Affordable Housing

On Saturday, I sat in on another focus group meeting on the Culver Comprehensive Plan.  This one was specific to the Lake Maxinkuckee Environmental Council and Fund.  It was a fairly good discussion and several achievable goals were added to the consultant’s list for the plan.  I was a little disappointed that there wasn’t more discussion about why goals from the previous plan weren’t met and how to achieve that, but overall I thought it was positive.

The Dream of “Affordable Housing”

As with every single Culver meeting on the Comprehensive Plan that I’ve attended, the subject of affordable housing came up.  This is such a nebulous term that is thrown around with people at the table talking about houses currently available in town for $70,000, others talking about the $125,000 to $250,000 range and also the eco-friendly housing project that has been floated around which is looking at the $250,000 range.  To help me get a handle on it, I asked a banker friend to break it down.  (This is all in big fat round numbers, so don’t get too picky on my math, please!)

To get a residential loan, the standard is that you can pay 26% of your annual income towards housing.  This includes insurance, taxes, and so forth.  For ease of discussion, lets take someone that makes $40,000 per year which translates to $20 per hour at 2,000 hours per year.  26% of $40k = $10,400  Divide that by 12 to get monthly = $867   Using a simple mortgage calculator like the one here, assuming  5% loan rate, 1.25% property tax rate (Susie Mahler’s site says 1.5%) and PMI of 0.5%, you can get a mortgage of $130,000 for your $867 per month.  Assuming you put 20% down, which is a pretty common request in the “new economy”, that translates to a house valued at $162,500.  According to the City Data on Culver, the median annual income in Culver is $42,210 which makes it sound pretty doable.  That makes the $867 seem fairly doable when City Data says that the median rental rate in Culver in 2009 was $733.

Breaking that down though, how many households with $42k incomes have $32k in the bank for a down payment?  FHA loans are available for first time home buyers and First Farmers Bank & Trust in Culver still makes these loans, but good credit is important.  That also would drop the home value for our hypothetical family above to $136,500 with a $6,500 down payment.

Without showing my math (but feel free to check it):

$15 per hour = $112,000 home price with $22,500 down payment

$13 per hour = $91,500 home price with $18,000 down payment

Where do you think Elkay and Culver Academies fall on this scale?  They are the two examples most often cited of local industry with employees that can’t afford or don’t feel there’s value in Culver housing.

I don’t have any solutions here, but this exercise has helped my understanding.  From my business perspective, I know that my costs continue to go up on all forms of construction.  The new energy codes bring down the cost of ownership on an annual basis, but not the base cost of the house.  The new fire code requires fire sprinklers for any building with three or more units.  This will save lives, but it comes at increased construction costs.  There are a myriad of other rules and regulations that make the home better… but more expensive.

I don’t envision the Comprehensive Plan solving these issues, but the process is creating some good discussion.  That is positive.  Maybe a creative solution will come from that…