Lima, Santa Barbara exemplify extremes of affordability
Lima, Ohio has the most-affordable housing in the country, while
Santa Barbara, Calif., resides at the other end of the spectrum,
according to the National Association of Home Builders.
Nine of the 10 most-affordable markets in the organization's Housing
Opportunity Index are in Ohio, Michigan or Illinois. All of the
10 least-affordable housing markets are in California.
The builders' organization blames "excessive regulations"
for much of the lack of affordability. Indeed, that's part of the
problem in high-priced California, but the Golden State's enduring
appeal has something to do with it, too.
Santa Barbara is sunny and nestled between mountains and sea, with
little room to spread out. According to the U.S. Department of Housing
and Urban Development, the median household income in Santa Barbara
County in 2004 was $64,700. The NAHB says the median price of a
home in metro Santa Barbara was $447,000 in the third quarter of
2004. To get a sense of the pace of price appreciation there, consider
that the California Association of Realtors says the median price
of a home in the county was $668,750 in November, just a couple
Affordable Lima (pronounced like the bean, not the city in Peru)
could scarcely be more different from Santa Barbara. Its skies are
gray most of the winter, and it is surrounded by abundant, flat
farmland that is pretty, but unspectacular. HUD says Lima's median
family income in 2004 was $52,500. The median sale price of all
homes sold in the third quarter of 2004 was $82,000, according to
In other words, a typical home in Santa Barbara costs more than
10 times a typical family's income, while a home in Lima costs about
1.6 times a family's income.
The home builders rank 162 metropolitan areas by estimating the
percentage of homes sold that would be affordable to a family earning
the area's median household income. In Lima, a family earning the
median household income could have afforded 90.5 percent of the
homes sold there last summer. In Santa Barbara, less than 5 percent
of the homes sold would have been affordable to someone making the
median household income.
"Ultimately, higher home prices are a matter of strong buyer
demand," says Bobby Rayburn, a home builder and president of
the NAHB. "But a big contributor has been a shortage of land
available for development due to growth controls, and the high cost
of regulations in general.
"This includes everything from excessive impact and utility
hookup fees to the price of long delays for subdivision approvals,"
Rayburn continues. "Local jurisdictions that have curtailed
production of affordable and workforce housing through excessive
regulations should consider this a wake-up call."
There is some truth to the NAHB's criticism of regulation, experts
say. California has strong environmental protections, and it's hard
to get permits to build houses on hillsides that are prone to fires
and landslides. Once people buy their idyllic piece of California,
they don't want newcomers to crowd them out -- and politicians ignore
homeowners' wishes at their peril.
It's still not easy to build, especially in affluent communities,
says David Barca, senior broker for ZipRealty out of the company's
Oakland office. "I think it's loosening up a little bit,"
he says; some cities are considering allowing "mother-in-law
units" -- basements, garages or attics with separate access.
San Jose and other cities have loan programs for teachers, firefighters,
police officers and municipal employees to help them afford homes
near their workplaces. While local governments try to come up with
affordable housing policies that don't irk the voters who already
live there, lenders are charging ahead with clever mortgage products.
Brett Vratil, a Realtor with ZipRealty who sells mostly in west
Los Angeles, says almost all of his customers get interest-only
mortgages, often for the total purchase price. Interest-only loans
increase buyers' purchasing power by about 25 percent, Vratil says,
and that's often what it takes to get someone into a home in Los
Fixed-rate mortgages are becoming increasingly rare in California
because adjustable-rate mortgages, or ARMs, have lower rates. One
of the most popular loans is the 5/1 hybrid ARM, which starts out
with a rate that lasts five years, then adjusts annually thereafter.
The initial rate on a 5/1 ARM is about three-quarters of a percentage
point less than a comparable 30-year fixed.
The difference can spell big savings. A $500,000 loan at 6 percent
has a monthly principal-and-interest payment of $2,998. A 5/1 ARM
at 5.25 percent starts out with monthly principal and interest of
$2,761. If the loan is interest-only, the monthly payment is about
That's still hard to afford on Santa Barbara's median income of
$64,700. How can they afford it? Simple, Barca says: 73 percent
of Californians are repeat buyers. They are homeowners who sell
their houses for much more than they paid a few years ago. Then
they use their capital gains to make down payments on their new
houses. That way, they don't have to borrow so much.
That's how, Barca says, "We're having record sales and the
least affordability that you can imagine."
See also: 25
most-affordable markets and 25 least-affordable markets