Housing Measures

The new Measures of Growth study from the Maine Economic Growth Council reports that median home prices are rising faster than income in Maine, which means, apparently, all that marketing of the state is paying off as more retirees buy homes here and, in some places anyway, those who moved away are moving back. So that’s a good thing, right?

No, that’s a red flag according to Measures of Growth because, “In many places, high housing costs are forcing people to commute long distances because they can’t afford to live in the same communities in which they work.” The ratio of median housing price to income stood at 2.9 in 2000 and was estimated to be 4.7 in 2004. The national average is about 4.2.

Measures of Growth sets a goal for each indicator in its study, and for housing the goal was that the ratio would fall each year between 2000 and 2005, a goal it will not attain – except perhaps in a few areas. Those areas would be places where the jobs have dried up, mills closed or been greatly downsized and a homeowner would have trouble selling a house for more than an average year’s income – that would be a ratio of 1.

Measures of Growth, of course, doesn’t want the whole state to fall into this condition, but it is one way to reach a simplistic goal of a lowered burden for housing. Maine, significantly, already has one of the highest rates of homeownership in the country. Conversely, places with lower homeownership rates and quickly rising income-to-housing ratios are likely experiencing population and economic growth, vitality and new opportunities. It’s true, that more people in these places have to commute to work – a problem, but not Maine’s biggest problem.

Rising home prices provide equity, giving consumers cash to invest or spend. Economy.com estimates that housing appreciation accounted for a quarter of economic growth nationally over the last four years. (A fear among some economists is that the real-estate bubble will burst and a fair part of the economy will pop with it.) Even assuming that Maine incomes putter along toward the national average, the only way for Maine to meet the Measures of Growth goal for housing is for the market to collapse. Does anyone want that?

Certainly, targeted affordable housing to solve specific shortages make sense. But just as Maine shouldn’t subsidize an exodus of residents leaving a less vibrant part of the state for more expensive regions, it shouldn’t be surprised that one of the natural results of trying to attract people to live here, even seasonally, raises home prices.