The Shocking Truth About Affordable Housing

The truth is that despite recent low interest rates and many US property markets seeing properties trade well below previous highs – American real estate is not affordable for most.

What’s the real math for most individuals and families trying to keep a roof over their heads? Is housing becoming more or less affordable? Where is the refuge? How do these trends and facts affect investors?

The US Housing Dilemma at a Glance

  • Over half of US wage earners make less than $30,000
  • The average single family home costs $268,900
  • The average rent for a 3 bedroom apartment is $1,530
  • The average mobile home lot rent is less than $500 a month

The Real Cost of Housing

We’ve all heard of the huge labor battles over instituting a $15 an hour minimum wage. $15 dollars an hour is about $30,000 per year. Ironically none of the major metros covered by HSH and the Washington Post had a median home price affordable to those making $30,000 a year. Not even in Detroit. Data from Zillow shows that in many US cities even renters need to make over double that $15 minimum wage to be able to afford the median priced apartment. That soars to over $100 per hour for some cities. As of 2012 Mesocore reveals cities like San Francisco have seen a 22% rise in rent, and a 2% decrease in household income. People are earning less, yet paying more for their housing.

Real estate investors and landlords have often heard that they should qualify tenants like mortgage lenders, based on housing costs not exceeding 30% of tenant paychecks. In reality many US cities show residents paying an average of 45% of their income on housing. In the past lenders have allowed borrowers to spend as much 55% of their salary on housing. Current trends suggest those times could be coming back again.

The Eroding Economics of Affordable Housing

There are multiple factors currently working against affordability of housing:

  • Rapidly rising rents
  • Rising interest rates
  • Rising taxes
  • Higher healthcare costs
  • A pending recession
  • Stagnant wages

What about All the Affordable Housing Projects?

We’ve seen many new construction projects launched over the last couple of years. Many boast an ‘affordable housing’ element. This means a small percentage of units are reportedly reserved for ‘lower’ income earners. However, as revealed by Bloomberg; new deals between government giant Freddie Mac and mega-funds like Blackstone are funneling billions of dollars of tax payer money into projects under ‘expanded’ definitions of ‘affordable’. At the same time the most affordable types of property – manufactured housing, makes up just 6% of housing stock, and they aren’t allowing any more mobile home parks to be built. There are many great mobile home parks out there. Many have seen property managers strive to improve service, makeover communities, and elevate value to residents over the past few years. These parks run from the modest to beautiful golf and waterfront communities. The problem is that there simply aren’t enough spaces in these communities to meet demand and the coming need for more of them.

Affordable Housing and the Investor Community

Mobile home park investors have a huge advantage in the current market. There is booming demand for their product, and that means high occupancy rates, and robust cash flow levels. This asset class will certainly prove to be one of the most reliable for investors. Yet, at the same time it allows individual investors to provide a much needed service which won’t compromise their values.

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