Several aldermen hope to push through an amendment to rescue Evanston’s legally defective affordable housing ordinance next Monday.
The move comes even though a key report used to justify the ordinance is based on faulty math that exaggerates the cost-crunch facing would-be home buyers.
Several aldermen hope to push through an amendment to rescue Evanston’s legally defective affordable housing ordinance next Monday.
The move comes even though a key report used to justify the ordinance is based on faulty math that exaggerates the cost-crunch facing would-be home buyers.
“I think we should move forward with the amendment as quickly as possible,” Alderman Edmund Moran, 6th Ward, said at last week’s Planning and Development Committee meeting.
Alderman Steve Bernstein, 4th Ward said, “We’ve been round and round on this for years. We’re not changing the import of the ordinance — it still would require that 10 percent of the units be affordable.”
The aldermen rejected a request from Alderman Ann Rainey, 8th Ward, to hold a public hearing on the proposal. “You think everybody knows we are going to do this,” she said, “so do you have a problem with letting the community know?”
Alderman Lionel Jean-Baptiste, 2nd Ward, said he hoped the council would suspend the rules so that the ordinance could be both introduced and adopted at the March 12 meeting.
Figures in a report from the advocacy group Business and Professional People for the Public Interest (BPI) cited in the ordinance claim to show the percentage of owner-occupied homes in Evanston considered affordable dropped by nearly half from 2000 to 2005.
The BPI figures account for rising incomes over the period, but fail to adjust for falling interest rates.
The report claims the value of a home a two-person household earning 80 percent of the Chicago-area median income could afford rose 15.5 percent from 2000 to 2005 to $144,603, while median housing prices in Evanston rose 7.5 percent per year during that period.
But once declining mortgage interest rates are accounted for, the same family could afford a home worth almost $177,000 in 2005– an increase of over 40 percent.
In its calculations, the housing group holds the mortgage interest rate constant at 8.05 percent from 2000 to 2005.
In 2000 the annual average rate on a 30-year fixed-rate mortgage as reported by Freddie Mac, the Federal Home Loan Mortgage Corporation, was 8.05 percent, but by 2005 it had declined to 5.87 percent.
An Illinois Housing Development Authority official today said that when the state next calculates compliance with the state affordable housing law, after the 2010 census, it will use then-current interest rate figures.
Hoy McConnell, BPI’s executive director, said this afternoon that his staff is working to recalculate its figures to adjust for the change in mortgage rates and to update them to include 2006 data.
He said he hoped to have the new figures available in about a week.
Asked about the discrepancy in the numbers last week, Evanston Community Development Director James Wolinski said, “We always figured the BPI numbers were overstated.”
Ald. Moran, interviewed by e-mail before BPI announced its plan to rework the numbers, said, “I will stick by BPI.”
Alderman Delores Holmes, 5th Ward, said “I am not aware that the math used is faulty. I am asking the staff to check out the information. Regardless of the math, I think we still need the ordinance. Any wrong numbers should be corrected.”
Ald. Bernstein said, “I’m basing my desire to pass an inclusionary housing ordinance on my own sense of rising Evanston costs, especially in certain ‘affordable’ areas of town, where the current residents really can’t afford to live now.”
Ald. Rainey said, “I don’t think anyone cares about the numbers, especially people who know there will never be ‘low income’ housing in their ward.”
Alderman Elizabeth Tisdahl, 7th Ward, said, “I think BPI overstates the problem they want to address. But I support a workable affordable housing ordinance, not one that’s going to stop all development.”
The city’s law department has concluded that because the ordinance as adopted required developers to pay $40,000 for every 10 units or fraction thereof in a development of 25 or more units into the affordable housing fund it amounted to an impact fee which is generally disfavored by Illinois courts.
The law department believes that by changing the ordinance to require that 10 percent of the units in a project be affordably priced, but allowing developers to either build the units on site or make the same $40,000 contribution to the city’s affordable housing fund, it can avoid the legal problem.
After the council adopted the ordinance, it amended it to require that at least 30 percent of the affordable units be built on site. That amended ordinance was vetoed by Mayor Lorraine Morton who said it would likely kill new development in Evanston.
