It's almost a cliché at this point: The observation that housing costs are such that you can't qualify for a mortgage of $900 per month, so you have to get an apartment at $1,200 per month.
Whether you live in a market where a mortgage costs less per month than a rental is beside the point. No matter where you live, housing costs are on the rise. It's difficult to change your living situation without a big price tag.
I know. I just moved across town.
I just moved out of a house and into an apartment because my landlord wants to sell.
But before I made this move, my landlord offered me the chance to buy the house for $500K.
I tried—for a hot second—to make it work.
In the end, I decided not to do the thing. Here’s why 🧵
— Miranda Marquit, MBA (@MMarquit) August 18, 2022
While it was expensive — a little more than $5,000 to hire movers to pack, move, and store my stuff before delivering it two weeks later — I can afford it.
On top of that, I was surprised to compare my experience with others' experiences. No matter where you live, housing prices, whether you buy or rent, are on the rise and it's not easy to “just” move.
A tale of two apartments
I find it telling that there were two very different experiences of finding an apartment in Idaho Falls in the last year: my friend's experience and my experience.
Apartment 1: my friend
When a friend of mine decided he needed to move late last year, he struggled to find an apartment. His credit is great. He is employed as a waiter with variable income. Some money was available from student loans as he returned to school. But what made it difficult was the requirement to show your monthly income as three times your monthly rent.
I get it. It's the 30% rule. Landlords want to see that you can “afford” the apartment you're getting into. But in a place like Idaho Falls, it can be tough. Over the last year, the average rent on a two-bedroom apartment increased by 5% to $1,100 per month. You'd need $3,300 to qualify. However, from 2016 – 2020, the per capita income in my area was $28,629 — $2,386.75 per month.
Getting a two-bedroom apartment requires two earners in many cases.
On top of that, you might need a deposit, usually equal to the rent. And many landlords renting to those with lower incomes also require first and last month's rent upfront.
My friend looked for weeks and weeks. He was careful to check the requirements because many of these landlords also charge non-refundable application fees of anywhere between $30 and $75. No point in paying fees for dozens of applications only to be rejected.
Finally, he got lucky. A friend of a friend had a place opening. A three-bedroom at the below-market rate of $1,100. He still had to scrape together a deposit and the first month's rent, but at least the guy accepted his excellent credit and reference and he has a place to live.
Others aren't so lucky.
Apartment 2: Me
I had an easier time. My income is far above what's needed in the area to get an apartment — although my credit score remains, well, less-than-desirable. I could go right to the most luxury apartment complex in Idaho Falls and get a three-bedroom for $1,800.
Unlike those getting cheaper apartments and paying a deposit + first + last, my apartment complex requires a deposit of $250. Well, I had to pay $500 because of that whole credit score issue. But, even though I had the means to pay higher upfront costs, my outlay was much lower than my lower-income friend.
It also took me less time to find a place. I scheduled an appointment to see a model apartment, saw the place, and filled out the application and made my payment to reserve. My application fee was $40, but it didn't matter because I knew I'd get the apartment. Even though the apartment wasn't available until two weeks after I had to be out of my old place, I had it secured in a couple of days.
So, while it was stressful to prepare to move and make arrangements for my stuff for two weeks, at least I had my living arrangement squared away.
What struck me, though, was that, on an “average” income for the area, it's very difficult to get an apartment on your own.
It's a bit easier if you have no kids. My son just moved into his first apartment, which conforms to the area average of $800 per month. However, he's a student working part-time for $10.50 an hour. If he weren't renting from a friend of a relative, and if I weren't helping with school by paying half his rent, he'd be unable to afford the apartment. He's got a flexible side gig for spending money and investing in his future; half the rent + bills eat up everything he makes at his job.
Basically, you need to have some sort of “in” if you want a tenable living situation here. Housing costs are too high for what an average person makes.
Why don't you “Just” buy a house?
Ok, so you can't afford rent. A mortgage might be cheaper, right? Just buy a house.
Well, those housing costs aren't much better. Mortgage rates have been on the rise, so suddenly, some mortgage payments aren't as cheap as they were six months ago.
But you've got upfront costs there. If you can't afford $3,300 to move into an apartment, how will you afford $10,000 for a down payment? Plus, there are closing costs and the cost of moving. If your house is bigger, it costs more to heat and cool. And you need to pay maintenance and repair costs. Those costs add up over time.
And, of course, credit is a huge issue when it comes to buying a house. Sure there are programs like FHA that will allow you to put 3.5% down even if you have a 580 credit score. But that's just the required minimum for the FHA. Individual lenders are more likely to require a score of at least 620, and they're going to want to see your income as well.
There's no “just” buying a home. It's an intense process that requires an upfront cost and stricter criteria than renting. So, even if it does actually cost less each month, it might be unattainable.
Zillow says the typical home value in the United States is $355,852 as of July 2022. In Idaho Falls? $404,148. It really is location, location, location. Where you live has a lot to do with housing costs and affordability. And affordability has a lot to do with what kinds of jobs — and wages — are available in your area.
It's expensive everywhere, and even the recent wage increases haven't kept up with housing prices. Whether you're renting or buying, there's a good chance you'll have a hard time affording it.
How can we address housing costs and affordability?
Addressing this problem will take planning and political will. And that's where it gets dicey.
Currently, the Federal Reserve is trying to slow home prices through policy measures designed to drive up rates. Fed actions with regard to Treasuries impact mortgage rates. This has already had an impact. In recent weeks, home prices have started to pull back. They aren't tanking, but they are pulling back a bit. The market is cooling.
There are other suggestions that people have put forth to address affordability:
- Use rent control.
- Limit the number of single-family properties investment firms can buy up.
- Adjust city zoning laws and short-term rental requirements to reduce the number of properties being bought and turned into Airbnbs.
- Look at alternative structures to properties, including land trusts and co-ops.
- Offer tax incentives to renters, such as a renters tax credit.
- Adjust minimum wage laws to keep up with the true cost of living based on location.
- Improve housing waiver programs. Currently, long waits and full lists make it almost impossible to access.
These are systemic suggestions to address the fact that housing we could be facing an affordable housing crisis — even among those considered middle class.
What about addressing housing costs on an individual level?
In the meantime, while you ask your elected representatives to take action, here are some ideas for managing your own situation:
- Find ways to earn more money, if possible.
- Invest what you can to boost your wealth — and help you absorb housing affordability shocks.
- Look for alternative housing arrangements. Consider roommates, multi-generational living, and co-ops.
- Consider downsizing. Get rid of what you don't need and use a smaller living space to save money.
- Rent out your spare room to others to help cover your housing costs.
Bottom Line
Housing affordability is increasingly difficult to come by — no matter your location or your income. Additionally, the entire system is set up so that those who need a break and help are least likely to get it. My friend has better credit and arguably manages his money better than I do. He just doesn't have as high of an income. But it was much harder and much more expensive for him to secure housing.
On top of that, our system is set up so that someone who would find a mortgage more affordable from a cash flow standpoint can't qualify. Instead, they're forced into a renting situation that's more expensive each month.
We need to work on systemic and individual solutions to this issue, or we will soon find ourselves in a situation where only a select few can truly afford housing.
