Monday, December 20, 2004

Fatter Homes Pricing Out Poor

To afford a two-bedroom rental apartment, the typical worker must earn at least $15.37 per hour, or just under $32,000 per year, according to a survey that will be published today. While this may seem like good news to new arrivals in Boston, San Francisco and New York, most low-wage Americans have been priced out of the housing market.

The survey by the National Low Income Housing Coalition says that despite the surge in home building over the past several years, rents are increasingly out of reach to many as the nation has lost its stock of modest rental housing. The survey says that the "national housing wage" has increased from $11.08 in 1999, a rise of 39% in just four years.

This reported increase is at odds with U.S. Department of Labor data, which indicates that housing prices overall have risen by just 16% in that time. It may also reflect the change in the nature of the housing stock or simply the way the data is kept.

The assessment that a two-bedroom rental requires an income of $15.37 per hour assumes that a family spends 30% of its gross income on rent and utilities, which is what the federal government deems affordable. Yet many poor Americans pay more--as do many well-to-do Americans. The National Low Income Housing Coalition says this is because wage increases haven't kept up with increases in rent and utilities, said Danilo Pelletiere, the coalition's research director.

Rental cost data is notoriously difficult to come by, however. (It's much less widely reported than the cost of homes.) Pelletiere told the Associated Press that the coalition's data for 2004 could not be compared with previous years because of changes in the way that the U.S. Department of Housing and Urban Development calculated "Fair Market Rents," which is the cost of rent and most utilities for a typical apartment. Fair rents vary widely by metropolitan area and within metro areas as well.

Thus San Jose and San Francisco were listed as the Least Affordable Metropolitan Statistical Areas. Notoriously high-rent Manhattan was not in the top ten, nor was Los Angeles. But the New York suburbs of Nassau-Suffolk and Westchester were in the top ten, as was Orange County, south of L.A.

A full-time worker making the federal minimum wage could afford a typical one-bedroom apartment in just four of the nation's 3066 counties, the coalition said.

It is not clear if there was ever a time that housing was affordable by this definition--in the U.S. or anywhere else. But it is the case that newly constructed rental units have gotten swankier in recent years.

In 1999, 41% of newly constructed apartment rental units were 999 square feet or less, according to Census data. Last year, just 34% of the new apartments were in this range.

Ten years ago, 48% of the units had one bathroom and 45% had two. In 2003, 56% had two baths and just 38% had one.

The same trend is visible in owner-occupied homes. Since 1994, the size of the average home financed by a conventional mortgage has increased from 1,550 square feet to 2,241 square feet--a 45% jump. In 2003, 40% of the new homes had four or more bedrooms, compared to 34% a decade ago. A report issued early this year by Pulte Homes (nyse: PHM - news - people ) concludes, "Housing has such a bright future because houses (and apartments) will continue to get bigger and better, ensuring that real inflation-adjusted spending on residential construction will continue to rise." It also focuses on the trade-up market. Thus the rise of the McMansion.

Home builders like Pulte, Lennar (nyse: LEN - news - people ), Toll Brothers (nyse: TOL - news - people ), Hovnanian Enterprises (nyse: HOV - news - people ), Centex (nyse: CTX - news - people ) and D.R. Horton (nyse: DHI - news - people ) have all seen their revenues rise, some dramatically. But the building goes where the money is, and that is at the high end. With average home getting bigger and better equipped, the price of the merely acceptable rises, too, and more renters are priced out.


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