Credit, inventory among causes of housing crisis in Tennessee’s smaller communities

BY KATE COIL
TML Communications Specialist

Good housing has long been a part of the American dream, but for many Americans, the dream of decent housing is becoming unattainable.
Tennessee is no exception. A report by ThinkTennessee, a nonpartisan public policy research organization, and the Tennessee Housing and Development Agency ranked Tennessee 34th in the nation for the supply of adequate affordable housing.
The study found that the state’s average median household income is $48,547 yet a prospective homeowner needs to make at least $55,760 a year to afford the average home mortgage in the state. The state doesn’t fare much better when it comes to the gap between wages and renting.
According to the National Low-Income Housing Coalition (NLIHC), a Tennessean making the state’s minimum wage of $7.25 per hour would have to work at least 71 hours a week to afford the average one-bedroom rental in the state.
At present, the average minimum wage worker in the state can only comfortably afford a rent of $377 per month or less. To make the average rent charged in the state – approximately $745 per month – a worker with a 40-hour work week needs to make at least $14.50 per hour, which is double the state minimum wage.
Even rural areas of the state see a disconnect between wages and housing. NLIHC found the average monthly rent in rural Tennessee is $570 per month, meaning that workers must make $10.97 per hour if they work 40-hours a week to afford basic rent and still have money left over for necessities like food, utilities, and transportation to and from work.
Officials across the state of Tennessee are seeing the effect affordable housing issues are having on residents with the need for affordable housing becoming an issue in terms of economic development, health, and financial stability for many communities.

CREDIT CRUNCH
Ken Thorne, director of economic development for the Northwest Tennessee Development District, said many residents in his area would love to buy a home, but past financial decisions keep them from it.
“A lot of times you can buy for cheaper than you can rent, but the catch is you have to have good credit,” he said. “Plus, a lot of landlords run credit checks and will not rent to people who have bad credit. It makes financing an issue for low-income people. It has become a vicious cycle. People can’t build credit because they can’t get a home, but they can’t get a home because of their credit.”
Across the state in Northeast Tennessee, Lindy Turner, executive director of community housing development organization Clinch-Powell Resource Conservation and Development Council, has been working with the organization since 1989 to help deliver affordable housing solutions. The group works to develop affordable housing and provide services to get residents into homes in the region. Her organization often works as a credit counselor to help get prospective homeowners into good financial shape.
“People have made poor financial decisions trying to make good financial decisions,” Turner said. “A lot of low-income families fall prey to predatory lenders like mobile home providers that offer to put you in a home for a dollar and a deed but have all these hidden costs. We also see it a lot with the payday loans and title loans. Then people cannot make payments and interest rates are ridiculous. A lot of these lenders have big signs in their windows that say ‘we built your credit,’ but actually they hurt credit.”
Even with good-paying jobs coming to the area, Thorne said housing is still out of the reach for some.
“We have a community with a situation that is about to get a humongous plant, but there isn’t enough housing for the workers who are going to be moving in to the area,” he said. “There is a particular need for low-income housing and rental places. A lot of times, we see builders selling houses to lower-income people that they really can’t afford. They are in over their head.”

