Housing Affordability Threshold…….let me try to explain one more time

While on a conference telephone conversation last night, the moderator did not think that the “Housing Affordability Threshold” was an important concept to consider when explaining what the increasing real estate taxes are doing to seniors living on fixed incomes, and, in reality, what they are doing to all homeowners and renters.  Since this individual had heard me explain this concept several times, I concluded that I have not done a good job in explaining what HAT means.  Let me try again.

While researching the Center for Community Solutions website, I became aware of the concept of the “Housing Affordability Threshold”.  It is a concept that has been around awhile, and many politicians that I have spoken to have knowledge of the concept.  If a homeowner’s mortgage, utilities, and real estate taxes are 30% or greater than their annual income, then that house is deemed unaffordable for them.  That does not mean that they have to move, but it does mean that they will have less disposable income for other necessities of life.

Here is how to calculate your HAT %:
Homeowners:    Add your monthly mortgage, monthly utility payments, and your monthly property taxes and multiply by 12 to get the annual amount.  Divide that annual amount by your annual income and that will give you your HAT %.   Here is an example:
Monthly                 Annually (Monthly x 12)

Mortgage                           $1,000.00             $12,000.00
Utility Costs                      $    300.00              $  3,600.00
Real Estate Taxes            $    500.00              $  6,000.00
Totals                                   $1,800.00              $21,600.00

If the household has two wage earners that earn $50,000.00 each, then their total annual income would be $100,000.00 ($50,000 x 2).

Their “Housing Affordability Threshold % (HAT %) would be 21.6%  [$21,600.00 / $100,000.00]

Those that rent would follow  the same procedures, but they would only add their utilities and their rent payment together.

Why is this important?

As with any additional household expenses, the homeowner or renter must have income or tap into their savings to cover those expenses.  However, when considering their HAT % the homeowner, in order to maintain their current HAT %, must have additional income more than the “out of pocket” cost of the expense.

Using the above example of a 21.6% HAT:   If any of the three factors (Mortgage, Utility, Real Estate Taxes) increase by $100.00  a month, in order to maintain the current 21.6% HAT, the homeowners annual income must increase by $5,555.55.  [$100.00 x 12 = $1,200.00 /21.6% = $5,555.55]

Let’s see what happens to the HAT % if there is no additional income, but the homeowner just realized a $100.00 per month increase in their real estate taxes  Using our prior numbers:

Monthly                 Annually (Monthly x 12)

Mortgage                           $1,000.00             $12,000.00
Utility Costs                      $    300.00              $  3,600.00
Real Estate Taxes            $    600.00              $  7,200.00
Totals                                   $1,900.00              $22,800.00

If their annual household income remains at $100,000.00 per year, then their HAT % is now 22.8%.   [$22,800.00 / $100,000.00]

This is one of the deceptions perpetrated on unwitting taxpayers when a school levy is sold on the idea that it will only cost a homeowner an additional $10.00 per month (or any such amount to get it appear as low as possible).  The $10.00 per month is $120.00 per year and the taxpayer must earn $555.55 additional each year to avoid being pushed closer to the 30% affordability factor.   [($10.00 x 12) / 21.6% (using our example) = $555.66]

When you consider a senior, or anyone else living on a fixed income that is not even keeping up with inflation, you can see why we state without any hesitation:

If we stay on this path of ever increasing real estate taxes, we will price seniors and those living on fixed incomes out of their homes that they have worked all their lives to achieve.  The reality is that this also applies to all homeowners and renters, as they are all pushed closer and closer to the 30% housing unaffordablity threshold.

This is an insidious evil that most aware taxpayers do not understand.  This past weekend I heard an elderly taxpayer complain that her monthly payment to the bank continues to go up, and neither she nor her bank understood why.  It then dawned on me that the taxpayers’ lack of awareness of their property taxes may be due to the fact that they make monthly payments for their real estate taxes to the bank to hold in escrow.  The bank has the money for a period of time for investments purposes, makes the semi-annual payments to the County Treasurer’s office, and taxpayers, for the sake of convenience, are blissfully unaware that they are being priced out of their homes.

We did some research on the HAT for the various counties in the State of Ohio:

Please note that Lake County overall renters are at 28.9%, while overall homeowners average 21.4%.  We will endeavor to determine the HAT % for seniors in Lake County, and will report it to you.

Hopefully, this gives you a clear understanding what the “Housing Affordability Threshold” is all about.  There are two basic necessities in life: food and shelter.  We find that it is a tragedy that unless we do something about the ever increasing real estate taxes, the government and the bureaucrats may be impacting both necessities.





Categories: Real Estate Taxes, Uncategorized

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