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Buyers in More Markets Find Housing Out of Reach
Henderson, 31, who graduated last year with a Ph.D. in biomedical engineering and is now a researcher at the University of California, San Diego, still had to get a loan for the entire price of her $540,000 home. Without the $700 her boyfriend chips in each month, she could never cover the mortgage, insurance and property taxes, which still eat up almost 70% of her gross pay. "One of the (infertile) couples said to me, 'You're helping us fulfill a dream of ours, so we hope you will use the money to fulfill a dream of yours,' " she says. "And I'm like, 'I want to buy a home. This is enabling me to buy a home. There's no way I could have done it on my own.' " Henderson's story points up the extremes to which some Americans are now willing to go to buy a home in some of the most overheated markets. Since 2000, the cost of a home has more than doubled in about 30 major metro areas, including Washington, New York, Las Vegas, Phoenix, Sacramento, San Diego and Atlantic City. In seven U.S. cities, the median home now costs more than a half-million dollars. Even though the real estate boom peaked last year, there's no end in sight. Nationally, home prices are still climbing and are expected to rise about 5% this year. Coupled with higher interest rates, gas prices and property taxes, those prices are creating an affordability crisis that is rippling through communities across the country. The consequences are reshaping cities and the lives of millions of Americans. They're affecting children, families, schools, hospitals, businesses and all levels of government — from nurses, teachers and firefighters who can't afford to live in the communities where they work, to elderly renters who have been forced to leave their homes because those apartments were converted to condos they couldn't afford to buy. San Diego could be a poster child for the affordability crisis. Home prices here have risen 142% since the start of 2000. Only 9% of residents could afford the median home if they had to put down 20% of the purchase price. Even so, a dizzying array of high-risk adjustable-rate mortgages has sustained the market by helping more people qualify. The affordability crisis has driven millions of people into the distant suburbs, crushing transportation networks and doubling commute times. "People who moved to Temecula, 60 miles from here, five years ago had a 60-minute commute to work (downtown); now, it's 2½ hours," says Jim Waring, head of San Diego's land use and economic development office of the mayor. "What does that do to the family?" And what does that do to city services such as schools, fire departments and hospitals? Unbearable commutes, Waring says, are a "significant reason" police officers quit their jobs. The affordability crisis appears likely to get worse. The Federal Reserve is expected to raise interest rates again this week. One in five homeowners with a mortgage has an adjustable-rate loan, and most of those loans will reset to much higher interest rates within the next two years. Of course, there are many regions of the country, notably the Midwest, where the real estate market never turned into a feeding frenzy, and housing prices are still within reach of a working-class family. In Des Moines, for example, the median-priced home can be had for about $150,000. Still, many Americans nationwide are growing anxious about the cost of buying a home, or even keeping the one they have. One out of three Americans fear that rising monthly payments — especially property taxes and energy costs — will force them to sell their home and buy a less expensive one, according to a survey to be released today by the National Association of Realtors. By a 2-to-1 margin, Americans say that high monthly payments, rather than high down payments, are the chief obstacle to buying a home, the survey found. Of the renters surveyed, about half worry that the cost of housing is so daunting that they'll never be able to buy a home. And nearly 60% of those surveyed are concerned that the cost of a home is becoming so unaffordable that it's hurting their local economy. In San Diego, biotech companies don't bother to recruit employees from outside California, because the cost of buying a home is simply too shocking, says Elizabeth Morris, CEO of the San Diego Housing Commission. Her agency helps 12,500 low-income families pay their rent each month, and there's a waiting list of 30,000. The apartment vacancy rate here is a meager 2%, yet property owners are requesting city approval to convert 16,000 apartments into condos for sale. "The senior homeless population is growing," Morris says. "We are definitely seeing an increase, because a lot of this development downtown has taken out a lot of cheap apartments and (single-room-occupancy units). "We can argue about how good the housing was to start with, but at least it was a roof over their heads." Julaine Anton, an 80-year-old widow, was forced out of her