In a New York Times article this week, it was suggested that borrowers of modest means should be considering commuting costs in determining if they can afford to buy a home. This is because lenders do not take commuting costs into account, and some borrowers are finding out too late that their budgets are strained in getting to work and back.
A study published in October by the Center for Housing Policy and the Center for Neighborhood Technology looked at transportation and housing costs in the 25 largest metropolitan areas. The study found that transportation costs rose faster than income in every one of these areas over the last decade. The study reported that transportation consumes 30% of a moderate earner’s income, and added to housing costs, the total is around 72%.
An interesting side note of this survey is that some areas generally considered more affordable than New York became less so when transportation costs were added into the budget and affordability calculation. One example cited compared Houston to New York. Houston is much more sprawling, and transportation consumes 32% of the moderate income earner’s budget there as compared to 22% in New York.
Lenders are still not using the commuting distance to work in qualifying a borrower, though they have at times considered a long distance to work as a clue to check to be sure the borrower actually planned to live in the home.
Related: Mixed-use Property Developers Thrown a Bone
A recent FHA rule change was aimed at supporting mixed-use properties, with condominiums getting more serious consideration. Enacted in September, the rule change opens the door to government insured mortgages for condos in mixed-use buildings with commercial footprints of up to 35%. This is up considerably from the previous 25% limit. There are also provisions for exceptions granted for up to 50% commercial.
This opens up low FHA down payments, as low as 3.5%, for condominiums in these mixed-use projects. As related to commuting to work, these are in urban areas, many times converted industrial or warehouse structures. Commuting can be a short walk or bus ride, or even just walking downstairs to your office or retail job.
Real estate investors may want to put some emphasis on proximity of homes to jobs in future property evaluations, as it could make a big difference when it’s time to sell as well.
It is not just the financial costs to commute but also the time involved to get to an back from work. Imagine a commuter who spends one hour to get to work. It will cost that employee 10 hours a week just in transportation time. That is time that he/she is not earning wages nor are they spending it in personal pursuits. It is just time wasted. Those costs should be calculated as well.