SAVI Reports - Page 21

even the same individuals may value these things differently over time. Prospective homebuyers weigh this bundle against the cost of housing; and when there are multiple locations that meet their preferences for their bundle equally, they will generally purchase the most affordable property that meets their needs. As a result, people of greater means may purchase housing that meets their needs but that costs less than 30 percent of their income. Many homebuyers naturally seek to maximize the value of their housing through purchasing the most affordable housing that meets their needs. The impact of this rational choice on lower-income buyers when applied to the overall housing market, however, can be profound. Every higher income household that purchases a home meeting their needs for less than 30 percent of their annual income prevents a household of lesser means from accessing that house, which would otherwise be affordable to them. As an example, a household earning $75,000 annually—applying the 30 percent rule of thumb—could afford a home that costs $1,875 in monthly costs (30 percent of $75,000, divided by 12). If they can meet their needs for $1,250 per month and decide to purchase a home at that price, they have effectively denied that unit from every other family to whom it would have also been affordable (anyone earning more than roughly $50,000). Households to whom that unit has been denied will also make choices to maximize value and likewise deny units to those of lesser means than themselves. This results in a crunch at the bottom of the income stratification in which not enough housing units are available to those individuals because a number of families of means are “underconsuming” housing. The reality of value maximization can be explored through looking at cost-burden by income cohort (Figure 10). Households in Marion County earning more than $50,000 are substantially less likely to be cost-burdened than those Figure 10. Cost-burden for Households with a Mortgage, by Income Cohort 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% < $20,000 $20,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 Spend less than 30 percent > $75,000 Spend more than 30 percent Source: American Community Survey, 5-year estimates (2009-2014), Table B25101 17