— by Ken Wood —
Okay, let’s talk about HOUSING AFFORDABILITY; specifically here on the island, though the basic problem is actually everywhere:
1. There is a disparity between what it is possible to earn and what a mortgage payment costs each month. I say mortgage payment and not rent, because rent that is not keeping up with mortgage payments is non-sustainable; no one is going to rent out a house and lose money every month indefinitely.
2. So it is easy to say that home values are too high, that speculation is driving up the market, that Californians are driving up prices, that Microsoft millionaires are driving up prices, etc. And there may be some truth to all those; demand for a limited product does indeed drive up prices. BUT IS THAT REALLY THE PROBLEM?
3. Let’s do a few calculations and see if it’s the price of houses that causes the affordability problem, or is it something else? There are a half dozen modest stick-built homes available on Orcas for under $350K. With a 10% down payment the monthly payment at current interest rates (30 year fixed – 3.8%) the monthly payment is $1468 with taxes and insurance the total will be close to $1700 per month. Even with TWO people working, at island pay scales that is realistically out of reach. …..BUT…..
4. What if the PRICE stays the same and the INTEREST RATE changes? What if citizens were given the same economic encouragement that is given to corporations? So let’s envision a home loan program that offers a 40 year loan at 1% – that’s NOT crazy, those are exactly the same terms the government offered to farmers and ranchers in the 40’s to encourage agriculture.
5. Our hypothetical islander’s payment on the same house with the same price but with those terms would be:
……….$797 add in the same taxes and insurance (which is a different rant) and the monthly total is $1029.
6. Are you surprised? I own a real estate brokerage and those numbers still surprised me! It is clear that the housing affordability problem is NOT the prices. It is the interest rates and terms. Basically it’s the banks sucking so much interest off the top of every mortgage that is causing the problem. How much interest? Good question!
7. The 1% – 40yr loan earns the lending agency $67,318 over the life of the loan. The 3.8% – 30yr loand earns the lending agency $213,396 over the life of the loan… Now do you see where all the money goes?
8. And let’s be clear here; the bank did not use the money that people deposited in their vaults to make the loan. The bank CREATED that money out of thin air and “reserved” a percentage of the deposits to cover the loan (reserve requirements vary but 10% is an oft touted number) Do you see the racket here? Just imagine how much money in mortgage interest payments leaves the island every month, never to return or to circulate, just… gone.
9. So what’s the answer? I think a locally based credit union that exists to provide affordable housing loans and provides a small but safe income for investors could do a lot to make housing more affordable in almost any community.
Thank you for your persistence and patience in reading this far! Please comment!
Very interesting, Ken. I think that you are suggesting a local organization like OICF, or OIEF that manage donations from generous islanders for use in worthy causes, or to fund the dreams of a young student.
So, if those same generous neighbors were to fund a local credit union with the expectation that their return on investment might be zero, then loans could be made at minimal interest needing only to recover the actual costs of administrating the loan.
I wonder how more might be learned about such a proposal. Does BECU work in this way? What might Brad Williamson of Islanders Bank have to suggest on your idea?
There is a parallel program to address the issue of affordable housing, that being the newest OPAL project which is expected to provide 30+ rental units in Eastsound. Not everyone should own a home. Being tied financially to real estate can limit ones ability to move elsewhere to pursue another opportunity. I support OPAL’s efforts to provide housing that does not require rigid commitments to buying a home. OPAL, of course, has other programs that offer opportunities to allow less costly home ownership.
I am looking forward to reading the responses that your proposal will generate, because you are correct, affordable housing has been, and will continue to be a major challenge to our community.
A very interesting and thought provoking perspective. Thanks for sharing.
I’ve been looking at housing issues and notice that the situation has been described as a “crisis” or worse for two decades.
I’ve also encountered a dearth of data regarding housing. How many houses, how many apartments and rentable guest houses, how many full-time resident homeowners, how many homes used only by part time residents, how many vacation home rentals, how many employees looking for housing on average, how many unbuilt parcels, etc.
It seems that certain regulatory changes could certainly help. Allowing use of residential land for tiny houses and mobile homes groupings, restoring the island tradition of building a guest house on one’s parcel–for rental, family members, or caretakers–any of which will reduce rental demand, and allowing businesses to add employee housing onsite or perhaps on a shared site, particularly for the seasonal employees, to help with recruitment.
Yes Peg,your suggestion th allow guest houses ( but restricted to longer term rental ) could be one solution.allowing greater density per boned lot is another….revision of our zoning regulations is long over due .
