August 5, 2018

Affordable housing a key to population growth

About one of every three Tri-Cities renters and one-in-four home owners are paying more than what housing experts say they can afford.

Aaron Taylor
2018 NETAR President

That mirrors what the Joint Center for Housing Studies at Harvard found in its current State of the Nation's Housing report.  And like the local numbers, Harvard's analysis shows renters shoulder the biggest cost burden and stress.

The most current census data shows almost 25,000 Tri-Cities renters are what's called "housing stressed."  That means they are paying more than 30% of their income on housing.

 Harvard's study combined renters and owners and found nearly 39 million American households — 33% — are paying more than they should.

Benchmarking that with our region, the combined number of mortgaged households and renters paying 30% or more is about 25,000. That's 21% of the area occupied housing or are rental units.  One reason the number of stressed owners and renters is lower is almost half of the households in the region have no mortgage. Another factor is the cost of homeownership here still favors buying instead of renting. In fact, Dr. Lawrence Yun, chief economist at the National Association of Realtors®, attributed the local mid-year existing home sales numbers "easily exceeding the national trend because of more affordable conditions."

The 30% or less of pre-tax income as a standard measure of housing affordability that has been in place since the National Housing Act of 1937 was passed. Some argue it should be higher, but it's still the benchmark.

According to Harvard's study, affordable housing is still difficult to find, for low-income as well as moderate-income renters. The typical renter earns $37,900 a year, which means a maximum rent of $948 a month would be considered affordable under the 30% rule. 

Benchmarking that against local data, the median rent – the point where half of the rents are higher, and half are lower - is $664 in the three-county Johnson City Metropolitian Statistical Area (MSA). In the four-county Kingsport-Bristol MSA, it's $633 a month. Those are census numbers.

And, the number of renters here is on the upswing as it is nationwide. A couple years back apartment construction – sparked by new student housing - lifted the Washington County/Johnson City housing market out of the recession. It later expanded to the Kingsport and Bristol markets and was fueled by tax incentives with the intent of making the cities more competitive in efforts to attract new residents. That expansion continues.

But even with the trend toward more renters, homeownership is the norm here despite the fact that home prices have been increasing faster than wages.

The regional homeownership rate is 70.3%, down from 73.2% before the recession. Still, it's higher than the national rate, which according to Harvard's study is about two-thirds of American households.

Look for affordable homeownership to get a higher local profile in the near future. It will rachet up because affordable housing is a key to attracting new residents. And now that the housing market nation wide has improved enough that homeowners in the Northeast and in Florida can cash in and relocate, communities with an affordable housing inventory have the edge on migration growth. That's important since attracting new residents is the only way to grow local populations or sustain the status quo.

Our nation has a history of valuing and encouraging homeownership because it promotes stable communities. That issue will get more attention in a future column. And a vibrant housing market is a major contributor to the economy. Economists estimate that real estate accounts for about 15 percent of the U.S. economy. Research by the National Association of Realtors®, Harvard Joint Center for Housing on the state level and localized by the Northeast Tennessee Association of Realtors® (NETAR) estimated a $1.7 billion impact on the Tri-Cities economy last year. A slide deck outlining that report can be found at . It illustrates how real estate is about more than just buying and selling property.

Aaron Taylor is the 2018 president of the Northeast Tennessee Association of Realtors®. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and about 100 affiliates