Creating Affordable Housing

Since World War II, the federal government has had its hand in promoting and supporting affordable housing through GI Bills and low-interest financing. These policies and subsidies were very effective in helping returning GIs and other first-time homebuyers get into their first homes. But with rapid economic growth and the Baby Boom, traditional federal subsidies alone have not been able to keep up with the growing affordability gap. Families need safe and decent places to live. Communities need an adequate supply of housing, at all price levels, and businesses need housing that is affordable for their workforce.

Affordable to Buy

The federal government defines housing affordability as housing costs that do not exceed 30 percent of household income. Housing costs are defined as rent or principle, interest, taxes and insurance combined (PITI). If we assume you’re making the 2002 median income of $43,318 (U.S. Census), you would be spending no more than $1,083 per month on housing costs. Now, if we also assume that you are purchasing a home at the 2002 median price of $158,300 (National Association of Realtors), you would need to come up with a down payment of $28,890 to purchase that home and still meet the definition of “affordable.” Of course, there are other factors that influence this deal including mortgage rate, term (length) of the loan, points, and closing costs. Change any of these factors and your down payment or monthly payments could go up or down. And when you factor in points and closing costs, your total cash outlay at closing would be over $33,000! By the government definition, this home may be affordable to own, but with this much cash required up front, would it be affordable for you to purchase?