Appraising Housing Affordability
Photo: Candor Visuals
For those who would help build aircraft to expedite the Allied Powers’ defeat of Germany and Japan during WWII, Wichita assisted the federal government in its plan to construct inexpensive housing. In 1941, through Franklin D. Roosevelt’s Federal Housing Administration, 400 new homes would accommodate many of the anticipated 30,000 people new to the city. As the estimate proved woefully inadequate, hundreds of additional dwellings were constructed, and the developments known as Hilltop Manor, Beechwood, and Planeview were born.
From 1940-43, the Wichita area became internationally known, and enemy-targeted, for its ability to successfully produce not only the Stearman Biplane to train those who would pilot war planes, but also Boeing’s B-17s and B-29s. Wichita’s population grew from almost 115,000 to nearly 190,000 (225,000 in the metro area) so housing was needed fast and cheap. The first 400 homes were built at an average cost of $3,500 and the working class buyers would not be asked to scrape together a down payment.
Since then, much like the rest of the United States, the local economy has seen its share of favorable tail winds, and great turbulence, of stagnant growth and real estate bubbles. Affordable housing, based on a renter or buyer’s current and future income, is often explained by the 28/36 formula: your total monthly housing expenses should not exceed 28% of your gross monthly income, and no more than 36% of your total debt service, which includes credit cards and car loans. Pressuring that formula, recent data shows average monthly rent has risen 14% nationwide from December 2020 to the same month in 2021, and nationwide, the median price for an existing home swelled by 23.4% between June 2020 and June 2021.
Abiding by mortgage company rules has proven elusive for many Americans and the pandemic has furthered the dilemma by adding building material shortages, high inflation, increased construction and labor costs to the challenge . . . how can monthly rent and mortgage payments be reasonably reduced to paycheck-friendly levels?
Here are some of the ways local governments and private entities have attempted to reduce housing costs:
Bond elections, mostly via municipal bonds
Public funding trusts
Opportunity Zones
HUD, through underwriting homeownership for lower- and moderate-income families through its mortgage insurance programs
Tax breaks, incentives to developers to include low-income housing units within the larger project
Change zoning laws to allow high density dwellings, often in the form of apartment complexes, versus single-dwelling units
Rent control
Land donations by government bodies or private entities
State and local funding for neighborhood revitalization
Mortgage forbearance, eviction bans
Local real estate developer George Laham is familiar with the concept of low-income housing set-asides, units priced below market value, when negotiating land deals in the Wichita area. He believes that the pandemic increased the need for affordable homes and apartments across the income spectrum; “stay in place” restrictions also altered consumer expectations for housing.
“The lockdown created a new reality for people, we were trapped in limited space, turning our homes into schools and workplaces for parents – we took our living space for granted, our routines changed and how we viewed what our living space can be,” Laham explained. “People began fixing up their homes, reinvesting to make their homes function better.”
But because houses and apartments are in short supply, especially given a need for more square footage, prices have risen, and Laham has seen single-dwelling home sales turn into bidding wars. Though current housing prices and economic currents seem to bode poorly for buyers and renters, he predicts post-pandemic lockdown optimism. “This will not last, though interest rates will increase, and inflation is high, these economic conditions will balance out over time.”
Other factors affect housing costs, as Stan Longhofer, Director of WSU’s Center for Real Estate points out in a research report issued a year ago. He describes external obsolescence as a form of depreciation, something that can lead to wide property values over the years; changes in traffic flow, severe weather events, or declining upkeep of neighborhood houses are potential examples that can impact a home’s longer term value. Longhofer also points out in another research paper the crucial roles of area demographics and wealth distribution in the real estate market, examining the degree that age, race, and wealth help determine property values.
Changing norms in the 21st century have already disrupted the traditional path to home ownership, and renting has become more pragmatic for the transient, job-changing lifestyles of succeeding generations. What hasn’t changed? Many of the homes classified as temporary when erected in the early 1940s still stand, and for too many buyers today, the difficulties of affording a place to shelter remain formidable.