May 2003

Planning

Copyright by American Planning Association

Viewpoint: Want Affordable Housing? Reward Transit Use

By Patrick Hare

Mortgage bankers control transportation planning — at least indirectly. They do it in two ways that are so familiar they have become almost invisible. First, there is the bankers' rule that home buyers are not allowed to spend more than 30 percent of their income on house payments.

That rule encourages home buyers to look for housing far in the hinterlands. That's because land economics dictates that the price of land and thus the price of the housing built on it go down the farther out you go.

Second, suburban homeowners, because they must drive everywhere, typically vote "yes" for highway bond issues, and "no" for transit. Also, at suburban densities, roadways get the lion's share of transportation planners' attention.

At first glance, this whole process seems quite innocent. But think again. In addition to the 30 percent of its income spent on housing, a young suburban couple may spend another 25 percent of its income on automobiles and the cost of maintaining them. At that rate, the family would be spending 55 percent of its income on housing and transportation.

In the city or in close-in suburbs, mortgage payments might require 40 to 45 percent of a family's income, too much for the bankers. Yet, even when you add the 10 to 15 percent of income for one car and transit use, or transit and occasional car rental, you come up with the same total as the suburban family.

The problem is the resistance of mortgage bankers to allowing buyers to spend more than 30 percent of their income for housing — no matter what the circumstances. Land economics is not so innocent when it makes it unaffordable to live near affordable transportation.

In fact, using transit or another alternative and owning one car, or combining transit and selective car rental, can save a family $4,000 to $7,000 a year, money that could be used to meet mortgage payments. That should make housing more affordable. But in the artificial reality of current mortgage approval practices, it doesn't have that effect.

A major reason is that mortgage banks don't consider the savings brought about by using public transportation. They also don't take into account that the neighborhoods best served by transit often have higher housing prices. They're higher in part because of the added convenience of living close to jobs, shopping, and the amenities of an urban center.

The old ratio — allowing 30 percent for a family's housing and 20 to 25 percent for cars — works for sprawl. It does not work for good urban neighborhoods. Until World War II, well-maintained, middle-class city neighborhoods were easy to find. But then car ownership became common, and encouraged by the lenders, home buyers used their cars to drive out to where housing looked cheap. As a result, the bottom dropped out of the urban housing market, a situation that is just starting to change today.

A few years ago, Fannie Mae, the federal agency that backs many residential mortgages and seeks to encourage affordability, introduced a new type of loan, called the "location-efficient mortgage." The idea was to allow home buyers to spend more of their income on housing and less on transportation. So far, the program is experimental and operates in only a few cities. It should be made available nationwide.

It's time now to work on the banks to get them to change their current mortgage lending rules, which amount to redlining city neighborhoods that are well served by transit. I hope that APA will consider appointing a blue ribbon panel of land economists and other professionals to kick off a national debate about changing the current mortgage practices.

Patrick Hare is a planning consultant in Cornwall, Connecticut.