A Blunt Tool

Michael Lewyn's picture
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How can one measure the housing affordability of a city or region?  One common option is to focus on a region's median home price (or the median home price divided by median income).  I've used this method myself, and regional medians will often be the best tool available.

But sometimes, this method leads to absurd results.  For example, the median home price for metropolitan Atlanta is $150,000, which makes Atlanta seem like a remarkably affordable housing market.(1)

But anyone who has actually lived in Atlanta knows that for most of the past few years, it has been impossible to purchase a single-family home there for $150,000, unless you are willing to live (a) at or near some fairly unpleasant urban neighborhoods, or (b) somewhere in drive-to-qualify country.   (Of course, this has been less true for the past year or so!)  In middle-class intown neighborhoods, prices tend to start at much higher levels.  For example, in zip code 30306 (Virginia Highlands/Morningside), the median home value is just over $584,000.(2)

The imperfections on relying on regional averages are often more obvious when one compares regions.  Metro Atlanta's $150,000 regional median is less than 10 percent higher than Jacksonville's $140,000 median.

But in the neighborhoods I am most familiar with, the differences between Jacksonville and Atlanta are much more significant.  For example, let's compare two very similar neighborhoods: Atlanta's Toco Hills and the northern part of Jacksonville's Mandarin.  Both are middle-middle class, heavily (by southern standards) Jewish inner suburban areas, automobile-oriented but with some bus service.

But the cost difference between these neighborhoods is, I think, significant.  The Center for Neighborhood Technology's website suggests that in the core of Toco Hills, the average homeowner's monthly housing expenses are in the $1300-1400 range for the cheapest block groups, and in the $1800-1900 range for the most expensive block groups.  By contrast, my old Jacksonville neighborhood is divided into two block groups: and in the cheaper of the two, the average housing expense is under $1000.(3)   A look at zillow.com revealed pretty similar results:  single-family homes in Toco Hills start at around $200,000, while single-family homes in Mandarin start around $135,000. (Of course, most homes in both areas are significantly more costly).  

What about more upscale neighborhoods?  I decided to compare two well-off areas about an hour's walk from downtown: Atlanta's Ansley Park and Jacksonville's San Marco.  In San Marco's most expensive block group, the average monthly housing cost was $2113.  By contrast, in Ansley Park's most expensive block groups, monthly housing costs were over $3000.(4)   

So how would one measure affordability in an ideal world?  In an ideal world, one would look at neighborhoods that are really comparable, as opposed to some regional average that compares an incredibly wide range of neighborhoods and cities. 

Of course, in the real world this can be difficult as to be impractical: unless we are looking at cities we are very, very familiar with, we really can't figure out what part of city A is really similar to what part of city B. 

So we may often have to rely on median prices as a measure of affordability.  But we should realize that in doing so, we are using an incredibly blunt, imperfect instrument rather than an all-purpose argument-stopper.

(1) http://www.nahb.com/reference_list.aspx?sectionID=135

(2) http://www.city-data.com/zips/30306.html

(3) I got these statistics from the Center for Neighborhood Technology's housing and transportation affordability websites. ( http://htaindex.cnt.org/ ).  The Atlanta statistics are for block groups off LaVista Road between Briarcliff and North Druid Hills; the Jacksonville statistics are for block groups off San Jose Boulevard just north of I-295. In Jacksonville's more expensive block group west of San Jose, housing costs are comparable to the less expensive part of Toco Hills- a result more or less duplicated on zillow.com.  A caveat: Toco Hills becomes less expensive as you go further from synagogues.  In Mandarin, the same is true as one goes east, but not in the neighborhood's western edge because of the popularity of riverfront homes.

(4) Ansley Park is just north of 15th St. and east of Peachtree Street.  San Marco's fanciest blocks are on the eastern edge of the St. Johns River, just south of Landon and west of Hendricks.

Michael Lewyn is an assistant professor at Touro Law Center in Long Island.

Comments

Comments

I have always thought too

Good points and I would add this: the housing stocks of each metro are different and the dynamics of the latest sales (from which median prices are calculated) are different. So, you don't know which type of homes and in which neighborhoods are selling by just looking at the median prices. One way around that is to use the Case-Schiller index which is better, but still somewhat limited by your points above. One other thing: property taxes. Compare Texas vs. Colorado, for example. Strangley enough, Colorado has low property taxes for residential properties while Texas' property taxes are very high on a rate basis. This is probably because Texas has no income tax. Of course, no affordability analysis would be complete if we did not mention the regional income levels and the direct transportation cost comparisons. As a general rule in the last 3 years, there have been bigger house price declines in exurban/deep suburban areas.

