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A Blunt Tool

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)

Michael Lewyn | May 5, 2010, 9pm PDT
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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.

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