Paycheck to Paycheck: Wages and the Cost of Housing

Here’s how the economists look at the world: If you have a job, you’ll pay your mortgage, credit card debt, student loans and auto loan payments each month. If you’re unemployed, you’ll pay until you run out of money, and then you won’t.

Job stability and the wages you receive in each paycheck are central to the concept of a housing market that works and a functioning credit market.

If you don’t think your job is stable, you’re not going to spend money on anything except the barest of essentials: Food, gas for your car, mortgage or rent, and utilities. If you’re not earning enough to pay for food, rent and your credit card monthly payment, you’ll be forced into some tough choices.

We’re seeing it happen in front of our eyes: grocery stores have started advertising cheap food deals (emphasis on the “cheap” part) and retail stores are advertising how to get much more for your money. Overall, retail sales are down substantially, and the savings rate has skyrocketed past 4 percent.

But even if you have a stable job that provides a good wage, your ability to afford housing in your neighborhood of choice may be somewhat limit due to skyrocketing home prices in the early 2000s.

The Center for Housing Policy, a research affiliate of the National Housing Conference, recently released a new study called “Paycheck to Paycheck: Wages and the Cost of Housing in America.” The study, funded by Freddie Mac, looks at fundamental changes in the homeownership and rental markets from 2007 to 2008, during the collapse of the housing market.

The biggest news centers on housing affordability. It turns out that even with home prices on the decline, and the soaring number of foreclosures, there remains a gap between what workers earn and the cost of owning or renting a home, said Maya Brennan, a research associate for the Center for Housing Policy.

Some areas are more unaffordable than others, particularly those that enjoyed the fastest run-up in housing values.

For example, the study found that although Florida has been one of the hardest-hit states in terms of foreclosures, the rental market has become “substantially less affordable since 2007,” Brennan noted. “Florida was the only state in which all the metro areas [in the state] became less affordable. That indicates to us that former homeowners in Florida aren’t able to move into homes and it’s putting some pressure on the rental market there.”

The gateway between a home that was formerly owner-occupied and is now available for rent has been jammed up in the massive waves of foreclosures sweeping through the country. “Places that have been ownership units aren’t converting into rentals fast enough to make up for increased demand in rental housing” in these areas, Brennan explained.

It’s Economics 101 all over again: Not enough supply translates into higher prices. Prices that a population squeezed by a contracting economy and shrinking wages cannot easily afford.

“Paycheck to Paycheck” compares the income earned by those in 65 different occupations. It also looks at home prices in metro areas across the country.

The good news is that home affordability is the best it has been in the past decade or longer. But the study found that while nearly all housing markets experienced a decrease in the income it takes to own a home, “it’s not quite enough for a lot of people to get into homeownership yet,” she added.

The study also examined how the Obama stimulus plan might affect housing affordability for workers in 5 occupations whose jobs were likely to be created or saved by the federal stimulus plan (including teachers and nurses). It also looked at 5 occupations that form the most community jobs (including police officers, janitors and retail sales people).

For families that include a working police officer, Brennan said, nine rental markets were unaffordable and 123 homeownership markets were unaffordable on just one household income. Construction workers also have a tough time owning or even renting a house, even if they work year-round at full-time construction jobs.

“Construction labor nationally tends to earn in the mid-to-high $20,000 range. Even with a second income added on, in most parts of the country that’s not going to put someone in a home,” Brennan said. “Among other occupations, equipment operators tend to do a little better with salaries in the high-$30,000 to $40,000 range.”

But as housing values continue to decline, more areas will become affordable to more types of workers in different occupations. Then, all we’ll have to worry about is whether lenders will loosen their purses enough so they can qualify for a loan.

May 15, 2009