Does your community have an “affordable housing” problem?
By Mike Knutson, President at MAK(e) Strategies and Dakota Resources Community Coach
I sat down at a coffee shop the other day and overheard two retired guys complaining about housing in Watertown, where I live. In general, their comments fell into two themes; First, nobody can afford a decent house, and second there are too many affordable (i.e. – subsidized) housing options for people.
Although there may be elements of truth to both statements, it was frustrating to hear them share so much misinformation. It reminded me that maybe community leaders could use a little refresher on some terminology.
What does “affordable housing” mean? As a general rule, housing is considered affordable when a family spends no more than 30% of its income on all of their housing costs, including taxes, utilities, etc…. This means that a family earning $30,000 can afford housing costs of up to $750 a month while a family earning $100,000 can pay up to $2500.
Ask many rural South Dakotans, and they will tell you that this is paying too much. But the 30% rule is a guideline across the country.
Subsidized & Income Based Housing: Using this rule of thumb, the federal government has created a general policy of subsidizing housing for people in situations where people would pay more than 30% of their income on housing.
Traditionally these subsidies come in the form of incentives to developers and rental or loan assistance to individuals. To live in a home funded by a federal housing subsidy, an applicant must qualify by income. For most programs, this means that the household income for the applicant must be below 80% of the community’s Area Median Income (AMI). Some programs, however, have much lower income levels, stretching down to 50% and 30% of AMI.
Workforce Housing: A newer term that is being used quite often in our rural communities is “workforce housing.” Across the country, this term is generally applied to teachers, nurses, police officers and firefighters who provide critical services to the community. In South Dakota, we often use a more expansive definition that includes middle income and blue-collar workers.
As a general rule, the federal government doesn’t offer programs to help with workforce housing; it’s assumed that these individuals can afford to pay for a decent place to live. The South Dakota Legislature, however, did create the Housing Opportunity Fund with the idea of supporting workforce housing. Income limits for the Housing Opportunity Fund stretch up to 115% of AMI.
Do you have an affordability problem in your community?
When trying to answer that question, a good place to start is in your community’s housing study. Each housing study identifies the percentage of residents paying over 30% of their income for housing. If that percentage is high in your community, you should be asking why?
You might also try to compare the wages offered by key industries in your community to the rent structure and median home values. Can people who are working in these jobs afford housing according to 30% guideline?
Determining if you have an affordability problem can be an important first step in understanding your community’s housing needs. And that means that you have to do more work than simply listing to two retired guys at the coffee shop.