Tuesday, December 05, 2006

Information Revolution

It's said we are in the middle of a revolution in information technology which is no less significant than the Industrial Revolution. Case and point: I have been trying to learn about housing affordability metrics to follow up on a previous article. One call to a friend who works for the state, and I have the email address of the state's "Housing Analyst." A few hours later an expert economist has answered my basic questions, sent me a boatload of relevant data, and showed me where to find his research and analysis. Any of you remember when research started with a trip to the card catalog at the library?

Of course it will be months before I wade through all the information I have. But I'll share some of the basics. The state measures housing affordability by looking at the percentage of household income which you need to spend on housing. They add up rent or mortgage payments, related taxes, insurance, and utilities. If you are spending 30% or more of your income on these housing costs you are "housing cost burdened." If you are spending 50% or more you are "severely cost burdened."

In the past few months I've seen enough different claims about the median home price to know this isn't an easy number to capture. But even if you do a really good job measuring median home sales price over some period of time, you don't get the whole picture:
  • It ignores mortgage interest rates. At a lower interest rate you can afford a larger mortgage.
  • It ignores the rental market. 52% of housing units in Hood River are renter occupied. Despite the dream of home ownership, most of us live in rentals at some point in our lives.
  • It assumes the sales over the period are representative of the current housing stock. In fact as we go through real estate cycles different sectors of the market are active each month.
I'll repeat the disclaimer I displayed earlier: I am not suggesting we don't have a problem. We all know that homes prices have shot up much faster than income. But to make good public policy we need a much richer understanding of the problem. Fortunately the information revolution has provided us with plenty of sources to mine for that better understanding.


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