Time to Rethink Housing

No doubt this picture represents what your dream house looks like and what has always fueled your ambitions.  You have always wanted to work hard to purchase a home that has been condemned.  A house that has holes in the roof and permits water to run into it.  A house that is covered inside and out with black mold.

What is even more exciting is that you could have purchased this dream house for only $1.23 million, all cash!  Unfortunately, you are too late though.  Someone else bought this house, according to an April 16, 2018 report in The Mercury News By Marisa Kendall, Bay Area News Group.  Not only did someone buy this gem, but that person ended up paying over a quarter million more than the absurd asking price.

I offer this house as the poster child for the frightening state of housing today.  We are facing a serious need to challenge all of our plans and assumptions about housing, and I invite you to join me in this creative endeavor.

Yeah, But That House is in Silicon Valley!?

That is a legitimate observation, and one that I do not plan to ignore.  At the same time, this may be the outrageous exception that actually proves my rule.  Our housing needs demand our immediate attention, or, I submit, we will face another financial disaster.  In addition, our quality of life deserves better choices. So let’s step back and take a broader look at what our housing situation is at the present time.  I will start by focusing on the condition of owner-occupied housing, since that is what the Silicon Valley example represents.  That is, also, what commonly has been characterized as our “Dream” choice.

Median Housing Pricing Today

Fortunately, there are many sources of information that will enable us to learn where we are and where we are going.  According to Zillow, the median price of homes listed in April in the United States is $268,500. This is the median.  That means that 50% of the homes were priced below this and 50% were priced more than this (including that gem we discussed in Silicon Valley).   Zillow goes on to report that the median list price per square foot is $143.  So we know that the median size home for sale is slightly larger than 1,877 square feet.  This allows us to know that the data is not skewed because the homes that were for sale were unusually large. This information does not support my contention that our housing situation is becoming alarmingly difficult.  Many of you in our more populated areas would regard a home that is over 1,800 square feet for $268,500 as having a reasonable price.  The question that I am suggesting we need to consider is whether that is affordable.

What is Affordable Housing?

That term, affordable housing, is bandied about in the media and by politicians on a regular basis, but it tends to be associated with what is also described as low income housing.  While there is no doubt that we must address the sorry state of low income housing, it does not mean that we should assume that housing in general is affordable for most people. I would prefer to define “affordable housing” as representing a person’s ability to enjoy a reasonable quality of life.  A quality of life that includes a modest amount of entertainment, the ability to put food on the table that is nutritional and sensible, and the responsibility to save for our future.  I intend to provide a much more precise definition of what I regard as affordable housing in a later Blog on this site, but for this discussion I would prefer that we look at what we know about the income that enables us to pay for our housing.

Median Household Income Today

Fortunately among the many valuable things that our US Census Bureau does is it maintains an accurate source of data regarding our median income.

The Census Bureau does not report this information more frequently than once per year, and only for the year prior.  Therefore, the map above was produced in September 2017 and contains data for 2016.  It provides a useful snapshot, by State, of where our Median Household Income happens to be.  As you can see, the median household income for the entire United States was $57,617. That is total income before deductions for things that the government, for instance, cares about a great deal, taxes.  It is important to point out, as well, that this is a measure of household income, so it takes into account the combined income of the entire household. Not each individual in the household.  It is, therefore, a proper place to dive into the question of what is affordable housing, since that should require the support of the “household” to acquire.

Editorial Comment:

It is critical that I disclose that I am not interested in justifying bad outcomes as I post information on this site.  The Primer on Housing is devoted to achieving a sustainable quality of life that does not compromise your present while sabotaging your future.  I am devoted to your housing choices being consistent with your quality of life.  All articles that will be posted on this site will be motivated by this value proposition.  I am dedicated to providing you the information that you need to achieve your quality of life.  There are no easy solutions, but knowledge will provide you with the power you desire.

What is My Formula for Affordable Housing?

I am not interested in creating a formula that will break new ground.  Therefore, I embrace the rule that has been in place for more than a century to define what you should regard as affordable.  That is:  The 28/36 Rule states that your household should spend no more than 28% of your gross monthly household income on your total housing expenses and no more than 36% on your total debt service, which must include housing along with all other debt services. This is a practical rule, but its application has been actively distorted through the years to validate bad practices.  My intention is to drive the conversation about housing along practical and sensible paths that will encourage the providers of housing to generate creative solutions. According to the 28/36 Rule then, $1,344 are the monthly dollars available for all housing expenses for a person that has the Median Household Income identified by the Census Bureau. The critical thing to understand is what is included in “total housing expenses”.  I have created the following list to help understand what that covers:

  • Monthly mortgage payment, including interest, and
  • Monthly cost of appropriate Homeowner’s Insurance, and
  • Average monthly maintenance for the home, and
  • Monthly assessments caused by living in the home (e.g., dues, etc.). and
  • Monthly taxes charged for living in the home, and
  • Monthly sinking fund to cover improvements and major maintenance (e.g., repair or replacement of heating/cooling system, repair of roof and structural components, repair/replace appliances, make home improvements, etc.)

Identifying these items may be easier than determining the amounts in advance of actually occupying the home.  Fortunately, there is a reasonable substitute that comes from my experience as an owner/operator of apartment housing.  

First, it is important to recognize that apartments are no different than owner-occupied homes, they encounter monthly expenses much like those encountered by a homeowner.  There may be no precise comparison, but that is true between the many diverse apartment locations and home locations.  

Just as we are using Median Household Income to generalize the affordability of housing, it is reasonable to use the operating expenses from the large inventory of apartments that exists to identify reasonable estimates of certain expenses.

The National Apartment Association commissions an annual survey that captures data about the operating expenses for US apartments.  The 2017 Executive Summary is loaded with vital information that we can use to make a reasonable estimate of what we should use to calculate the anticipated monthly housing expenses for that Median Priced house.