Developers had estimated that the vetoed ordinance would have raised the overall cost-per-unit of complying with the law from about $4,000 to nearly $10,000.
Mr. McConnell said BPI still lacks information to account for the impact of condominium conversions on the availability of affordable rental housing in Evanston, but he said he suspects the condo conversions have dramatically cut the number of affordable rental units in town.
So-called “faulty math”
I think you are overstating the “faulty math.” The problem with your math is that you are betting your policy (or non-policy) on the interest rate. That doesn’t strike me as a sound decision given its variability. A better idea would be to plan for the worst and hope for the best… given the data we have, 8.31 seems like a reasonable place to start. Even if that is high for today it might be low for next year. Besides, the idea of someone in need of an affordable housing program getting a mortgage at or below the average rate sounds far-fetched.
A quick look at a graph of housing prices shows that they only go up. We can quibble about “well, look at this subgroup over this small period,” but I think we can agree that over time–say over any given five years but likely smaller than that–housing prices go up.
Interest rates are quite a different story, varying wildly. When rates go down as prices go up, yes, the problem is tempered. But, when prices go up as rates go up, the problem is exacerbated. I would be interested to see your calculations using a smaller set of years, say from 2005 to present, where the rate increase was quite steady.
Setting a policy during a down period of interest rates and basing your policy on the stability of those low rates is short-sighted.
Interest rates are key to affordability
Hi Adam,
You make the mistaken assumption that the story criticizes the idea of having an affordable housing program.
The story criticizes the use of bogus calculations to assess the relative affordability of housing in Evanston over time.
When bad math leads us to misunderstand the nature of the problem we face — then we are likely to make bad policy decisions.
When interest rates drop, people can afford to pay more for a house and so they tend to bid up the price of houses. When interest rates rise, people can afford less and so houses tend to sit unsold until sellers agree to trim their prices.
That is exactly what happened between 2005 and 2006 — interest rates rose moderately and the rate of increase in Evanston housing prices declined. (Condo and townhouse prices actually dropped.)
Unless you use the then-current interest rate when you calculate affordability, the result of your calculation is worthless.
And your assertion that housing prices almost always go up is laughable to someone like me who bought a house in Boston in 1988 at the peak of a previous housing boom. When I sold it seven years later it was still worth less than I paid for it.
Buying a house is an investment, and you should dearly hope that it will rise in value over time along with the values of other investments. Most of the time it probably will. But there are no guarantees. That risk is why you can get a return on your housing investment.
— Bill
Rising interest doesn’t always mean dropping prices
Well I’m glad to make you laugh 🙂
I don’t mean to imply your story opposes affordable housing, just that your policy or non-policy is tied to today’s rate rather than what next year’s will be. You don’t make your opinion clear one way or the other whether you support an affordable housing ordinance (aside from the fact that we don’t see many pro-affordable housing articles around here, but plenty in dissent of various aspects).
I see what you’re saying… there is more money available, therefore sellers ask for more. Demand what the market will bear.
My point is that we don’t know where the interest rate will be next year. When the interest rises a short-term drop in housing prices seems logical. I think that is a natural correction that has more to do with sellers pricing based on the past trend and not the present reality. Over the course of several years even at a time when interest rates are rising, I expect housing prices to go up (if you can point me towards data, I’ll crunch the numbers). It’s hard for me to draw a conclusion based on a year alone. There are a low number of sellers so the data is more subject to other pressures (e.g., maybe they could have got the price they wanted if they waited for the right buyer, but selling fast was more important than selling high)
Maybe y’all can help
I’m one of those lowly low-to mid-income people trying to own in Evanston–I’m quite frankly tired of paying the mortgage for a landlord who doesn’t even live in Evanston, much less contribute anything other than one of those places you see with trash in the yard and duct tape on the windows (but it’s affordable!).
Basically, I’ve done a lot of looking at places going for $150K that are either tiny or uninhabitable. I make less than $50K and have a child.
BUT! Good news is I have recently found something I like and should be able to afford if I can get the seller to come down–I know what the seller bought it for back in August of 2004–I’d like to know what kind of % places have increased in these years so I can get a fair shake. The seller has done nothing in terms of improvements to the place.
