Why It Can Be More Affordable to Live in an “Expensive” City

Chart from "Losing Ground: The Struggle of Moderate-Income Households to Afford the Rising Costs of Housing and Transportation"

So, how did Washington, D.C. — widely perceived as one of the most expensive cities in the country — end up topping a “most affordable” housing list?

First and most importantly, adjust for average income levels. Then, factor in transportation costs. Using that formula, the D.C. region is tops among 25 American metro areas in a new study from the Center for Housing Policy and the Center for Neighborhood Technology that looks at the ability of moderate-income households to shoulder the burden of housing and transportation costs [PDF]. The notoriously pricey Boston and San Francisco also make it into the top six.

The joint study came up with some other surprising findings. For example, it turns out it’s more affordable to live in New York City than it is to live in Cincinnati, based on the metrics used. And in general, renters fare better than homeowners in covering their costs of living.

In all 25 cities, middle-class households spent more than half of their incomes on combined housing and transportation costs between 2000 and 2010. Miami had it worst, with housing and transportation eating up 72 percent of the average income.

The study, titled “Losing Ground,” focuses on the disparity between income levels and steadily rising housing and transportation costs. Over the decade, researchers found, for every $1 in income gains, combined housing and transportation costs rose $1.75.

“Losing Ground” follows a 2006 study from the same organizations that took the novel approach of factoring in transportation costs to gauge the affordability of different metro areas. Measuring affordable living by looking strictly at housing costs, without including transportation, “tends to mislead people,” said Scott Bernstein, president of the Center for Neighborhood Technology, in a teleconference yesterday. Gathering this information comprehensively, he said, “has profound implications for a set of policy choices.”

Comparing certain cities highlights the need to consider transportation (calculated here as transit fares or the costs of driving and owning car). Take Cincinnati, which ranks in the middle of the pack for affordability despite significantly lower-than-average housing prices. In this study, walkable, transit-rich New York City ranks as more affordable – its low transportation costs, together with strong incomes, help water down the impact of pricey housing.

One key detail: The new study defines “moderate incomes” differently for each metro area, looking at households earning between 50 and 100 percent of that area’s median income. So in Miami, a “moderate income” ranges between $25,444 and $50,888; in D.C., it’s $44,531 to $89,063.

In the lowest-ranking cities – after Miami, it’s Riverside, California; then Tampa, Los Angeles and San Diego – incomes simply weren’t high enough to offset the expense of housing and transportation. For example, even though Miami’s housing and transportation costs ranked slightly lower than average, its low incomes inflated the burden of those costs. Robert Hickey of the Center for Housing Policy noted that the area has seen a lot of job loss. “When people lose their jobs or downshift to a part-time job… that doesn’t mean that their housing and transportation costs go down,” he said.

In expensive cities like D.C., Boston, and San Francisco, higher incomes helped cushion the shock. In all three cities, housing costs were higher than average – in D.C., transportation prices were also notably higher – yet those costs consumed a lower fraction of total income. 

The study made an important change from its 2006 precursor by including homeowners who had paid off their mortgages, as opposed to only those who were in the process of doing so. But either way, renters did better. The typical moderate-income renter spent 55 percent of their income on housing and transportation, compared to 62 percent for both types of homeowners. The report doesn’t theorize much on why this is, though one researcher pointed out yesterday that renters are more likely to live in places where they’re spending less on housing and, especially, transportation.

Less surprising is the study’s neighborhood-specific data, which found that households located closer to downtown cores and transit lines paid significantly less for housing and transportation combined, compared to those located further out. Transportation made the big difference there. In the D.C. area, “if you try to save money by trying to buy an apparently cheaper house in Virginia, which is not by a Metro line [or train] … you’ll pay for it” in higher costs for car ownership and travel, Bernstein said in an interview yesterday.

The study’s takeaway is “that we must expand affordable housing in places where transportation costs are low,” said Chris Estes, president and CEO of the National Housing Conference. We really have to intervene in the housing market to make sure folks have the possibility to live there.” Estes advocated for “nonpartisan, long-term solutions” to avoid pushing low- and moderate-income households “to the outskirts” of transit-rich urban centers.

The study itself doesn’t get terribly specific in prescribing policy solutions, but it does suggest that metro areas need to tweak their zoning and regulations – and get creative with financing solutions – to center housing around transit investments. In these “location-efficient” spots, policy makers should work to preserve existing affordable housing and encourage more of it, and to reduce the costs and barriers to land acquisitions and new housing developments. Meanwhile, areas where housing is already affordable need to get more transit-accessible and pedestrian-friendly.

At the federal level, the study points to proposed reforms to the Federal Transit Administration’s “New Starts” program as one way to incentivize both maintaining and developing affordable housing along new and expanded transit lines.

  • I’m 

  • I’m bad at commenting, apparently. What I meant to say is that I’m skeptical of the the transportation costs, which seem to take into account much more than what it costs to own, insure and drive a car 15,000 miles/year. What does intersection density and the transit shed have to do with that?

  • Intersection density and transit shed are two stong indicators of walk mode choice, but jobs-housing balance is the number one indicator.

  • Ian Turner

    I would say that the government probably needs to intervene /less/ in the housing market, in particular by eliminating parking, unit size, and setback minimums and height and unit maximums, and by not subsidizing sprawl.

