Here comes Vermont’s Most Media-Friendly Economist*, Art Woolf, trumpeting another study of our state’s economic health. This time, it’s his annual study of housing affordability in Vermont. And he comes bearing good news:
*i.e. attention whore.
The share of median family income needed to make the monthly mortgage payment on a median-priced home in the state fell to 13.1 percent in 2011, Westford economist Arthur Woolf said Monday. That’s the lowest percentage in the 25 years Woolf has tracked housing affordability.
Only six years ago, at the height of the real estate boom, that figure was 19 percent. Since then, housing has become ever more affordable. Great, yes? Well, yes and no. I see a couple of significant issues.
First, every housing transaction has two sides. Cheap home prices are good news for buyers but bad news for sellers, who were hoping for a better return on what is (for many) their primary long-term investment. (To be fair, other factors are at work: low mortgage interest rates play a big part, as does median household income.)
Second, and to my thinking much more serious, is buried in the ninth paragraph of the Rutland Herald’s story:
Woolf’s analysis only looks at median income of married couples.
Oh, so this is a study of the Leave it to Beaver segment of the housing market, as pictured nearby. No single-parent households, no consideration of the rental market — which, taken together, account for a substantial majority of all housing transactions.
Even if you want to exclude rentals from consideration, the omission of single-parent families is a serious one, says Sarah Carpenter of the Vermont Housing Finance Agency:
She said based on Woolf’s analysis home buying may be “mathematically cheaper,” but VHFA sees “continued barriers …for those who need to qualify for mortgage insurance and are being asked to come to the closing table with higher down payment and may have lower median incomes because they’re single heads of households.”
Mr. Woolf’s study may have some usefulness despite its shortcomings, but it really cannot be called a study of housing affordability in Vermont. Its focus is far too narrow for that grand appellation.
Even so the top line was sufficient grounds for Vermont Tiger’s Geoffrey Norman to seize upon the study and jump to a politically expedient conclusion:
Good news. But one strenuously doubts that it will quiet the pleas of the affordable housing lobby for more funding … and ever more funding.
Er, sorry, but no, Geoffrey. The fact that purchase prices are low for two-parent families has no bearing whatsoever on the need for affordable housing. There remains, in many parts of Vermont, a significant shortage of low-priced homes and rental housing. Art Woolf conveniently excludes all of that from his consideration.
that buying a home should be an investment second, and actually about having a stable and safe place to live as the first objective. Houses as part of the capitalist system of everything being about money and investments is part of what got us into all of this trouble in the first place!
Afforability, safety, security, comfort are all things that should come before ROI. Sure, it should generally be something that also maintains its value (as opposed to crashing as it has the past four years), but considering folks are paying to live somewhere (rent or mortgage), it is generally better for that payment to be buying something than not.
As for Art Woolf. I remember him coming into the House Ways and Means Committee and always arguing the virtues of lower taxes and referencing places like Ireland, the “Celtic Tiger”. I think he even was part of the genesis of the Tiger Blog (I could be wrong on this). But where is he now with respect to the huge bust of that economy? His economic arguments are the same as many on the right. Simple and innacurate. Lower taxes on the wealthy might help a few people temporarily, but in reality, as the infrastructure falls apart (both physical roads and bridges as well as economic safety nets etc.) the economy falls apart. Art Woolf gets far too much easy media and no follow up on his comments from the past. His economic modeling and analysis are often way off/innacuate as time moves on.
We need far more affordable housing whether he thinks so or not.
Some of us have been pushing back against Art’s happy talk about housing for years. One more time.
1. As noted, his universe is limited to those who are “married filing jointly.” According to the Tax Department, that’s only 40% of all filers. I guess home ownership is just a dream for the other 60%.
2. He assumers a 20% downpayment. For a median priced home, that would be $37,800. The Census Bureau reports that the median family income was $63,518 in 2009 (three-year rolling average). If such a family saved 5% of pre-tax earnings each year (not an easy thing to do), it would take about 15 years to save enough for the downpayment. And that means the family couldn’t save anything else for their children’s education or supplemental retirement or for the cost of medical care due to their high deductible health insurance policies.
3. Art also said, “It’s a very good time for people to buy homes now … especially if you’re a young person.”
This is bizarre at best in light of the challenge of saving $37,800, especially for young people who (presumably) do not yet earn anything like the median family income. Therefore, for young couples, it might take 20 years to save the downpayment, at which point they would no longer be young people!
4. And here is what may be the most eggregious part of the story. Although I can’t access the raw data (you have to spend hundreds of dollars and buy a subscription to his Newsletter to see more than a press release), we have enough information to evaluate the key “finding” — that a median income family would spend 13% of its income to cover the cost of homeownership.
First, as noted in the article, that doesn’t include the cost of property taxes or insurance which, together, might be 10% of after-tax income. Second, it appears that the denominator is gross income, rather than after-tax disposable income.
In the end, Art’s analysis is small comfort to the thousands of working Vermonters who cannot afford homeownership. And it’s almost cruel to suggest that things have never been better.
Putting Art Woolf and “ideal world” together is an oxymoron.
Ok, so an economist presents a set of facts and draws too broad a conclusion. Got it. However, for the set of people he did study (40% of the population, but a much larger percent of typical home buyers) mortgages are down from 19% of income to 13%. That is a good thing, as we all know that housing was taking up too much of our income.
It’s also fair to assume that single people would have seen similar gains in affordability, although of course since their family income is lower, the actual affordability would be less.
So, I agree with the comments that take offense at the broad conclusion (“See! There’s no need for affordable housing advocates!”) but I wouldn’t throw out the facts presented because they were used to draw such an absurd conclusion.