I’ve posed that question to realtors and get the vague “5%”–is this the case (I guess I’m a cynic these days)? The place is in the 8th Ward. What kind of info is out there to be had to determine this? When they talk about “comparable” places and what they sold for, how do I find that out? I know the Trib lists places and prices, but how do I know the square footage is comparible?
I am simply overwhelmed and know what I can afford isn’t going to be making anyone a lot of money, but I want to be smart about this–I can’t afford not to be.
Any guidance/help would be much appreciated. And you can come to my house warming party if I ever actually get to that point…
Best,
Amy
Home prices
Hi Amy,
Evanston Now recently did a story on the change in Evanston housing prices from 2005 to 2006. Unfortunately, I don’t have data available from 2004. But, assuming you’re working with a broker, the broker could get those numbers for you from the MLS — and can also come up with numbers for recent sales of similar sized properties.
Crain’s Chicago Business also has files from the Cook County Recorder of Deeds showing property transfers going back as far as 2000, but you’d have to massage the data quite a bit in a spreadsheet to get the answers you’re looking for.
Since you’re looking in the 8th Ward, I’d also suggest checking out Alderman Ann Rainey’s 8th Ward message board, if you haven’t already. You might chat with Ann or some of the other folks on the board about the specific area you’re looking at.
Best of luck in your hunt!
— Bill
Thanks Bill
For replying and for pointing me to the 8th Ward’s message board, although it made for rather sober reading. And I’m going to have to remember the term “massage the data” next time I’m in a long meeting at work…
Thanks again!
interest rates have dropped, but so have real wages
It’s important to have real-dollar-adjusted data, and the correction for actual interest rates is part of this picture, but so is wage data. It’s generally conceded that real wages have dropped or at most been stagnant. See, for example, http://www.epi.org/content.cfm/webfeat_econindicators_wages_20051215 which discusses the last 4 years, but in actuality this trend has been consistent since 1974, save a period in the late 90s where we enjoyed a “peace dividend.”
Dropping interest rates make housing more affordable, but that opportunity can be illusory if your actual purchasing power has also been dropping.
Economists say that for many households, wage drop has been somewhat compensated for by increased “overall compensation package,” i.e., they include health benefits. But this reflects the rising price of health care more than any actual additional dollars in the wage-earner’s pocket.
It’s also important to note that credit has been tightening: the rules for credit scores have changed, and a borrower who previously could qualify for a loan based on ratios often cannot, or may qualify only for a higher rate, because of the credit score system.
Then how do we afford subsidies?
Hi Jeff,
I think your numbers are sound that most wage earners are getting squeezed by wage increases that at best just barely keep pace with inflation.
But if we’re all being squeezed like that, how can we afford to pay additional taxes — direct or disguised — for affordable housing programs?
You don’t think it’s corporate CEOs who are buying 300K condos in Evanston, do you?
–Bill
Who’s buying in Evanston
Hi, Bill,
I assume your question is rhetorical.
I’ve actually noted for years that, in general, we don’t have our share of CEOs relative to other N. Shore burbs (altho I know several — and the CEOs I know who live in Evanston are all really cool folks). Nor doctors for that matter. We seem to have above-average numbers of lawyers, psychologists, academics, journalist/writers, counselors, and, as far as I can tell, yoga teachers. One reason why Evanston votes differently than Wilmette/Winnetka.
I was not defending (nor attacking) any specific program, nor affordable housing programs in general. I was just chiming in on the idea that interest rates drive affordability, which I think oversimplifies. I would not have expected that thread to be the one that drove me to become a contributor here, but it triggered my inner math-stat geek. 🙂
There is some great discussion on this board. Some of it is hard to find once it ages.
I will post my opinions on some of the affordable housing proposals separately.
WSJ: Housing prices to decline
In a Wall Street Journal survey, economic forecasters predict housing prices will drop in most of the country this year.
But they also expect to see rising interest rates and continuing turmoil in the subprime mortgage market.
Unclear whether that means housing in Evanston this year will become more or less affordable, as the dance between selling prices and interest rates continues.