Price Declines

"As a general rule in the last 3 years, there have been bigger house price declines in exurban/deep suburban areas."

Well, yes, where the prices went UP in the first place; eg California's inland empire. But not where they barely moved, due to a lack of urban limits and the ability to develop agricultural land without profiteers cornering the available land.

An interesting point about Atlanta is that it is very high in mortgage foreclosures without having had this housing bubble problem. I suspect this is because in Atlanta, the CRA racket was at a peak.

CRA Racket

If you want to know what I mean by "the CRA racket", read THIS:

http://www.city-journal.org/html/10_1_the_trillion_dollar.html

NOTE that it was written in the year 2000.

"The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities"
By Howard Husock

"......Under (The Community Reinvestment Act) provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups.....

".......The CRA's premise sounds unassailable: helping the poor buy and keep homes will stabilize and rebuild city neighborhoods. As enforced today, though, the law portends just the opposite, threatening to undermine the efforts of the upwardly mobile poor by saddling them with neighbors more than usually likely to depress property values by not maintaining their homes adequately or by losing them to foreclosure. The CRA's logic also helps to ensure that inner-city neighborhoods stay poor by discouraging the kinds of investment that might make them better off......."

Bank and FIRE racket.

Yes, compelling argumentation - blame poor people for being poor, blame something on Clinton, keep those people in their place, and imply or blatantly assert something like "Free Markets" solve everything!!!!! *heart* "

Brilliant. Then, later, write some op-eds that blame poor people for the housing bubble.

Uh-huh.

This is not to say that there are not problems with CRA. But the framing and solutions behind the "conservative" Manhattan Institute "scholar" do not stand scrutiny.

Best,

D

Problems with CRA

Dano,

Can you share what problems you might see with CRA?

CRA limits

It's more of a Richard Florida-type concern, HR, that the Murrican Dream is a house, and convincing a heterogeneous population of a homogeneous dream is poor thinking. I want the work on discriminatory-exclusionary issues to continue, but more work needs to be done on different dwelling choices and commercial lending, perhaps some more grants for placemaking-quality of life issues.

Best,

D

Poor thinking, so true

Dano, did you even notice that the writer of that article shared your concerns about the appropriateness of the urban model that these policies were perpetuating?

But I would add that something is very, very wrong when you end up with one of the highest foreclosure rates in the city that had possibly the cheapest housing in the USA. A home that would have been $400,000 in Watts, CA, would have been $40,000 in Atlanta even before the crash. Why not open your mind to the possibilities that some state interference in free markets has negative consequences, and also that there is often some measure of responsibility on the part of an induvidual, for the plight he is in.

I find it deeply ironic that under your trendy Richard Florida urban model, poor people will be simply priced out of homes altogether. Deny all you like, it doesn't alter your culpability.

Personal responsibility

Wodehouse-

Personal responsibility is important, however, what you have to understand is that "predatory lenders" target populations of people with minimal education and financial savvy. The terms of the loan contracts are often too long and complex for those less educated members of the population to understand. They are in part swindled to sign.

The finance industry has a lot of cleaning up to do. Wall Street is laden with complex transactions and terminology that most average Americans- and even those who work in finance- are confused by.

However "flipping" is not one of them

That was a main street term that was VERY well understood. I hear you on predatory lending and don't disagree, but there is much more to the story. Behind every 3 predatory lending nightmare stories, stand 2 surprised they didn't make a quick $100,000 borrowers. There is a lot of blame to go around. The finance industry does have some cleaning up to do, of which a portion is on Wall Street. But, personal responsibility has to increase and the Federal Government should also reconsider its massive subsidies to the housing industry manifested in so many ways.

Cogito veritum.

Deny all you like, it doesn't alter your culpability.

The only culpability I see is that someone is guilty of making stuff up to have play.

Best,

D

Later? Huh?

"Then, later, write some op-eds that blame poor people for the housing bubble....."

How many times did you miss that the date of that article was 2000? The guy is a prophet, not an after-the-fact spin merchant.

I agree, broader analyses needed

I agree that broader analyses is needed to determine affordability. Also, we need a scale of affordability- what is affordable for one person or family is much different than for another.

For example, you can pass by townhomes starting in the high $200,000 range that are listed as "affordable." For some people, that is far out of reach. Someone making $8 per hour certainly has different price needs than someone making $15 plus per hour.

I think one important action that needs to be taken is the preservation of existing housing stock in our communities. This can include older homes occupied by renters, either as a single or multi-family home or as individual apartments. Too often, older housing stock is replaced by new, more expensive stock, some of which is classified as "affordable" but in reality costs much more than renting the older living space did.

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