Affordable Housing Crisis

As with many other people, I have heard different things in the media such as an affordable housing crisis, stagnant wages, record inflation, rising interest rates, etc.  For my family of four, things are definitely getting tighter financially.  There is also the concern for the future of our two daughters who are currently 17 and 12 years old.  How are they going to be able to afford a home in the future?  To get a general idea, I looked at how things were in 2000 when we bought our house, compared to how things are now in 2022.  So let’s look at the numbers.

We purchased our house in 2000 for $130,000.00.  It’s a two plus one bedroom bi-level that was newly built that year. My wife and I were newly engaged at the time and both made $18.32/hr.  We worked for the same employer.  Minimum wage at the time was $6.85/hr.  So our hourly rate was 2.67 times the minimum wage.

In June 2022, we received updated papers for our house and auto insurance.  According to the insurance provider, our house is currently valued at $407,000.00.  The good news is that because we have comprehensive coverage, if the replacement cost of our house ends up being over that amount, it’s covered.  The top hourly rate for the same job, at the same employer is currently $29.42/hr.  Minimum wage is currently at $15.00/hr.  So the current hourly rate is 1.96 times the minimum wage. 

It’s noticed that the current hourly wage for that position at the same employer is slightly less than double that of minimum wage.  So the rate of increase for wages has definitely slowed.  If the current wage was at the same ratio as it was in 2000, it would be $40.05/hr.  What is also noticed is that our house value increased by 3.13 times.  If wages increased at that rate, current wages at the same employer for that position would be $57.34/hr.

For comparison I checked with two other major healthcare employers locally and their top hourly rate for the same position is essentially the same.  One employer’s top rate is $31.36/hr, while the other is $31.26/hr. 

For first time home owners here in Ontario, they would have to have 5% down payment to qualify for a mortgage.  For our $130,000.00 house, our down payment was $6,500.00.  Currently it’s still 5% down.  For the current value of our house, the down payment would be $20,350.00.

I remember when we were applying for our mortgage back in 2000, we were told that a general rule of thumb to determine the amount of mortgage we’d qualify for was 2.5 times the annual household income.  Using the current value of our house of $407,000.00, (minus the $20,350.00 down payment) a mortgage of $386,650, the household income would have to be around $154,660.00 per year.

Assuming that the mortgage would be held by two people, each person would be having to earn $77,330.00 per year.  Most people are paid for 37.5 hours per week (not being paid for a half hour lunch break), that’s 1,950 hours per year.  A person would have to be making a minimum of $39.66/hr.

So, there are several challenges when looking at the above numbers.  For some employers, the rate that wages have increased over the past twenty years or so have definitely slowed and in some cases, even declined.  The rate that housing prices have climbed has more than tripled in the last twenty plus years.  Yet (for a lot of people), their wages certainly have not tripled in the same period.

What’s also concerning (at least where I live), is that the vast majority of new jobs created by new employers over the last twenty years have been minimum wage jobs.  Examples would be those big box stores, coffee shops, small retailers, fast food restaurants, etc..  We haven’t seen any major employers coming in that would be paying higher wages.

Another concern right now is that with inflation as high as it is, interest rates are also rising which directly affects things like mortgage rates.  The 5 year fixed interest rate on our mortgage is 4.99% and we are coming up for renewal in early 2023.  Currently the interest rate for a 5 year fixed rate is 6.49%.  As mortgage interest rates increase, so does the amount the mortgage holder(s) pay each month (depending on the type of mortgage they have).  With inflation continuing to be as high as it is, there’s a potential of mortgage rates climbing even more.

It should be noted that the above numbers were based on a person working full time hours.  There are alot of employers that still don’t offer full time positions.  When my wife and I started our Nursing  careers, we both had to work two part time jobs for 5 years in order to equal the equivalent of full time work. 

I live in a city of approximately 110,000 people.  Looking at the current real estate listings, the average 2 bedroom house is selling for $409,950.00.  While the average 3 bedroom house is selling for $509,450.00.  It’s important to note that property taxes vary widely.  A three bedroom house in one area of the city may have vastly higher property taxes than the same type of house in a different part of the city.

Like many other first time home owners, we were fixated on that 5 percent down payment.  We didn’t take into account the various closing costs associated with purchasing a house.  These include, legal and realtor fees, land transfer tax, mortgage insurance, house insurance, title insurance, utility connections (some require deposits), etc.  So we were scrambling trying to pay those extra costs.

People also need to factor in the initial costs of being a first time home owner such as purchasing appliances (fridge, stove, washer, dryer, etc.), furnishings, outdoor maintenance (lawnmower, etc.).

As exciting and satisfying as it is to purchase your first home, there are a lot of factors to take into consideration.  One can see that wages are definitely not increasing at the same rate they once did.  Yet, the cost of housing and everything else has rapidly increased.  If purchasing a house is one’s goal, it takes a lot more money and planning now, than what it did just over 20 years ago.

Until next time, stay safe, healthy and strong.

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