Housing Costs May Have Dire Impact

Government policies and rising housing costs have created a hostile economic environment for middle-class families, retirees and young workers that -- if not reversed -- could cost the state $133 million annually in lost tax revenues and retail sales as people leave Connecticut.

That's the primary concern of the author and supporters of a new economic study on the need for affordable housing recently released at the Legislative Office Building. The nonprofit group Partnership for Strong Communities sponsored the study and hailed it as the first empirical evidence that housing prices in the state are outstripping residents' abilities to pay.

The study used the U.S. Department of Housing and Urban Development's definition to determine the number of people who need affordable housing. According to HUD, households making less than 80 percent of the median income who pay more than 30 percent of their budget for their homes are in need of affordable housing. For example, a household in the Stamford area earning about $62,000, or 80 percent of the area's 2004 median income of about $77,500, would need affordable housing. In Connecticut, 249,000 households fit this definition.

PSC Director Diane Randall said local opposition to housing developments has driven up the costs to build affordable homes, prompting contractors to build larger, more expensive houses in order to recover those costs. The main concern for communities, she said, is that young families will have more school-age children, which increases the demand for educational services, which, in turn, drives up property taxes -- an argument that Randall said needs to be studied as well.

There was no data available on how much money the state and municipalities save when young families go elsewhere to raise their children.

Randall dismissed the notion that this trend reflects the vision that towns and cities have crafted for their future through well-thought-out policies.

"I don't think that that is the Connecticut everybody wants," Randall said. "I think people would like to have their kids and grandchildren living near them." Donald Klepper-Smith, chief economist at DataCorps Partners and the study's author, said the real concern is that the 247,000 households that can't find affordable housing here will leave the state. He said the people who make up this group are generally young professionals just starting out, retirees and, increasingly, those who would have been considered part of the home-owning middle class a decade ago.

That would make it harder to find workers, and give businesses one more reason to leave the state too, he and others concluded.

Between 1990 and 2000, the population of people between the ages of 20 and 34 in Connecticut declined by more than 20 percent, a trend Klepper-Smith said will continue unless something is done about unaffordable housing.

A disturbing finding in the report, according to Klepper-Smith, is that a household would need income of more than $100,000 a year to qualify for a 30-year mortgage to buy a home at the state's median sale price of $328,000.

The report said that aerospace engineers, school administrators, pharmacists, registered nurses and computer programmers are just a few of the occupations whose workers don't generally earn enough to qualify for a mortgage.

Klepper-Smith did not offer any solutions, instead saying the study was the starting point for discussions on how to correct the situation.

Jim Smith, chief executive officer of Webster Bank and a supporter of the study, said the future of the state depends on fixing the problem.

"We're talking about more than housing, we're talking about economic survival."

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.