LACK OF INVENTORY
With many newer built homes out of the price range of those who need housing, residents often turn to older housing stock that needs repairs. Most communities have also found their rental stock – the few homes available to those whose financial history prohibits them from getting a mortgage – are usually in older and sometimes unmaintained neighborhoods.
“A lot of homeownership rates in our area are exceedingly high, but they aren’t necessarily new purchases,” Turner said. “We see a lot of situations where grandma and grandpa own a house and then they put a trailer on the same property for their kids and another one for the grandkids. They may have separate septic or electrical hookups or they may be running extension cords.”
Nancy Burnette, executive director of Maryville Housing Authority, deals with Section 8 residents in the city. She said the makeup of her program is about 70 percent elderly and disabled residents while the remainder are working families, often with parents working multiple jobs to support children and other relatives.
“We assumed that paying utilities on top of rental costs is a struggle for many of those families, so we got college students to do a survey,” she said. “To our surprise, their main issue wasn’t coming up with the money, but rather just finding affordable housing. That seems to be the main issue: just finding housing. There isn’t enough housing in any size, price range, or makeup when our families search for rental housing. They often have to take whatever they can find, whether or not it’s close to work or schools.”
One of the reasons for a lack of housing stock in many communities is that construction costs have risen, making it hard for developers to make a profit.
Turner said Clinch-Powell used to be in the business of building new homes on vacant lots, but the rise of construction costs ended that program.
“We are a developer, and we just develop for low-income houses,” she said. “The cost to build a new house is so high that it is hard to make a profit. It is hard for us to just cover our costs. We stopped building new houses about 10 years ago because the houses couldn’t appraise for as much as they cost to build. You can’t stay in business that way.”
Some look to mobile homes as a solution, but Turner said these residences have the opposite effect on credit and wealth.
“For most people, your home is your ticket to building wealth; it’s one of the few things that typically appreciates in value,” she said. “Unless they are a permanent foundation, mobile homes depreciate just like a car. Even mobile homes on a permanent foundation don’t appreciate in value. It is hard to resell them, and they don’t stay in good repair. It is very expensive to do any type of home repair because nothing in a mobile home is a standard size. You always have to make a special order. When you consider the cost of the land, all of the development that needs to go on a land, and other associated costs you can build a stick house for relatively the same amount as purchasing a mobile home.”

BEYOND BUYING POWER
However, just building new homes isn’t a viable solution to housing issues. A 2018 report for the Federal Reserve titled “Can More Housing Supply Solve the Affordability Crisis?” found that the mere addition of new housing will not mitigate the “affordability crisis” currently experienced by the American housing market.
“The share of households spending greater than 30 percent of their income on housing is near an all-time high,” the study found. “The increasing expenditure share on housing does not appear to be driven by households consuming housing units of higher physical quality, or by rising construction costs. Rather, quality-adjusted prices are increasing even as the cost of producing a home has stayed more or less the same. These facts have prompted many to suggest that constraints on the supply of housing, such as labor shortages, are at the heart of the affordability crisis.”
While renters have the heavier burden of housing costs than owners, the study found that the fact renters are paying such high housing costs combined with outstanding debt like student and vehicle loans are among the reasons why renters can’t save enough money to become homeowners.
The Federal Reserve study also found that balancing costs like childcare and transportation ranging from public transportation to gas and vehicle maintenance can make housing that looks “affordable” on the surface more costly for homeowners and renters. A house that is seemingly cheaper to rent or own might actually cost more because the homeowner or renter is spending more money getting to and from work and destinations like the grocery store.
The fact that wages have remained stagnant while costs for rent, food, and transportation have gone up mean that consumers have less money to spend on the essentials. Developers are also passing on more construction costs to tenants and buyers than ever before as well. The study inevitably determined that improving amenities, like public transportation, was more cost-effective than just adding new housing stock.
Pamela Caskie, director of development with the Sevierville Development and Planning Department, said health care is an issue that keeps many of the residents in the area’s service-based economy from being able to save money toward housing.
“Our average residents’ wage is 60 percent to 80 percent of the median income or below. You can start with no experience here making $10 an hour, but on the other hand, you can work for 30 years and never make more than $14 an hour in our service-based businesses,” she said. “In order to buy a house you have to put 5 to 20 percent down on the purchase. People who work in our service economy have a really hard time saving any money. Most of them don’t have health care offered to them or they can’t afford the health care that is offered to them. They tend to get their hours cut during low season. If you get some money put away, it always seems like your hours get cut or you have an unexpected health emergency that destroys that nest egg and you’re right back at square one.”
Other issues like childcare and transport can also eat into a housing budget. To address housing issues, Caskie said city officials need to look at more than just housing stock in their communities.
“Housing is a three-legged stool,” Caskie said. “You can fight one problem, but until you solve all three problems you aren’t going to have a solution that has any longevity. The first leg of that stool is housing – you have to have somewhere to put people. The second problem is transportation. You have to have a reliable, affordable way to get them to their jobs. And third, you have to have a consistently available, reasonably affordable, safe place for daycare. Any one of those problems falls off the stool and the stool drops over for both the person and the community in general.”