only fundamental corrective for a growing population and rents rising faster than incomes.

As you read stories about “affordability,” remember these things, too: Affordability issues are local with local demand/supply fixes, and national aggregate data applies only accidentally to your home town.

Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.