No housing discussion is complete without paying attention to the workforce housing and affordability issue.  

The difference between workforce housing and affordable housing is simply this: 

Workforce housing refers to housing that is affordable for households earning between 60% and 120% of the area median income (AMI). It aims to address the housing needs of middle-income workers. 

Affordable housing, as defined by the U.S. Department of Housing and Urban Development (HUD), is housing where the occupant pays no more than 30% of their gross income for housing costs, including utilities.  

Many local civic and government officials don’t like to talk about affordable housing because of a common local association between affordable housing and Section 8 housing. They are not the same thing, but the Section 8 stigma is a turnoff for many locals. 

Once past the differences between the terms, the next issue is the way affordable housing is calculated and reported by the media. 

The most common determination is one that fits the ideal financial conditions. It defines affordable housing with the assumption that the buyer has a 28% front-end debt load, a 20% down payment and a good credit rating. The down payment is the big issue because most local buyers don’t have it. The average is closer to 10%. And without a 20% down payment, the lenders tack on private mortgage insurance (PMI), which adds hundreds of dollars onto the monthly mortgage. 

The other affordable housing benchmark is 30% of household income spent on housing. It’s what the Atlanta Federal Reserve Bank uses to rate housing markets that are or are not affordable. Currently, most of the local counties are not affordable markets by this standard. 

Here’s the percentage of income to spend on housing for local counties from the Atlanta Federal Reserve Bank: 

Carter – 41.5% 

Hawkins – 38% 

Greene – 34% 

Sullivan – 38% 

Unicoi – 44.5% 

Washington Co. TN – 42.8% 

Scott Co. VA – 45.9% 

Washington Co. VA – 37.3% 

Bristol, VA – 41.5% 

The same percentages apply to renters. Census data says close to half of the region’s renters spend 35% or more on housing. And a growing number spend half of their income on housing. 

While HUD and the FED data reporting method show the Tri-Cities region is an unaffordable housing market that’s mitigated by the times and consumer habits. And when compared with neighboring markets, the fact the home prices here are the lowest in East Tennessee can’t be overlooked. 

Homeowners who are more accepting of risk and willing to have a lower discretionary income are opting for the so-called “traditional approach” to budgeting for a home. This model recommends they spend no more than 40% of their pretax income on housing expenses. 

The Tri-Cities hasn’t always been rated as an unaffordable housing market. In fact, it’s a recent situation caused by a rapid increase in home prices driven by the lack of inventory, buyer demand, and wages that woefully lagged keep up with the increases.  

Workforce housing is a hot button topic because housing costs are out of range for beginning police, firefighters, and teachers. At the same time, the local economy is not producing enough jobs at pay levels that are compatible with affordable housing costs. 

While all the formulas and data used to set affordable benchmarks are helpful, what is and isn’t affordable is an individual matter where the financial capabilities of individuals determine what they can and can’t afford. That’s why real estate professionals insist would-be buyers sit down with lenders to work out what they can afford. The next step is a heart-to-heart discussion with a professional Realtor® about what’s available on the market. Those two steps save a lot of time and disappoint in the housing search process.  

A final note is monthly and annual home sales ranked by what buyers paid show that close to half of all homes sold were in the affordable price range. That issue can best be described as some of the affordable housing issue is about consumer expectations.