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Sue Lani Madsen: Housing affordability faces mathematical obstacles

No politician intends to make housing less affordable, but math doesn’t care about good intentions.

Higher prices are the cumulative effect of land scarcity plus rising taxes, fees and regulations at every level of government. Every house demolished by WSDOT to build the North Spokane Corridor and every buildable lot bought up by the city as open space pushes the numbers in the wrong direction if the goal is affordability.

Mortgage banker Mike Hogan of Chimney Rock Mortgage in Spokane has run the numbers. He doesn’t see any way to add the 38,000 affordable housing units Spokane reportedly needs without significant changes in our understanding of the problem.

Affordable is defined by U.S. Department of Housing and Urban Development as being within reach of a household earning 50% of the area median income. Within reach means not spending more than 30% of household income on housing, whether paid to a landlord or a bank. Hogan started from the income and worked backward to figure out what this hypothetical household could afford.

For a two-person household, 50% of AMI is an annual income of $33,650 or $2,804 per month, according to HUD’s 2022 chart for Spokane County, and 30% of monthly income equals $841/month. Hogan used the interest rates listed by the Washington Housing Finance Commission House Key Opportunity program, which also helps with down payment and/or closing costs to eligible families. At this week’s interest rate of 6%, our hypothetical household could afford to buy a $102,500 home. Their monthly mortgage payment of $840.25 would include principal and interest ($603.40), property taxes ($106.77), homeowner’s insurance ($85) and mortgage insurance ($45.08).

Only problem is $102,500 will buy an empty lot, but not much more. “This is not going to be solved by a 10% tax abatement in downtown Spokane,” Hogan said.

What about outside downtown? The cheapest lot listed on Zillow today ($68,000) plus a brand new 710-square-foot two-bedroom, one-bath, factory-built modular home (cheaper than stick built and on sale until Monday for $72,974) plus estimated closing costs at 10% equals $155,071. Plus somewhere between $30,000 and $50,000 for a foundation, plus moving the modular into place, plus impact fees and utility hookups. Math says that’s double what our hypothetical household can buy.

What about a village of tiny homes? From a lender’s perspective, it’s no different than an old-fashioned trailer park. If the homeowner doesn’t own the land underneath the home, it has to be financed at higher interest rate as personal property.

In a best-case scenario, our affordable tiny home sits on land owned in common by a homeowner’s association and can be financed like a condo. It doesn’t make the math work any better. Hogan described a potential client who was looking at a condo-style tiny house built in 2008 listed at $179,500 plus 10% closing costs for a total transaction price of $197,450 and monthly HOA fees of $216 per month in addition to a mortgage payment.

So the answer must be density. A fourplex built on the same cheap lot would make four affordable units, right? Not so much. A stick-built fourplex has to meet more expensive code requirements than four factory-built modulars; builders can do that math. And by the time the numbers are crunched by the developer/landlord on taxes, fees, utility hookups, property and liability insurance plus a reserve fund for repairs and paying themselves for their work, it doesn’t add up to affordable housing.

The $4 billion dollar housing bond issue requested by Gov. Inslee won’t change the math. State-funded projects face the same costs as private construction. What Washington contractors have been saying for years is a 15-25% premium for public projects over the same work constructed under private funding. Red tape is not cheap.

So if new starter homes can’t be built affordably, what about existing housing stock? Traditionally, the affordability niche has been filled by older homes as households increase their income and trade up. That’s not happening now. People who nailed an interest rate of 3% in 2021 are reluctant to move now that rates are at 6%. The hot refinance market has stopped the churn.

Scarce land, inflation driving up building costs, the unintended consequences of expecting new construction to bear the cost of expanding infrastructure serving an entire community – all of these make housing more expensive. The perspicacious politician will stop and check the math. Not the math of good intentions and smooth-talking points, but the math of bankers, builders and developers.

“If the city really wanted to build affordable housing, they’d have to give away the land, put in the infrastructure and even then it wouldn’t be affordable to the lowest income people in the city,” Hogan said. The bankers’ point of view hasn’t been heard in the local debate over affordable housing. They should be included. Math is their thing, and it’s all about the numbers.

Contact Sue Lani Madsen at

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