The Republican Myopic View of Housing Affordability
Last Thursday, March 30, Sue Lani Madsen wrote in the Spokesman, “Housing affordability faces mathematical obstacles”. Indeed it does, but the biggest obstacles are the ones she completely ignores. Here are the premises on which she poses her math problem:
No politician intends to make housing less affordable, but math doesn’t care about good intentions.
Higher prices are the cumulative effect of land scarcity plus rising taxes, fees and regulations at every level of government. Every house demolished by WSDOT to build the North Spokane Corridor and every buildable lot bought up by the city as open space pushes the numbers in the wrong direction if the goal is affordability.
So, according to Ms. Madsen, home and land prices are determined in our local free market system entirely by government taxes, fees, and regulations and scarcity caused by government buying up land for parks and freeways and tearing down houses (demolition that, it might be noted, occurred a decade or more ago). By Ms. Madsen’s reasoning home and land prices are determined by supply only. Hmmm. Hold that thought.
Quoting a flurry of numbers based on surveys and definitions from Housing and Urban Development (HUD), Ms. Madsen goes on to establish what a median income, two person family in Spokane County can afford to pay for housing (either renting or purchasing) and still have the cost considered “affordable” for that pair according to HUD. That “affordable” number for a household of two people making the median income in Spokane County is just $841 per month.
In another flurry of numbers, Ms. Madsen demonstrates that with that $841 per month, our hypothetical pair could afford to purchase a dwelling costing $102,500 (considering all the monthly costs of home buying on a mortgage). Of course, there are few if any dwellings in Spokane County priced that low.
Consider that calculation. It suggests that well more than half of all two person households in Spokane County can NOT afford (at current home prices) to mount even the very first rung of the ladder of “American dream” of home ownership. The “area median income” (AMI) of a two person household in Spokane County is $67,300. Let’s assume that both persons in this two person household are gainfully employed in full time jobs, each making $33,650 per year. What hourly wage yields $33,650 in annual income? It’s $16.17 per hour.
Ms. Madsen in her opinion piece has demonstrated that for more than half of the population of the Spokane County being affordably housed is out of reach. She falls miserably short of addressing the question of why—beyond blaming taxes, regulations, and (incredibly) temporally remote government purchases of and tear-downs of affordable housing for freeways—taxes and regulations are, of course, favorite Republican targets.
The price of housing, as any free market economist will tell you, is a function of supply and demand. Recently the Inland Northwest has seen a “hot” housing market that has driven up prices. (All the handwringing over rising appraised values and property taxes is clear evidence.) The trouble is that houses and apartments are not like cookie-cutter widgets—housing is not one uniform thing. For someone who has just sold their home in a high-priced urban area elsewhere, Spokane, up until recently at least, looks like an opportunity to buy a bigger, fancier place than their former digs. Indeed, capital gains rules encourage such a buyer to invest in an equally or greater priced home in order to shield gain from taxes. Investment firms, flush with cash, see buying rental property in Spokane and jacking up the rent as a cash cow investment opportunity. Potential buyers, some of whom are newly freed up to relocate by pandemic stimulated opportunities to work in lucrative jobs electronically from their new digs add to the demand. Home prices and rental costs are suctioned upward by incoming wealth.
Developers and builders see this increasing demand for relatively fancy housing and see profit in satisfying it. Of course, they wish to maximize this profit by minimizing their costs to build new housing—hence, the emphasis on taxes and regulations.
The prevailing demand is not for affordable housing. There is little money to be made in building such housing. Locals making median wages (by definition of median, that is at least half the population of the county) are not the ones who can, on their own, demand anything, since demand is expressed in available money. In fact, half the population can’t even afford(by HUD definition) to pay the inflated rents. (See RANGE Media’s “Becoming homeless tomorrow in Spokane.”)
Sue Lani Madsen completely ignores this differential demand reality, choosing instead to blame government for the dearth of affordable housing. This is willful Republican myopia.
The long term solution to this problem of lack of housing that most Spokanites can actually afford is to reduce the wealth gap. (See Wealth Inequality in America.) Other tactics are stopgap measures. Wealth inequality must be chipped away both from the top and the bottom. At the top, increasing marginal income tax rates for adjusted gross incomes over $400,000, as the Biden administration has proposed (and Republicans misrepresent), is a start. At the lower end, increasing the minimum wage, encouraging unions, and even considering a minimum basic income are all worthy—and all of them would increase what those who need housing can actually afford to monetarily demand.
Madsen Math is convenient Republican myopia—convenient for builders and developers, not for people who need housing.
Keep to the high ground,
Jerry