HousingWorksRI: Affordable Housing 101 - RI's Crisis in a Nutshell

Rhode Island's Housing Crisis in a Nutshell

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Home Prices Soar. Incomes Don't.
Since 1999, rents and house prices have skyrocketed in Rhode Island. In just six years the median sale price for a single-family home more than doubled. A home purchased in 1999 for a median $126,000 would sell in 2006 for a median $282,500. For more facts, click here.

At the same time, median household income in the state inched up less than ten percent annually, according to the U.S. Census.

It’s just as bad for renters. In 2006, the average rent in Rhode Island for a two-bedroom apartment was $1,172. Who can afford a rent of $1,172? A household earning $46,880 gross. Utterly priced out of the market for decent housing are Rhode Island’s minimum- to low-wage workers. Our minimum-wage workers can afford only $385 monthly in rent, according to federal guidelines.

All Rhode Islanders can afford less and less house every year. Moderate-to-minimum wage earners in Rhode Island (the majority of our workforce) get it worst. These workers now face a new reality: you can hold down a steady job yet be unable to afford to live in a decent home.

Tens of thousands of Rhode Island’s moderate-to-minimum wage earners have almost no choice but to live in substandard housing or go homeless. That’s all they can find and afford in a galloping market with double-digit annual house appreciation. For homeless in RI facts, click here.

Our state’s economic health needs a booster shot: another 13,000 attractive, affordable homes as quickly as we can build them, for renters and first-time homebuyers alike. We can easily do this, if every side of the problem joins forces to get the job done.

Too few decent homes, too much demand
Many factors have contributed to the state’s hyperactive real estate appreciation, says the Rhode Island Association of Realtors: “low interest rates...an uncertain stock market, quality of life, commutability and buyers coming from other more expensive markets in bordering states.”

The biggest factor, though, is basic economics: supply and demand. "Strong demand relative to supply has contributed to significant increases in the median price," the Association noted in its 2003 report. Translation: We have too few decent homes in Rhode Island with too much money chasing them. Net result: House prices go ballistic. (For current median home price in RI, click here.)

It’s a problem that was 25 years in the making. Between 1980 and 2005, house prices in Rhode Island rose 446 percent, the third steepest rise in the nation, only surpassed by Massachusetts (591 percent) and New York (473 percent), outstripping California’s legendary rise (426 percent).

"This is great news for people who already own their homes," a planning study of Rhode Island’s housing market concluded in 2004, "but for everybody else it means that homeownership is moving out of reach. In short, a market that was already unaffordable to many at the beginning of the decade is now unaffordable to most."

House Construction Stuck in Slow Gear
Build your way out of a housing crisis, experts recommend. Having more units for sale cools an overheated market. But that’s the other part of the Build your way out of a housing crisis, experts recommend. Having more units for sale cools an overheated market. But that’s the other part of the problem: Rhode Island’s housing production has fallen dramatically.

In 1986, a peak year, developers built 7,274 privately-owned units (houses and condominiums) in Rhode Island. In 2005, building of privately-owned units had fallen to just 2,836 units, according to the U.S. Census. Rhode Island’s per capita construction rate is already among the very lowest in America and shows no sign of improving. On the contrary: the number of new single-family units built in 2004 (1,808) was the lowest in two decades.

Many things contribute to Rhode Island’s construction slow down:

The high cost of land purchases here (the cost of land in Rhode Island is now 45 percent of the total new house price vs. 34 percent nationally).
Outdated zoning that prohibits better use of available land.
A glacial permitting process.

Lack of Workforce Housing Stunts Economic Growth, Experts Say
Rhode Island’s vast shortage of decent, affordable housing affects all our low- and moderate-income workers, and increasingly our middle-class.

But will a lack of affordable housing hurt Rhode Island’s long-term economic prospects?

The state’s major banks think so. Seven bank presidents and CEOs signed an open letter in the Providence Journal announcing on June 14, 2005 their decision to join the HousingWorks RI movement.

The letter stated unequivocally: "We’re bankers. We’re taught to think in numbers, percentages, returns on investment. And we say this: Rhode Island’s skyrocketing housing costs are adding to a negative bottom-line effect on our state’s ability to grow, create jobs and attract new businesses."

The reason is simple: you can’t have a workforce if you can’t house a workforce.

"For the 10,000 households we added from 2001 to 2003, we only built 7,800 new homes," the bankers emphasized. "Rhode Island is in crisis, one that threatens the vitality of our economy."

"The link between economic growth and housing is not a new concept in Rhode Island," Brenda Clement, executive director of the Housing Network of Rhode Island, points out. "Mill owners understood that." They built whole villages for their workers. Many Rhode Island towns grew up around mill villages and neighborhoods. Mill owners made the connection between decent workforce housing and prosperity. Those mills also helped launch a strong middle class, hallmark of a thriving local economy.

Housing: Because Prosperity Matters to Everyone
Last time we solved the workforce-housing problem, Rhode Island became for fifty years among the wealthiest places on earth.

"The half century following the Civil War was the halcyon era of Rhode Island," wrote historian William G. McLoughlin. "In those years, the system worked....Never before had Rhode Island as a whole been so prosperous, so attractive a place to live and to invest in."

We can do it again. We know how. We could use your help.

Join your voice with others as a concerned member of HousingWorks RI by clicking here.

Sources: www.riliving.com, the official site of the Rhode Island Association of Realtors® and State-Wide Multiple Listing Service, Rhode Island Association of Realtors; U.S. Census; Grow Smart Rhode Island, October 2004 Briefing Book: “A Strategy for Saving Rhode Island from Sprawl and Urban Decay”; Fleet/RIPEC Report, released March 2004: “The Economic Impact of the Housing Crisis on Businesses in Rhode Island”; WNDC/Housing Network study, released 2004: “Affordable Housing for Rhode Island: Goals for Cities, Towns and Regions”; Rhode Island: A History, by William G. McLoughlin, 1986, Norton.