Why does housing cost so much, and what can we do?
Chattanooga used to be known as an affordable place to live, but in recent years, housing prices have skyrocketed and income has not kept pace.
By David Pace, Contributor
Prices keep going up
For many years, housing in Chattanooga was affordable — rent felt reasonable and people who made the median income in the area could afford to purchase a median-priced home. But, in the last seven years, the median price of a home in Chattanooga has doubled — from $143,000 in 2015 to over $300,000 in April of this year — and area income has not kept up.
The median price of a home in Chattanooga rose from $143,000 in 2015 to $270,000 in 2021, according to data from the Greater Chattanooga Realtors Association.
Rent is rising rapidly, too — the average 1-bedroom in Chattanooga went from $780 in 2019, to $1,140 earlier this year.
The average cost of a 1-bedroom apartment in Chattanooga has gone from $780/mo in 2019 to $1,140/mo in 2022, according to data from Zumper.com.
People are affected by these increased costs in a number of ways, including:
Prospective first-time home buyers are not able to purchase a home.
People are spending a larger share of their income on housing costs.
People who do not wish to live with roommates or extended family have no other option.
Our homeless population has risen sharply.
People looking to upgrade to a new home are not able to do so.
Costs are up across the country — why?
Housing costs have been rising nationwide, and there are a number of factors at play, but it boils down to high demand and low supply.
Low mortgage rates over the last couple years, as well as lifestyle changes that came with Covid-19, may have contributed to demand.
On the supply side, supply chain issues and labor shortage have made it slow and difficult to build new construction. The inventory of houses for sale has also gone down nationwide as more homes have been purchased by investors rather than people who will live in them.
Are there factors specific to Chattanooga?
While housing supply is a nationwide challenge, there are some factors in Chattanooga and the state of Tennessee that have made the problem worse. Our population has been growing for many years, but has started growing even more quickly in the last couple of years. Many people are moving to Tennessee with remote jobs that have higher salaries than local jobs. The influx in population has driven up demand and costs.
What can we do?
Mortgage rates are rising, which should lessen some of the high demand we have seen recently. But the fact will remain that Chattanooga does not have enough housing supply to meet demand.
There are two things that could help increase supply: building new housing and rehabilitating aging housing.
(Related: There is a parallel discussion happening in our city about whether short-term vacation rentals, like Airbnb, may have a negative impact on our housing supply.)
Mayor Kelly's $100 million proposal
Mayor Tim Kelly recently announced a plan to invest $100 million in affordable housing. The first $33 million will come directly out of the City of Chattanooga’s operating budget, starting July 2022.
The city hopes to raise the remaining $67 million in an impact investment fund. An impact investment is a fund that creates both a financial return, and a social impact. Investors — such as local banks and philanthropic foundations — that normally invest in Wall Street would invest a portion of their capital into local housing. The return on the investment might take longer than conventional investments — and it might not yield as a high of a return as other investments — but it would have a positive impact on the community.
With building costs so high, it is very difficult for builders to make a profit on building units at an affordable rate to consumers. So, the proposed $100 million would go toward subsidizing the construction of affordable housing units, essentially, minimizing the risk for investors. The money would also go toward rehabilitating existing housing.
What counts as "affordable" housing?
The U.S. government’s definition of “affordable housing” is housing (including utilities) that costs 30 percent or less of a household’s income. The City of Chattanooga’s investment will go toward housing that is considered “affordable” to people who make up to 120 percent of the area median income (AMI). AMI varies depending on family size.
Other things that could help
Changes to our zoning codes could also help increase housing supply. Many areas in Chattanooga are zoned only for single-family homes, but city administrators are exploring changes that could lead to more density and increase the housing supply in Chattanooga. Follow Chattamatters for an upcoming dive into zoning code and proposed changes.
How can I get involved?
Fill out this form to stay updated on Mayor Kelly’s $100 million Affordable Housing Initiative. By adding your name, you will receive more information about how to get involved as opportunities arise.
Join the Chattanooga Neighborhood Enterprise’s mailing list to stay informed about any of their upcoming opportunities or events related to affordable housing.
