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June 2015 Brief: Volume 22, Number 17

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Being “House Rich” – Affordable Housing, Foreclosures, and Home Size

 

by Deborah D. Thornton

 

 

The home selling, buying, and building season in Iowa is in full swing as everyone takes advantage of the summer transition season. After all, who really wants to move in December or January, in Iowa? Coincidently on June 26 in Washington, D.C., the Mortgage Bankers Association (MBA) will hold their annual Housing Affordability Summit, bringing together “thought leaders” to “discuss the future of the nation’s housing and recommend policy change to ensure the availability of affordable housing.” They will be paying “particular attention” to lower-income, minority, and millennial groups.

 

Many people are concerned about housing affordability, especially following the Great Recession of 2009. The total number of Iowa single-family properties in a foreclosure status has fallen from a high of almost 5,000 during the 4th quarter 2012 to just over 3,000 in the 4th quarter 2014. The low, according to the University of Iowa Housing and Land Use Policy Program, was in mid-2006, when there were only 499 foreclosures statewide.[1]

 

This table outlines the annual 4th quarter data from 2006 to now. Most of today’s foreclosures are in Polk, Linn, and Scott counties. These numbers represent many families who are in distress and suffering and reflect a significant loss of community productivity and stability.

 

Something must be done, according to the MBA and the “thought leaders” at the U.S. Department of Housing and Urban Development (HUD). Yet HUD has been working hard to address this issue for almost 80 years. First through the U.S. Housing Act of 1937, which established the Section 8 housing vouchers, and later through Community Development Block Grants and other programs.[2] Even with all the tax money, there are still affordable housing issues for both renters and buyers.

 

A 2013 report by RDG Planning & Design and Gruen Gruen Associates on Iowa housing estimated that a new one-bedroom apartment of about 800 square feet would cost between $93,000 and $115,000 to build, or $116 to $145 per square foot. The rent to make this profitable for an owner, at a 10 percent return, would be between $850 and $1,000 per month, plus utilities.[3] These units all have excellent heating, good windows, central air-conditioning, and a microwave and an automatic dishwasher. They are not substandard housing. Unfortunately, the rental rate deemed acceptable for the very lowest income renters by HUD is closer to $500-$600 per month. Therefore it is almost impossible to rent apartments to low-income people and still make a profit.

 

What about single-family housing? The story there is even more striking. In 1950 the average size of a single-family home was 983 square feet and there were three people living in it.[4] Note that today’s basic apartment is almost that large, typically with only one or two residents. The cost for this house in 2000 dollars was just under $61,000, about $61 per square foot. This is half of today’s rate for an apartment. In 1950 this house didn’t have three plus bedrooms, two plus bathrooms, central air-conditioning, a built-in automatic dishwasher, a microwave, cathedral ceiling, ceiling fans, a fireplace, double paned windows, and a two- (or three-) car garage. It would probably be considered substandard today.

 

Today’s single-family home typically has all this and more, yet only has 2.5 people living in 2,300 square feet. Each person, individually, now has over 900 square feet of living space, compared to less than 900 square feet total for all three people in 1950. The price for this residence has risen exponentially as well. Nationally, the average price for a single-family home built in 2013 was $324,500. Ninety-one percent had air-conditioning and at least three bedrooms, 70 percent had at least a two-car garage, and 40 percent had at least one fireplace.[5]

 

In Iowa, according to the National Association of Realtors, the median sales price of a single-family home in Des Moines between January and March 2015 was significantly less than the national average, at only $171,500. The Davenport-Moline-Rock Island, Illinois, area was even lower at $116,000.[6] Nevertheless, according to the foreclosure data, many people in Polk and Scott counties still can’t afford their homes, even six years after the recession.

 

It might be that we are all just a little “House Rich,” and maybe one of the solutions to the affordable housing issue is for everyone to realize that you don’t need 2,300 square feet to live in. What you need is a safe and secure place for your family to eat, sleep, and play. It’s really ok for the children to share a bedroom – even brothers and sisters. You really can live without a two-car garage, even in Iowa. What you do not want is to have your house foreclosed on. Before that happens put it on the market and move to a less expensive place. Rent a one-bedroom apartment if you have to. You will still be living in as much space as people did in 1950. Then maybe our housing affordability crisis could be solved, without government intervention – but instead with Iowa common sense.

 

(Endnotes)
[1] Iowa Foreclosure Events Trend Map, Iowa Public Policy Center, University of Iowa, <http://ppc.uiowa.edu/housing/foreclosure>, <http://ppc.uiowa.edu/sites/default/files/foreclosure/reports/2014-Q3.pdf> accessed on May 15, 2015.
[2] “U.S. Housing Act of 1937 Law & Legal Definition,” USLegal.com, <http://definitions.uslegal.com/u/u-s-housing-act-of-1937/>, accessed on May 17, 2015.
[3] “2012 Iowa Housing Study,” RDG Planning & Design and Gruen Gruen Associates, p. 35, <http://www.rdgusa.com/crp/iowahousing/images/Conference%20Presentation%20-%20updated.pdf> accessed on April 22, 2015.
[4] Stephen Colley, “Housing Trends, 1950 – 2000,” January 10, 2010, <http://stephencolley.com/trends-since-1950/> accessed on May 2, 2015.
[5] “2013 Characteristics of New Housing,” U.S. Census Bureau, <https://www.census.gov/construction/chars/highlights.html> accessed on May 15, 2015.
[6] “Metropolitan Median Area Prices and Affordability,” National Association of Realtors, May 11, 2015, <http://www.realtor.org/topics/metropolitan-median-area-prices-and-affordability> accessed May 17, 2015.

 

Deborah D. Thornton is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact her at Public.Interest.Institute@LimitedGovernment.org.

 

Permission to reprint or copy in whole or part is granted, provided a version of this credit line is used:"Reprinted by permission from INSTITUTE BRIEF, a publication of Public Interest Institute." The views expressed in this publication are those of the author and not necessarily those of Public Interest Institute. They are brought to you in the interest of a better-informed citizenry.

   

 

 

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