So-called "affordable housing" is a bad deal for all, and particularly for those who buy it.

Assume an "affordable house" in Condotino for $500,000. The buyer puts down $50,000 and takes a 30-year $450,000 mortgage at current rates. Monthly payments are $2,850, taxes $700, insurance $100, totaling $3,650 minimum. At the end of 10 years the buyer has paid $267,000 in interest and has $66,000 in equity because the buyer cannot participate in the market-based housing appreciation.

After 30 years the buyer has paid $574,000 in interest and gets $500,000 in equity when the property is sold back to the housing authority. Because of inflation even at 3 percent, the $500,000 equity has lost more than half of its purchasing power. They lose big money.

Now assume a person rents a home for $2,500 a month and invests the $50,000 plus the $1,150 of avoided taxes and insurance at 7 percent per annum--the stock market average for decades. After 10 years they have paid $300,000 in rent, and their investments are worth $299,000. After 30 years the renter has paid $900,000 in rent, and their investments are worth $1.81 million. The renter has $409,000 more in their pocket than the buyer of "affordable housing."

Those who buy "affordable housing" are being told by city officials and developers that they are getting a good deal when, in fact, they are being duped because they cannot participate in market-based appreciation. The fact that teachers, police officers and fire officials, as a group, own more market-based homes in Silicon Valley than any other group (Mercury News, Feb. 2, 2004) is testimony to the fact that they have the intelligence to recognize that "affordable housing" is a bad deal that only enriches developers who use it as a rotten carrot to induce city councils and social engineering advocates to support them. "Affordable housing" advocates should tell the truth rather than resorting to subjective platitudes, name-calling and innuendo.

Robert Garten
Cupertino Courier
Letters
Wednesday, April 5, 2006