Rent-to-wage gap makes affordable rentals scarce in Washington County
Rent in Washington County costs too much, and the problem is only expected to get worse, according to a recent study by Minneapolis-based Maxfield Research.
The study, available at wchra.com, shows the county’s median contract rent costs $1,045 per month. That’s the highest in the metro area — 22 percent higher than the Twin Cities’ median price of $858.
On top of high prices, the study found that low wages mean many who work in Washington County have trouble affording housing here.
“Washington County residents are among the highest earners in the metro area, but those who work in the county are the lowest earners,” Maxfield Research President Mary Bujold said in a written statement.
The average wage in the county is $39,800, the study says, and in 2012, the average worker in Washington County would have needed to make 40 percent more to match the metro-wide average wage. According to the study, that’s likely part of the reason that about 77 percent of those who work in the county live elsewhere.
Numbers like these raise concerns for the Washington County Housing and Redevelopment Authority (HRA), which authorized this study, as well as similar studies in 2000 and 2007.
“A huge component for vibrant, thriving communities is making sure that people can afford housing in the places they work,” HRA Executive Director Barbara Dacy said in a written statement. “A lack of affordable housing makes it hard to recruit and retain skilled workers.”
When the HRA talks about “affordable” housing, it means housing (including utilities) that costs no more than 30 percent of the occupants’ income.
“Individuals and families with housing costs over 30 percent have to cut corners on other necessities, including food, insurance, day care costs, and transportation, which causes greater instability,” Dacy explained.
“Housing stability is crucial if we’re going to provide opportunities for people to grow up, raise their own families and ultimately retire here,” HRA Commissioner Tom Triplett said in a written statement.
Right now, nearly 50 percent of renter households in the county pay more than 30 percent of their income toward housing, the study shows.
Dacy said one cause of the problem is that the county is a desirable place to live.
“People who earn higher incomes in places like Ramsey and Hennepin County choose to live in Washington County,” she said. “That’s great, but it drives up prices for land and housing, places growing burdens on our infrastructure and starts to crowd those with incomes that are more modest out of the market.”
With the county’s average monthly rent of $1,105 being out of the reach of households making less than $44,200 a year, Dacy said, people service sector jobs are “extremely vulnerable.”
“But increasingly, starting incomes for jobs like teachers, social workers and firefighters aren’t enough either,” she said.
Projected to get worse
If nothing changes, the Maxfield report projects the problem will only get worse.
The study also projects that demand for affordable rental housing in the area will be more than four times greater than the rate at which those units have been built in the past.
By 2020, Dacy said, there will be demand for about 3,800 new rental units in the county, and about half will need to be affordable housing, rather than market rate. Historically, an average of only 76 affordable units have been built each year since 1970.
“Not only are rents here the highest in the metro area, but rents are also growing faster than in other communities,” Dacy said. “Vacancy rates for affordable units are also remarkably low — for every 200 units, about 199 of them are filled. In short, we have high demand and almost no available supply.”
Although the entire county will be affected by growing demand, some areas will be hit harder than others.
“The problem is widespread, but it is more pronounced in urbanized areas like Stillwater and Woodbury that have higher concentrations of rental units,” Dacy said.
No surprise to developers
Developer John Duffy, president of Minnetonka-based Duffy Development Company, said the study’s results came as no surprise. Duffy Development owns three affordable housing projects in Woodbury, where he said there’s essentially never a vacancy.
“We’ve been kind of tracking this all through Minnesota, and primarily the metro area,” he said. “In the metro area, median incomes are actually lower than they were five years ago — a little bit, not much — but the cost of constructing housing and running housing developments has gone up significantly … Washington County’s having a little bit more trouble than most of the counties because the income versus cost of production gap in Washington County is greater.”
According to Duffy, some market-rate housing is being built in Washington County, and that will serve part of the need.
But even though he called the need for new affordable housing projects “almost infinite,” construction on such projects is at a standstill.
“If you look at the median incomes … there’s just nothing being built for them,” he said. “The numbers just work better for market-rate housing.”
There is more profit margin for market-rate developments, and rents can go up as costs and demand increase.
With subsidized housing, rents are capped.
“That’s why most developers won’t do it,” he said.
Duffy described affordable housing as a “low risk, very low reward” business.
“You’re not going to make much money on it,” he said. “On the other hand, you are going to be 100 percent full.”
Nevertheless, Duffy Development does seek to provide some affordable housing, because it has the ability to do so.
“We have made a lot of money on other areas, so we feel we can put something back into the community,” Duffy said.
But it still has to be a business decision that makes economic sense. Duffy said his company is continuing to look for ways to make affordable housing work. That’s why he was one of dozens of developers to attend a Washington County HRA forum on the subject in January.
The HRA sponsored a forum for developers in January to explore how to address the expected shortage of affordable housing.
Through the forum and subsequent meetings, the HRA is trying to bring together government, private and nonprofit groups to create affordable housing projects.
“This isn’t a problem that government can fix on its own,” Dacy said. “But the data show that without grants, loans and financing assistance to create and maintain affordable housing, developers choose to focus on other projects.”
The HRA helps developers find financial assistance so that affordable housing projects make economic sense. Funds for such projects may come from a variety of sources, including county, state and federal programs, as well as nonprofit partners.
The solutions aren’t simple.
Duffy said he came away from the January forum feeling that there are a lot of people trying to solve the same complex problem.
“They’re all working really well together,” he said. “It’s just there’s no simple solution. … We haven’t found the magic bullet. The solution is always many, many parts.”