Real Estate

Housing troubles worsen for the poor

The numbers of low-income families devoting high levels of income to housing costs are soaring, according to a new study.

By Les Christie, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The housing boom may have ended, but even at its peak, it left legions of low-income, working families worse off in its wake.

According to a new study from the Center for Housing Policy (CHP), an affiliation of the National Housing Conference (NHC), the percentage of low income households forced to spend more than half their earnings for housing needs exploded as housing prices boomed.

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From 1997 to 2005, the study said, the number of low-income workers who rented their homes and spent more than half their income on housing more than doubled to 2.1 million from about 1 million.

Most experts recommend not spending more than 36 percent of your net income on housing costs.

Low-income homeowners fared slightly better; there were 2.4 million of them in 2005, 75 percent more than the 1.4 million in 1997, according to the study.

Many people mistakenly think affordability problems are limited to the hottest markets, such as California and New York, according to Barbara Lipman, research director for the NHC. "No place is immune," she said. "It occurs even in very reasonably priced housing markets, like Pittsburgh and Indianapolis."

The richest (and poorest) places in the United States

The median price of a single family house soared by about 86 percent from 1997 to 2005, according to statistics from the Office of Federal Housing Enterprise Oversight. Housing prices hit their peak in 2005, when they jumped almost 13 percent for the year.

"Home prices went up far faster than any wage growth," said Lipman, "especially among low-income families, whose real wages have either risen anemically or actually fallen."

Median U.S. wages inched up only 25 percent in nominative dollars over the eight-year period, according to the CHP study, while the cost of living increased 22 percent.

Latest home prices for 149 markets

The percentage of low-income homeowners - those earning at least the minimum wage but no more than 120 percent of the median income for an area (in a hot market like Los Angeles) - who spent more than half their income on housing reached 31.9 percent in 2005.

Rents did not climb quite as quickly as home prices did during the years from 1997 through 2005, but, by 2005, more than 20 percent of low-income renters still devoted more than half their wages to housing costs in Anaheim, Calif. (20.6 percent) and Los Angeles (20.3 percent), according to the report.

The CHP report, which covered 31 metro areas, also found that 24.2 percent of working class homeowners in New York spent more than half their income on housing.

Many homeowners in Midwestern cities fared better than those in coastal areas. Industrial cities in the so-called "Rust Belt" lost much of their populations since 1950, so there are lots of cheap homes in city neighborhoods.

In the Kansas City metro area, only 5.5 percent of all low-income homeowners spent more than half their income on housing between 1997 and 2005. In St. Louis, it was 4.8 percent and in Columbus, Ohio, just 3.7 percent.

As for low-income renters, only 5 percent paid more than half their income for housing in Milwaukee during 2005, 4.6 percent in Kansas City and 4 percent in Buffalo, N.Y.

Household income rises but . . .

The increase in home-ownership rates during the late 1990s through 2005 came with significant increases in rental vacancies. At the beginning of 1997, the vacancy rate was 7.5 percent, according to the Census Bureau, and it rose to 10.4 percent by 2004. The extra supply helped keep a lid on rental costs.

With many homeowners facing foreclosures and losing their properties and potential home buyers holding off because of trouble arranging financing, homeownership has been dropping. During the three months ended June 30, the homeownership rate was 68.2 percent, down from 68.7 percent a year ago and from a high of 69.2 percent in 2004.

Many of those erstwhile or aspiring owners now rent, and rental vacancies are down to 9.5 percent. Landlords should be able to command higher rents because of that.

"It adds pressure to an already pressured situation," said Lipman.

The most recent housing statistics from the Census Bureau appear to bear that out. After a few years of modest increases in average rents - from $589 in 2003 to $605 in 2005 - they've taken off. In the second quarter of 2007, the average rental cost was $665.

The report also quantified what the CHP labels "critical housing need," which it defined as the share of working families paying more than half of their income for housing or living in dilapidated conditions.

The glut of homes at 16-year high

Denver showed the fastest growth in critical housing needs, up 162 percent between 1995 and 2004. In Charlotte, N.C., critical housing needs rose 86 percent from 1994 through 2002. Los Angeles had the lowest score among any of the 31 cities covered by the report with 28.2 percent.

In Buffalo, critical needs dropped 21 percent; in San Bernardino, Calif., they were down 12 percent and in Ft. Worth, Texas, 7 percent.

The NHC has many suggestions for improvements - using publicly owned land for affordable housing, reusing abandoned properties and rezoning among others - but the costs are high and support for change has not been forthcoming.

"It's a matter of political will," said Lipman. Top of page



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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.