Data released in late June by the First American Real House Price Index revealed the Milwaukee area now leads the nation in declining affordability of homeownership.
The index measures the price changes of single-family properties throughout the U.S., adjusted for the impact of income and interest rate changes on consumer house-buying power over time.
The Milwaukee area’s housing affordability fell 17.9 percent in the past 12 months, which is being attributed to the low supply of homes listed for sale. That can lead to price increases.
Wisconsin as a whole didn’t fare much better. It is one of the five states with the greatest year-over-year increase in the Real House Price Index, with a 14.6 percent jump overall.
With housing prices out of reach for some living in the Milwaukee area, the alternative would be renting an apartment. However, the picture there is just as concerning.
The National Low Income Housing Coalition released its 2017 “Out of Reach” report in June, which found the national housing wage, or the amount of money a person has to make per hour to be able to afford a home, is $21.21 per hour for a two-bedroom rental, nearly three times higher than the federal (and Wisconsin’s) minimum wage of $7.25 per hour.
The housing wage for a one-bedroom rental is a national average of $17.14 per hour, or about 2.4 times higher than the federal minimum wage.
The report found that six of the seven occupations projected to add the greatest number of jobs by 2024 provide a median wage that is not sufficient to afford a modest one-bedroom rental home.
The housing wage needed for a two-bedroom apartment in Wisconsin is $16.11 an hour, according to the report, which puts the state at 31st in the nation. In the Milwaukee area, the housing wage is $17.83 an hour.
The study assumes that a two-bedroom apartment in Wisconsin is $838 per month.
In order to afford a two-bedroom, $838 per month apartment without paying more than the recommended 30 percent of annual income on housing, a household must earn $33,501 annually.
The average renter’s wage in the state is $12.89 per hour ($26,811 per year), according to the report.
For a two-bedroom apartment that is $1,680 a month, which is the price many of the new units being built in Milwaukee and the surrounding suburbs are going for, a household must earn $67,000.
Wyman Winston, executive director of the Wisconsin Housing and Economic Development Authority, said the report is distorted, because Wisconsin residents have lower incomes, even with the lower cost of housing compared to other states.
“Throughout Wisconsin, there are only two counties (Winnebago and Jackson) that allow for one full-time worker to afford a two-bedroom apartment priced at the area Fair Market Rent at the average hourly wage for the area,” Winston said, adding that while most of the state’s metro areas are gaining in population and the rents are rising to reflect that, non-metro areas where population has declined have not readjusted.
“The cost of housing still has not come down enough (in most cases) to match the mean hourly wages for those people that choose to rent instead of buy,” Winston said.
Robert Monnat, partner and chief operating officer of The Mandel Group, one of the leading apartment developers in Milwaukee, said newly-constructed market-rate apartments have become so expensive to build, because of land costs and building materials, that they can’t be completed without a corresponding increase in rents.
Some developers recently have scaled back projects or dropped them altogether because incomes, particularly those of the millennials at which many projects have been targeted, have not kept up with rent demands.
The Mandel Group about three years ago began focusing its projects on empty nesters, who have more disposable income.
Monnat said housing assistance programs, such as the U.S. Department of Housing and Urban Development’s Section 8, have contributed low-cost financing, tax-exempt financing, or other financial incentives to developers to entice them to develop and operate rental housing at more modest rents.
Today, the low-income housing tax credit, a federal program, and a tax-exempt financing program run by WHEDA in which developers incorporate 20 percent low- to moderate-income apartments within their market-rate projects are also options, Monnat said.
“While both programs are well conceived, the numbers available don’t nearly meet the demand,” Monnat said. “Overall, it’s fair to say that policy hasn’t kept up with needs. And the peculiarities of the two largest age cohorts—baby boomers and millennials—have very different wants and limitations.”