Housing costs busting family budgets
Renters, homeowners both digging deeper
By John McCormick and Antonio Olivo, Tribune staff reporters. Tribune staff reporter Darnell Little contributed to this report
Published October 3, 2006
Maria Elena Salvedra and her husband bought their first home, a two-flat in the Pilsen neighborhood, in 2001. The next year, as they scrambled to keep up with payments, they moved into the cramped basement so they could rent out both the first and second floors.
They are among a growing number of Chicago-area residents who spend more than a third of their gross income on housing, crossing a traditional threshold of affordability, according to a new U.S. Census Bureau report for release Tuesday.
The portion of homeowners in the six-county area spending more than 35 percent of their household income on housing costs jumped from 17 percent in 2000 to 28 percent in 2005, the survey shows.
Renters also stretched--the percent spending more than a third of their monthly gross income jumped from 29 percent in 2000 to 40 percent in 2005.
Reasons range from rising interest rates to increasing taxes to ambitious buying during the superheated real estate market prior to 2005, which sent home prices soaring.
Beyond the toll on those who struggle to pay for a home, experts say the affordable-housing crunch means extra stress on schools and other infrastructure, especially as more families double and triple up inside homes to make their monthly payments.
"The long-range solution is to make more rental and affordable housing available in metropolitan Chicago, and that's just not happening," said Frank Beal, executive director of Chicago Metropolis 2020.
Though advocates praise numerous efforts by local governments, they say at the rate that demand is growing, it would take an enormous new commitment to keep up with the need.
Metropolis 2020, a business-backed planning group, has predicted a severe affordable-housing shortage will form in the next two decades, which, in turn, could add to more road congestion as people seeking cheaper homes move to far-flung areas away from jobs.
The increase in housing costs has been especially acute in Chicago, where new residential development has driven up the valuations of all homes, as well as rents, the census figures show.
Chicago ranked 2nd to Detroit among major cities that have seen a spike in median monthly housing costs for people with mortgages, just ahead of San Francisco.
Between 2000 and 2005, Chicago's median monthly housing cost rose 22 percent (adjusted for inflation) to $1,678, according to the census report.
Nationally, that median grew by just 5 percent during the period. The figure includes mortgages or similar payments, as well as real estate taxes, insurance and utilities.
Meanwhile, the proportion of homeowners in the city who spent at least 35 percent of their gross income on housing jumped from one-in-five in 2000 to one-in-three in 2005.
For Salvedra and her husband, Ruben Beltran, a soaring property tax bill--included in their mortgage payment as part of an escrow agreement--drove housing costs beyond 60 percent of their monthly income.
"We are thinking of getting rid of the house and renting somewhere else," said Salvedra, who says rising property taxes have boosted her mortgage payments from $1,700 to $2,600 during the last decade. "We can't do this any longer."
Janet Smith, a University of Illinois at Chicago demographer, said more people have been signing on to mortgage loans they can't really afford.
"There are people who are paying four or five times their [annual] income," for a home, Smith said. Alternative loan packages, such as interest-only loans, allowed people to qualify for much-more-expensive homes than traditional guidelines would have, she said.
Some economists fear default rates on home loans could skyrocket. While most of the 100 biggest metro markets documented falling foreclosure activity in the second quarter of 2006, the Chicago area was a notable exception, with foreclosures up 60 percent from the previous quarter, according to a report in August by RealtyTrac, an Internet real estate site.
Even as the real estate market cools, housing costs continue to climb for homeowners with adjustable-rate mortgages.
With historically low interest rates in recent years that are only now rebounding to normal levels, "the message was you should buy now and go as high as you can to take advantage of this low-low rate," said Kermit Wies, a senior researcher at the Chicago Metropolitan Agency for Planning.
That was the case for Shirley McLaurine. After she bought her Englewood two-flat in 2002, McLaurine said "an unscrupulous broker" convinced her that an adjustable-rate mortgage would lower her monthly bill of $1,218, which she said was a large portion of her income.
McLaurine refinanced and has since seen her mortgage payments increase by another $100 per month.
"I'm on a wing and a prayer at the moment," McLaurine said.
As low interest rates converted many renters to owners, the percent of owner-occupied housing units in Chicago grew from 43.8 percent in 2000 to 48.5 percent in 2005. Census officials said the median home value in the nation's third-largest city shot up from $163,575 to $245,000.
Median monthly rent in Chicago was $783 in 2005, up 12 percent in inflation-adjusted dollars since 2000.
The census report also highlights the mobility of modern society. In each area county, roughly half of all residents moved into their home in 2000 or later.
They are following job growth, especially in the suburbs. But affordable housing is not keeping up with the need.
"The housing stock is not accommodating the growth," said Robin Snyderman, housing director for the Metropolitan Planning Council. "It takes years to build affordable housing, and by then the original challenge has just escalated."
Sandy DeLeon said the battle among renters for an affordable home can be brutal.
Spending $100 more per month in rent than she receives in federal disability payments, DeLeon said she's forced to seek odd jobs to keep herself and her son Jason, 7, in their $700-per-month Austin apartment.
"I've looked and looked and I can't find anything that's decent and reasonable," said DeLeon, 27.
She said she was among about 500 people who stood in line for more than 16 hours in 2004 for new low-income apartments in Humboldt Park.
"People were fighting for space in line," she said. "I was standing there with a knife [for protection]. It was crazy. People are desperate."
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