Housing in Wisconsin – Part I

Affordable housing has become the topic of discussion around Wisconsin in recent years. Our new series on housing will look into the different aspects of housing and factors that impact housing construction and affordability.

According to the U.S Department of Housing and Urban Development (HUD), housing affordability is determined based on the percentage of the household income spent on housing. If housing costs are more than 30% of monthly income it is considered not affordable. However, given high occupancy rates and the lack of available units, many people are spending more than 30% of their monthly income on housing, especially in high growth areas.

The U.S. Census Bureau shows the following facts for Wisconsin (July 1, 2019):
• Population estimate: 5,822,434
• Households, 2014-2018: 2,343,129
• Persons per household, 2014-2018: 2.40
• Housing units, July 1, 2018: 2,710,723
• Owner-occupied housing unit rate, 2014-2018: 66.9%
• Median household income, 2014-2018: $59,209
• Median value of owner-occupied housing units, 2014-2018: $173,600
• Median selected monthly owner costs – with a mortgage, 2014-2018: $1,418
• Median selected monthly owner costs – without a mortgage, 2014-2018: $550
• Median gross rent, 2014-2018: $837

The Housing Affordability Index measures whether or not a typical family could qualify for a mortgage loan on a typical house. A typical house is defined as the national median-priced existing single-family home, and the typical family is defined as one earning the median family income as reported by the U.S. Bureau of Census. To understand the indices, a value of 100 means a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. A Housing Affordability Index of 120 would mean a family earning the median income has 120% of the income necessary to qualify for a conventional loan covering 80% of a median-priced existing single-family home. The calculations assume a down payment of 20%, and a qualifying ration of 25%. That means the monthly principle and interest rates cannot exceed 25% of the median family monthly income. The Wisconsin Housing Affordability measures the same thing, but uses the Wisconsin median values instead of the national median values.

According to the Wisconsin Realtors Association January 2020 report, “January homes sales were 8.9 percent higher than existing home sales in January 2019, and the median price rose 8.6 percent to $190,000 over that same 12-month period…Sales grew in spite of the weak inventories, but that creates strong pressure on prices, which has been a persistent issue for several years. In fact, the median price has increased at an annual rate of 5.5 percent or higher since 2016, and it grew at 7.2 percent in 2019 compared to 2018. With the general price level increasing at between 2.1 percent and 2.3 percent over the 2016-2019 period, housing prices are increasing at two to three times the rate of inflation.” With regards to affordability the report goes on to say, “Specifically, the Wisconsin Housing Affordability Index measures the percent of the median-priced home that a buyer with median family income can afford to purchase, assuming 20 percent down and the remaining balance financed at current rates with a 30-year fixed mortgage. The index increased from 215 in January 2019 to 220 in January 2020.”

A report by Kurt Paulsen, PhD, a professor of urban and regional planning at UW-Madison, for the Wisconsin Realtors Association outlines the housing shortage for Wisconsin’s workforce. The report breaks down the housing shortage into three areas: 1.) Wisconsin has not built enough homes to keep up with population and income growth, 2.) Construction costs are rising faster than inflation and incomes, and 3.) Outdated land use regulations drive up the cost of housing. According to the report, from 1994 through 2004 building permits in Wisconsin for new housing units averaged 36,000 per year, 24,5000 for single-family units, and almost 8,000 multifamily units. From 2012 through the most recent data at the time of the report, building permits have averaged 16,000 per year. The report states, “If housing is not produced to meet demand, housing prices go up and families have difficulty finding housing they can afford in communities where they want to live. Families trying to save for a down payment fall further behind.”

Paulsen’s report explains the lower number of subdivision approvals and lot availability for new houses only exacerbates the problem. Between 1994 and 2004 land divisions (subdivisions) averaged 14,000 new lots per year. However, from 2012 thru the most current data, only 3,375 lots per year has been the average. These numbers are a statewide average, but Paulsen examines the numbers further by comparing them to the growth rate for the state’s 20 largest counties which highlights the underproduction of housing in Dane County, Waukesha County, Brown County, Rock County, Sheboygan County, Walworth County, Fond du Lac County, Ozaukee County, and Jefferson County.