My hometown is the City of Homes, and has the highest rate of home ownership of any comparable city in western New England. The average home price is $120,000 (compared to over $270,000 nation-wide) and the city has an amazing stock of high quality, pre-war, historic homes including the famous Victorian McKnight neighborhood. So why does area vibes give Springfield only a C+ in their housing category? Not surprisingly their methodology is flawed.
It starts with the fact that what AreaVibes compares, in terms of analyzing affordability, is median income to median home price. At first blush this seems reasonable as the amount someone can afford to pay for housing is determined to a tremendous degree by income, but it fails to take into account the fact that cities are not closed systems. Just comparing income to price relative to housing, for example, could make even Greenwich seem “affordable” as the expensive homes there are occupied by very wealthy people. What is important to this analysis is being aware of what the true variables are.
In the greater Springfield area, a disproportionate number of the institutions, corporations, and enterprises which pay the highest salaries are located within the city itself along with the federal, state, county, and municipal governments located here which provide a huge number of solidly middle class jobs. It is true that many, perhaps even most, of the people who earn those salaries and occupy those positions have chosen to live outside the boundaries of the city. This creates a huge gap between what is the average salary Springfield jobs pay, and the average income Springfield residents earn.
As it relates to affordability, however, the question is will a person living in or moving to the city be more likely to “conform” to the average income of a city resident, or the average salary paid to people who work in the city? Leaving aside the likelihood that a doctor at Baystate would choose to live in the city, if an M.D. did choose to relocate to Springfield, would it be the average salary or the average income which would impact him or her? The answer is obvious, it would be the salary. And a Baystate Medical Center salary could get you a whole lot of very affordable house in the city. Ditto a job with the FBI, Mass Mutual, Smith and Wesson, Big Y corporate HQ, etc..
The bottom line is given the set of skills an individual brings to the table, over which Springfield has no control, Springfield has some of the best and most affordable homes in the country.
If you have been keeping up with my analysis of the topic of place rating in my blog, then it might not surprise you to read that I believe that there is a regional bias in this methodology as well. Once again, the much larger geographic footprint of cities in the south and west combined with the outmigration of the wealthy to less densely populated areas means that places solidly located in the suburbs and ex-urbs in comparable metro areas in the northeast are still considered to be part of the city proper in those regions making incomes and housing costs appear to be more in balance.
Apart from affordability, AreaVibes uses a 10 year analysis of price appreciation, in which steadily increasing values are considered a positive, and not a negative. This is idiocy. I’m very proud of my 2005 blogpost predicting the collapse of home prices which occurred in 2007, but it wasn’t rocket science. Any increase in value over and above rising wages is unsustainable as people use their wages to pay for housing. This analysis rewards booms, and, yes, punishes busts, but doesn’t sufficiently reward stability which should be, along with actual affordability and quality (see here) the most important characteristics of a good housing market.