Monthly Mortgage Payment, with Interest

This is a moving target.  The variability is based upon (1) the size of the down payment that is used to purchase the home, (2) the interest rate that will be available, (3) the credit score for that Median Household, (4) whether it is a military veteran, and (5) the loan term selected.  For this calculation, since we are addressing the Median Priced Home for the borrower that has the Median Household Income we will presume [Bankrate was used to generate this information] at the time of this posting:

  1. The down payment will be only 10%, $26,850,
  2. The Interest Rate will be 4.125% (APR 4.278%),
  3. The credit score is over 740,
  4. This is a non-military loan,
  5. The term will be for 30 years, fixed.

Resulting in a loan estimate from GSF Mortgage Corporation that will have fees at closing ($1,717) and result in a monthly principal and interest payment of $1,171.

Monthly Cost of Homeowner’s Insurance

According to Insurance.com the national average for homeowners insurance for the Median Priced Home is presently $102.33 per month, with a $1,000 deductible and $100,000 of liability coverage.

Average Monthly Maintenance

According to the NAA Survey, referenced earlier, the average monthly cost for Repairs and Maintenance is $38.50.

Average Monthly Assessment

Since the assessment of fees for homeowner’s associations and other fees of this type vary so much, I will assume that the Median Priced Home we are evaluating has a monthly fee of $0.00.  This is a variable that needs to be considered when calculating the affordability of housing.

Monthly Real Estate Tax Burden

According to a report published by WalletHub, the average monthly amount for property taxes paid in the United States is $183.00.

Monthly Capital Expenditure Sinking Fund

If you own it, you must pay to keep its value as high as possible.  These costs are difficult to predict in advance, but the actual costs incurred for capital expenditures of all kinds by the people that own and operate apartment communities can be illustrative.  It is helpful to know that it is important for these owners to maintain the future value of their assets, so neglect is not acceptable.  It is important to know, as well, that, unlike a homeowner, investors want to avoid outlandish expenditures for some improvements that we as homeowners may get attracted to for very personal reasons.  Therefore, the information provided by the NAA Survey is an excellent source for planning purposes.  That monthly amount in 2017 was $123.00.  I strongly urge every person to set up a sinking fund and deposit this money into that account every month.  Indeed, this is only an annual expense that is 0.5% of the home value.  I suggest that a sinking fund with an annual deposit of 10x that amount would be sensible.

So, Do We Have an Affordable Housing Problem for Owner-Occupied Housing?


The target monthly expenditure established for that median household income is $1,344, according to the reasonable and sensible 28/36 Rule.  The monthly total housing expenditures that we calculated is $1,618.  This represents 33% of the total monthly household income.  Therefore, there can be no debt payments of more than $110 per month to avoid violating the 28/36 Rule.  That means no car loan payments, no credit card payments, and no other debt payments more than that modest $110.  Is this housing affordable if it handcuffs you while you live there?  That is referred to as being house poor.

There is another possibility, however.  If we can increase the downpayment for this home to no less than 30% ($80,550), at today’s market rate, then the total monthly housing expenditures would approximate our goal of $1,344.  What is the likelihood that the median household we have discussed will have that much cash available to tie up in that median house?  If so, is this what we all think when we discuss affordable housing?

Well I Guess That Means I Can Solve This Problem By Renting

Sorry, apparently that will not work to provide affordable housing for that median household. According to that same Zillow report, the median monthly rent listed in April in the United States is $1,600. Since the choice of renting means that the monthly cost for taxes, repairs, maintenance, assessments, and capital improvements is included in the rent, that means the only additional monthly cost for housing will be renter’s insurance. As reported recently in MoneyTalksNews, “according to the Independent Insurance Agents and Brokers of America, the average cost is only $12 per month, or $144 per year, for $30,000 of property coverage and $100,000 of liability coverage.” That means that the median household would be required to spend $1,612 per month for rental housing.  That amount is effectively no different than the $1,618 per month we calculated to purchase that median house!


I am glad that you took the time to look into this important matter of finding housing that is affordable.  I am confident that you share my belief that there are few things that affect each of us more personally than sensible and comfortable shelter. I have devoted myself to serving as an advocate for housing that advances the quality of life for those that live in it, as well as the success of those that provide it.  If you read My Manifesto you will understand my background, qualifications, and motives. This analysis provides evidence that at present neither the option of acquiring a home or renting that home is reasonably affordable.  This analysis should compel those that have an active responsibility to establish policies or provide housing of all types to stop and actively consider creative alternatives. As this analysis demonstrates, we are at an important point in our collective journey to avoid making the same mistakes as we all experienced starting in 2008, when the housing bubble exploded and devastated so many lives.  I was part of that painful statistic. To add further emphasis to the importance of this anxious pursuit it is critical to pay attention to our current behavior regarding our acting in a careful and responsible manner on our own, individual behalf.  As the following graph demonstrates in a frightening manner:

Statista provides evidence that our desire to protect our quality of life in the future is being undermined in an effort to afford to live in the present.  This site, The Primer On Housing, intends to be relentless in pursuit of enhancing the quality of each of our lives by focussing on our most basic need for reasonable shelter and to do that without compromise. I want you to know that I have had the opportunity to work closely with our policymakers and our housing providers.  I regard most of them as highly compassionate and well-intentioned people that have the creative ability to find practical solutions if the problem is well investigated.  My intent is to collect that information and make it readily available to them, and you. I intend to use this site as the place where the problems in housing are thoroughly exposed.  I, also, intend to use this site as the place where creative efforts to solve those problems are analyzed and applauded. I welcome your comments and questions, as well as your identification of your fears.  I will respond and use your information to further this pursuit.

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