Yes Peg.a fresh look at the zoning regulations…….a realistic approach to create more modest housing.,allowing “guest houses ” that are restricted to true guests and families……or at the least must be available for long term rental not forairbnb.
Allowing business establishments to be creative in providing decent clean accomidations for their staff.That is the way we need our county councilmen and women to resolve this shortage of our housing stock.
Just exactly like any bank, a credit union exists to make a profit after paying for the labor of its workers.
While a bank may have to answer to its stockholders, a credit union will have to answer to its member-owners.
There aren’t a lot of people, on Orcas or elsewhere, with the financial ability to invest meaningful money in a no-return-on-investment, altruistic credit-union scheme.
It is very easy to blame the banks and their mortgage-interest rates for unaffordable housing, but I suggest that the blame lies elsewhere.
I believe, as Peg does, that it’s more a matter of small supply and large demand.
The housing market is an auction, and, as the number of possible buyers increases and the number of available houses stays pretty much the same, housing prices can only go up.
The only viable solution to this problem is to find ways to increase the number of dwelling units, for rent and for sale, to be made available only to working residents.
So far, OPAL seems to present the best available practical model, but there still aren’t enough dwelling units in their inventory to satisfy our need.
It would be nice if someone would donate a large amount of money which could then be loaned out to people so that housing would be more affordable. Few, if any, individuals will choose to donate the millions that it would require to solve the problem. Even government will have a difficult time making enough grants because the free money they give will only serve to create more demand. If the rents or mortgages are less than what they are elsewhere, then more people will move here to take advantage of the opportunity.
I agree with Peg and Steve, adjusting regulations to allow for a greater supply would help more than anything.
The policy of restricting most housing to the village and prohibiting most job creating commercial buildings from being built anywhere makes the problem worse.
We need more low cost housing and more jobs that pay well so people can afford more expensive housing. Perhaps I want to start a new business. Have you ever looked at the Planning Map and noticed that the County has prohibited most land from being used. For example, I want to start a business that needs a block worth of property and would employ dozens of people. I have given up trying to find a place to put the business on this island. There are many places that it could physically be put but are prohibited.
Some of the housing shortage problem is of our own creation. As a group, most islanders want nothing to change. No more people than we have now. No new businesses. No more traffic. As a result we have placed restrictions in place to help keep that look and feel that we value so much. But one of the consequences of that is more expensive housing and not enough good paying jobs to live in that more expensive housing.
Putting the bulk of the blame for the housing issues in San Juan County on mortgage rates seems a bit odd, given that we are currently experiencing some of the lowest mortgage rates in the last 40-50 years…
It is my not-so-humble opinion that some of the money that the Land Bank collects be “ear-marked” for affordable housing. All the money they keep bringing in fills their bank account to buy more land which comes out of the tax pool. Many folks have no idea that the land bank pays no property tax! And everyone who purchases property here gives the Land Bank more money to buy more land! This in turn limits all kinds of needed uses!
I am all for protecting SOME land. But we have enough protected land and we need to use some of that land and money to help folks in other ways.
Yes, I know many disagree with me but I also know there are many who agree.
Maggie
Seems like a relevant story to this discussion – https://www.businessinsider.com/the-cost-of-buying-vs-renting-a-home-in-all-50-states-2016-7
Peg, Here’s some data from a recent gathering of low income and family resource center folks around the county, working on a low income needs assessment. The data comes from Census, Experian.
San Juan County is unique in having a much higher median age than Washington State as a whole (52 years vs. 38 years) and having a very high rate of seasonal occupancy (35% of all housing units vs. 3% for Washington State).
There are about 13,500 homes in the county – 5,541 owner, 2,212 renter, 4,795 seasonal, 883 vacant. 83% are single unit detached.
About 1,500 households are earning less than 150% of Federal Poverty Level.
SJC working wages are about 35 to 41 percent below WA state average. This is largely due to the low wage tourist economy. In my view, even with a zero interest rate loan, most low wage workers can’t afford to buy a home. We need to get wages up by transitioning the local economy to more than just tourism. Assuming we can get most workers on a living wage, even then, housing cost will consume about 35% of a household budget.
Here’s an island about the size of Orcas that might provide some interesting ideas:
https://en.wikipedia.org/wiki/Jersey
Brian, Jersey is a unique place. I don’t think Orcas could “exit” the US and then still have the USA defend it, while establishing it’s own tax code, legal system, and becoming an “offshore” corporate hide out…
If you’re looking for a UK island for comparison, try the Isles of Scilly, and they have the same housing crisis.
https://en.wikipedia.org/wiki/Isles_of_Scilly and
https://www.scillytoday.com/