Housing trends paint troubling picture

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“We’re No. 1” resonates differently when it’s said about housing trends in Minnesota than when it’s shouted at a sporting event.

Yet, that’s exactly where Minnesota ranks among other states for the increasing rate at which homeowners are spending their incomes to put a roof over their heads.

During testimony presented to the House Housing Finance and Policy and Public Health Finance Division Jan. 21, Chip Halbach, executive director of Minnesota Housing Partnership, called the ranking a key indicator of “severe distress.”

“If you’re paying more than half of your gross income for housing you are likely cutting back on other essential family and household expenses, like purchase of food, health care, day care and other things that are critically important to daily life,” Halbach said.

The division took no action.

Currently, one in eight Minnesota households spends more than 50 percent of its income on housing. In 2007, 12.3 percent, or 250,000 Minnesota households spent the majority of their wages on housing. By comparison, 12.7 percent of Wisconsin households and 19.7 percent of Florida households spend 50 percent or more for housing.

Another trend is a widening gap between home prices and income, Halbach said.

Between 2001 and 2007, home prices rose 34 percent while household income among owner occupied homes rose only 12 percent. Likewise, rent and utilities rose 12 percent while tenants, on average, saw only a 4 percent increase in their wages.

Affordability and availability remain top agenda items for housing advocacy groups. Affordable rental properties, calculated at $700 or less per month, began to disappear and the average rent has now increased to more than $900 per month, according to Halbach. Duluth and St. Cloud have the highest rates of rent increases compared to incomes, he added.

“That’s one of the reasons we see much more demand for these super scarce federal rent subsidies,” said Halbach. At one point, there were 14,000 applicants for 30 subsidies.

Some renters are waiting as long as 10 years for Section 8 housing vouchers and fewer recipients are willing or able to relinquish those vouchers, which have no time usage limitations.

Homeless

“No community is improved by having people living under its bridges, and these kinds of barriers can be overcome,” Patrick Wood, policy advocate with the Minnesota Coalition for the Homeless, told the division.

Between 2002 and 2006, there was a downward trend in the number of Minnesotans who were homeless, but today these numbers have risen above 2002 levels. A 2006 Wilder Research study estimated that 9,000 individuals were homeless in Minnesota. The typical risk factors and reasons why someone becomes homeless remain — divorce, job loss and health issue — but ballooning adjustable rate mortgages have forced people out of their homes and contributed to the rise in homelessness, according to Halbach. In St. Paul, foreclosures are estimated to grow from 2,200 in 2008 to 4,000 in 2009.

Foreclosures

During the next 24 months, a second wave of homeowners are at risk of losing their homes when their Alt-A subprime loans reset at higher rates, according to Cecile Bedor, co-chair of the Minnesota Foreclosure Partners Council. More than $500 million in Alt-A loans have been granted throughout Minnesota, with a high concentration inside the 11-county Twin Cities metropolitan area, Bedor said. Some estimate that up to 70 percent of Alt-A borrowers will default on their loans, she said.

Legislators question the statistic, saying the problem stems from deregulation in the mortgage industry and lenders who prey on vulnerable borrowers.

“Lack of regulation and subprime loans, meaning they didn’t have the money,” said Rep. Carolyn Laine (DFL-Columbia Heights). The problem is exacerbated due to a “lack of decency” among lenders, she added.

To fully understand the plight of homeless people in the state, legislators were invited to tag along when staff and volunteers in the “A Day in the Life” program make site visits to homeless people on the street and in transitional housing.

“It is truly an experience that if you haven’t had, and you’re on a committee, that you’re deciding housing decisions for your constituents, then you need to be out there and see what they see and feel what they feel. It will change how you think of this, how you relate to it,” said Melanie Magee, a program volunteer from Prior Lake.

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