20-Year Cost Comparison for Local Housing is Troublesome
Lake and Sumter Counties are in an affordable housing crisis. In last week’s column, I explored the increased costs of housing and what is impacting these record increases. This week, I look at the hard numbers, which confirm why this is truly an affordable housing crisis.
Let us go back 20 years and look at housing costs in the Orlando, Florida area. According to the Orlando Regional Realtor® Association, the average sales price of a home in January 2001 was $153,464. At the time, the interest rate on a 30-year mortgage was 7.38 percent making the monthly mortgage payment in the amount of $1,060.00. Over the life of the loan, the homeowner would pay $381,766.
Fast forward to December 2020. The average sales price of a home in the Orlando area is $322,622 with a 30-year mortgage interest rate of 2.7 percent. The monthly mortgage payment would be in the amount of $1,309.00. Over the life of the loan, the homeowner would pay $471,077.
At first glance, there are some stunning facts from the average sales price of a home 20 years ago versus today.
Although interest rates are down 64 percent and despite a home that is 110.2 percent higher in price, the average monthly payment only goes up 23.5 percent. This is the power of low interest rates, which is great for the affordable housing equation. However, a home that has doubled in price is not sustainable since wages over the last 20 years have not doubled.
According to the United States government, the net inflation rate from 2001 to 2020 is 46.2 percent. If housing had just followed the standard inflation curve, the home that sold in 2001 for $153,464 should sell for $224,364 today. Based on that extrapolation, when compared to the average sales price of $322,622 in December 2020, housing is overpriced by a whopping amount of $98,258. This is the reason why working families can no longer afford to purchase a home.
If the politicians in Florida truly want to have an effective affordable housing plan for working people, including essential workers, they must take action to shake out approximately $100,000 in costs.
First, a workforce housing designation needs to be set up with significantly lower building and impact fees. Next, a comprehensive land plan must be developed for planned communities, which encourages public and private partnerships with large employers to build workforce housing just as they did in the 1940s and 1950s. Building Codes must be updated with an understanding that affordability cannot be sacrificed because an insurance company calls for a building code. Not everyone can afford a Cadillac when it comes to housing. In line with this, the same Building Codes that apply to a $1 million home should not apply to affordable housing. Finally, communities must strip out burdening building codes that mandate square footage, landscaping, and décor, all of which drive up the cost of housing.
We must rebuild this nation one home at a time, and the country needs a national housing strategy that encourages the middle class to own a home. The COVID-19 pandemic has demonstrated the value of essential workers and developing an affordable housing strategy at all levels of government is essential.
The hard numbers in local housing clearly demonstrate that we have a massive affordable housing crisis.
Don Magruder is the CEO of RoMac Building Supply and host of Around the House, which can be seen at aroundthehouse.tv.