downtown apartment because the owner converted it to a condo. Now, she's facing that same threat in her new apartment. She needs her savings to live on, not to buy real estate. "My medical insurance, after Medicare, has gone up so much since I retired," Anton says. The $1,250 monthly rent for her two-bedroom apartment takes up all but $150 of her Social Security check. One big risk is that the affordability crisis could accelerate the growing chasm between rich and poor, making that gap harder to cross. For most Americans, their home is their biggest asset, and one of the surest ways to build wealth. Middle-class renters in many areas could be forced to leave or see their financial prospects eroded by a lifetime of renting. "I don't think we're going to have a middle class" in California, says Edward Leamer, director of the economic forecast at the University of California at Los Angeles' Anderson School of Management. Cities nationwide are losing their middle-class neighborhoods, according to a study released last week by the Brookings Institution. Middle-income neighborhoods as a proportion of all metro neighborhoods fell to 41% from 58% between 1970 and 2000 — faster than the drop in the proportion of families earning middle incomes (between $44,000 and $66,000). The trend was worse in the 12 largest metro areas, among them Los Angeles, Baltimore and Philadelphia. The nation's real estate boom, which began in 2001 and peaked last August, has likely exacerbated this phenomenon. "This housing crisis is a crisis that is endemic not just in Los Angeles, but in big cities across the country," says Antonio Villaraigosa, mayor of Los Angeles. "A great city has a vibrant, strong middle class," he explains. "A city of rich and poor would be polarized and unable to reach its full potential as a world-class city. That's my biggest fear. If a teacher, firefighter, policeman or librarian can't buy a home and enjoy the American dream, then L.A. and cities around the nation won't be places that most of us will want to live." The solutions are at least as complex as the problem. The debates often skirt the raw political and social issues such as income and equality, race and ethnicity. People "haven't wanted to attack it at that level because those are very uncomfortable conversations to have," says Waring in San Diego. In super-heated markets, governments typically try to solve the problem with a variety of programs to encourage construction of low-income apartments and cheaper homes, and to offer mortgage help to working-class families, such as those of teachers and public safety workers. The most common strategies include: • Bonuses for companies that build higher-density developments. • Housing trust funds that give financial aid to developers that build low- and moderate-income apartments. • Zoning rules that require a certain percentage of low-income housing to be included in every development. • Collecting money from developers who'd rather pay a fee to the city than build affordable housing. The city can then use that money to serve other housing programs. • Financial aid for low- and moderate-income home buyers. These programs, though, are often underfunded and expensive to administer, and have a limited, though important, impact. Villaraigosa says: "Cities haven't been aggressive enough about addressing the crisis, and neither has the state or the federal government. ... (The solution) has to be an unprecedented public-private partnership that involves all levels of government and business." He notes that he was the first mayor to fully fund the city's housing trust fund at $100 million. Since the program was launched in 2003, it has helped raise $1 billion to build 4,900 low-income apartment units. When it's pointed out that that amounts to about $204,000 a unit, and less than 1% of Los Angeles' rental stock, Villaraigosa shoots back, "Well, you got a better idea?" He says the affordability crisis "stems from the fact that wages haven't kept up with the cost of real estate." While average hourly wages have risen about 20% since 2000, the national median home price has soared 55%. Nearly one in four students drop out of Los Angeles district high schools. For African-Americans, the dropout rate is 35%; for Hispanics, 25%. A study released last week by Editorial Projects in Education showed that high school students in 14 big cities — among them Los Angeles, Detroit and New York — have less than a 50% chance of graduating with their class. Dropouts "are never going to be able to afford a house or anything else," says Leamer, the business professor at UCLA. "So as long as we have a failure in public education, you can do all the programs you want in terms of affordable housing," and it won't make a real difference. But even for people with Ph.D.s and good career prospects, such as Henderson in San Diego, affording a home in any of the hottest markets can be a penny-pinching struggle. "It's a real stretch for me," she says. |
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