How Much Affordable Housing is There in Irvine?
How much affordable housing is there in Irvine? It is a simple question. Or is it? Consider as well that if a politician were to say “There is plenty of affordable housing in Irvine”, we think we know what this means. Why? We believe we understand the question as well as the hypothetical politician’s statement because we believe we know affordable housing. After all, it is obvious – e.g., you might think a house that costs about $100,000 or $150,000 or some number regardless of location. However, the term is anything but obvious.
Please note that as you read this, you will want to glaze over certain parts. Don’t let it. Our ignorance of this topic can be exploited by politicians and others in the coming election and beyond. If you need to, read this again – it is free.
Okay, let us begin.
The US Department of Housing and Urban Development (HUD) states affordable housing cannot exceed 30% of a household’s income. So, spending on housing in the form of mortgage or rent along with utilities, home insurance and property taxes for a month cannot surpass 30% of monthly income.
But whose income is used? Actually, levels of affordability are determined by the median income of the area in question.
For example, let’s consider a hypothetical city with a random name: Houseville.
Suppose this city’s median income is $50,000 per year for a single person and $75,000 for a family of four. How do we find out whether there is a lot of affordable housing in this city?
We can use the most generous estimate possible for classifying housing as affordable – for people with a moderate income as opposed to low income. For housing to be considered affordable for a single person with a moderate income, a monthly payment must be below 30% of the earnings for those earning 120 percent of the area’s median income. So, a single person in Houseville should pay no more per month than what? No more than…
(50,000*1.2*0.3)/12 = $1,500
How do we get this? We multiply the median income by 1.2 to represent 120% of the median annual income. We multiply by 0.3 for the at most 30% of income that can be spent on housing. We then divide by 12 because we are looking by month.
For housing to be affordable in Houseville for a family of four with a moderate income, we do the same process but with the higher median income of $75,000. So, they should pay no more per month than…
(75,000*1.2*0.3)/12 = $2,250
Accordingly, that is the threshold. Affordable housing for a single person in Houseville is at or below the $1,500 mark and for a family of four is at or below the $2,250 mark.
Notice how the definition of affordable housing depends on whether you are looking at moderate income vs. low income, a single person unit vs. a family of four and the median income of the particular area.
So, what about our city? We can again use the most generous estimate possible for classifying housing as affordable: a family of four with a moderate income.
For Irvine, one estimate of the median income for a family of four is about $97,000 according to citydata.com.
So, the cutoff point for affordable housing for a family of four with a moderate income would be a home whose monthly payment does not surpass
(97,000*1.2*0.3)/12 = $2,910
Using the mortgage calculator, this monthly payment corresponds to a home that costs roughly $500,000*. How many homes in Irvine cost at or below this amount?
According to the US Census’ 2017 American Community Survey, only about 10% of owner-occupied units in Irvine are at or below this price.
Now, one might argue that Irvine housing is affordable as long as people take out the traditional mortgage and put up a large enough down payment. But consider the median household income in California is only $65,000 and in the US it is about $60,000.
After putting the traditional 20% down, does the typical family in California have enough money to pay about $2,900 per month or $2,500 or even $2,000 and have enough left over for car payments, car insurance, health care, student loan debt, groceries, the costs of children and so on (not even including saving for the children’s college fund)?
So, despite our perception, what is affordable housing is complicated. In addition, when you look at how it is calculated, affordable housing in Irvine is limited. And sadly, by looking at the median incomes of the state and the nation, we say that for most people affordable housing in Irvine is not really affordable at all.
Accordingly, let us return to our hypothetical politician’s statement that “There is plenty of affordable housing in Irvine”. What does that mean? Not much. It is only valid if you feel 10% of housing built is plenty, and if you believe a nearly $3,000 monthly payment can be considered affordable housing. More than likely, the meaning is also very different from what you thought.
* This approximation assumes a 30-year fixed loan with an interest rate of 4.625% (around the prevailing mortgage interest rate as of September 1 2018), a down payment of 20%, property taxes of $420, home insurance of about $133 and HOA fees of about $200. Source: https://www.nerdwallet.com/mortgages/mortgage-calculator/calculate-mortgage-payment.Utilities was not included but if included the housing price would likely have to be lower than $500,000 in order for $2,910 per month to be sufficient.