Response to a Reader on Affordable Housing
Last week I received a well-written email asking me to address the average income family’s struggle to buy affordable housing with a little bit of land. The reader had accurately portrayed the split in our socio-economic housing market between the $500,000 plus new home market and the subsidized multi-family market, leaving a vortex for the average income family struggling to find a home ‘with a little bit of land’.
‘Jane’ asked the question that builders and developers struggle with every day. Yes, we would like to develop and build affordable single family housing but there is not enough land, financing, and community will to make that possible. The median family income in Alaska is $76,440. The average cost of a single family home in Anchorage is currently $345,000. With a minimum 5% down payment the monthly mortgage payment, including, principal, interest, taxes, property insurance and mortgage insurance is $2,331.32, according to Aileen Dimmick from Denali Home Loans. Depending on other debt, a buyer’s income would need to fall within the $65,000 to $70,000 range. However, this is where Alaska’s high cost of living for child care, groceries and health care kick in, making it almost impossible to purchase at the average single family home price.
There are currently 72 active homes for sale in MLS between $300,000 and $350,000. But here is the dilemma. The average age of these homes is 36 years. And there are no new construction homes.
Builders are required to make an annual profit or they are not financeable. Nationally, a builder’s profit averages 6%. Without that profit on an annual financial statement, they are not a viable credit. Developers who acquire land, do the planning and finance the infrastructure must show a larger profit than 6%, as development loans are the highest risk in the industry. According to the National Association of Home Builders, 26% of the cost of a home is due to over regulations whether it’s the amount of gravel and/or insulation that is required for a road bed; delays at the permit counter for the approval of plans or the length of time it takes for a rezone and platting action which do not occur simultaneously. A 20% reduction on the soft costs incurred before a shovel of dirt is turned would create opportunity for new home to be built.
So I am sorry, Jane, developers and builders would like to build affordable housing with a little bit of land but until elected officials make a concentrated effort not to lose their middle class to our neighbors to the north, builders and developers are stuck in the middle and so are you.