  • Ian Turner

    @yahoo-JPFF2ICX73VMWRQL4NBFH6LYC4:disqus : It’s not at all hard to get to $800-$1000 per month in total transportation costs when you include depreciation, maintenance, insurance, gas, repairs, registration and other taxes, and financing costs. You can play with the Edmunds TCO tool to see what the numbers look like for different cars and driving distance.
    http://www.edmunds.com/tco.html

  • Ian Turner

    @yahoo-JPFF2ICX73VMWRQL4NBFH6LYC4:disqus : It’s not at all hard to get to $800-$1000 per month in total transportation costs when you include depreciation, maintenance, insurance, gas, repairs, registration and other taxes, and financing costs. You can play with the Edmunds TCO tool to see what the numbers look like for different cars and driving distance.
    http://www.edmunds.com/tco.html

  • Ian Turner

    @yahoo-JPFF2ICX73VMWRQL4NBFH6LYC4:disqus : It’s not at all hard to get to $800-$1000 per month in total transportation costs when you include depreciation, maintenance, insurance, gas, repairs, registration and other taxes, and financing costs. You can play with the Edmunds TCO tool to see what the numbers look like for different cars and driving distance.
    http://www.edmunds.com/tco.html

  • AAA reports the cost of owning and operating a car to now be $8946/year, an SUV to be $11,360/year, and a minivan $9504/year.  Living near an urban core or near transit often means families can drop down from two cars to one which does mean a heck of a lot of savings.

    There are other economic advantages to living near an urban core or TOD.

    1) You will probably live in less square footage.  This means lower energy bills and less storage space, so way less temptation to buy junk on Ebay.
    2) You may very well have shared walls/floors/ceilings with other houses or apartments.  This also means lower energy bills (and if well-built doesn’t have to mean more noise.)
    3) You won’t need to buy your teenager a car.  (Also reduces the risk of your teen dying–car crashes leading cause of teen deaths.)
    4) You won’t have massive available parking, so way less temptation to buy a boat, an RV or other large expensive toy that you might park in your driveway and rarely use.
    5) You will likely have no lawn or a very small lawn.  So no Chemlawn service, small amounts of lawn-mowing, leaf raking and snow shoveling (or paying people to do same.)
    6) Because goods and services are within walking/biking distance, you are likely to walk/bike more, which means better health, fewer trips to the doctor, less money spent on prescriptions.
    7) Better fitness in one’s 50’s leads to an extra ten years of high-quality life.  A recent study showed that fitness in one’s 50s doesn’t necessarily change life expectancy, but people who are unfit in their 50’s experience on average 15 years of chronic/debilitating illness before death; people who are fit in their 50’s experiencing on average only 5 years of chronic/debilitating illness before death.

  • Larry Littlefield

    New York is nonetheless very expensive for those who insist on living here he same way they would in Houston.  Which is why such people are always ticked off.

  • PC

    Hey, did you guys hear? Beverly Hills, CA is one of the most affordable cities in the world. Almost everybody who lives there can afford to live there!

  • Mike

    It would be interesting to factor in tax data, too. The tabloids are always telling us that high taxes here are the reason New Yorkers move to the Sunbelt.

  • Combining housing and transportation costs is the concept behind the Location
    Efficient Mortgage.  The Center For Neighborhood Technology was involved in an
    experimental LEM program a dozen years ago.  It’s the second interview on
    Episode 48 of “Perils For Pedestrians”.   http://www.youtube.com/watch?v=j2fPSX9bmsc  

  • This… seems wrong. 

    I live in DC, and it’s the most expensive place I’ve ever lived. I don’t have the time to fully quantify, but consider this:Median household income: $58.5k, compared to a national average of $51,914 Median house cost: $443,300 vs national $188,400There’s a slightly higher than average income for the area, but it’s accompanied by housing costs that are more than 200%. This alone would lead me to question the metric used in this article. 

  • This is all fine and well for people who are in that moderate income range.  But what about people working a job at or near minimum wage who just want to live in a safe neighborhood? I don’t really know what it would be like to try to swing that in DC – or in any of those other cities. It’s pretty difficult anywhere, in my experience. To find adequate housing without some serious crime, pollution, or just some kind of serious quality of life issue with the apartment itself or the neighborhood. I want to see the index for that.

  • Anonymous

    The only reason that DC home owners use only 48% of their income is because its taxpayer money and they over pay themselves —

  • Another potential issue here is that there’s an unequal distribution of costs.  For example:

    The average cost of owning a car is almost $10,000 a year… but that’s the average. In reality, there are plenty of good car options above and below that range. Anyone can go out and buy a Honda Fit new, use it for 5 years, and walk away with total costs between $3-$5k annually without cutting any corners. In short, there’s room to be frugal. 

    With housing, the spread isn’t the same. In DC, rents START at about $1k per bedroom. If you want to own, studio condos start at around $300k.  In this case, the local median is also very close to the local bottom, and the bottom is still higher than the national median.  In the case of housing, there’s much less opportunity to cut corners.

    These two combined issues make “affordability” as labeled by the study a bit of a misnomer. Because the difference between entry level expenses and median expenses is not similar when discussing transportation & housing, it’s easy to accidentally create an illusion simply by looking at the medians.

  • PC

    Trust me, you never will. It would be too real, and too depressing.

  • The costs of education have been steadily increasing in the past few years. This is due to the increased number of private schools as well as immigrants into the country. Though the state finances the costs of education from kindergarten to grade 12 at Aus$93,000, catholic schools cost twice that while private school costs four times as much.

    Cost of Living in Australia

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