Stuart Allison: Affordable housing has a down side for Galesburg homeowners

Stuart Allison

In April The Register-Mail published several interesting stories about the affordability of housing in Galesburg. On April 11, Jay Redfern reported that Galesburg is one of the most affordable cities in the United States (ranked number 4,187 out of 4,276 cities, with number 1 being the most expensive) mostly due to low housing costs. Yet in an April 14 column, Joe Hicks noted that affordable rental housing is difficult to find in Galesburg. If both of those statements are true (and I think they are), then how can we reconcile them? 

As Hicks noted, good rental properties are hard to find in Galesburg and expensive enough that if someone can afford a down payment, it makes more sense to buy a house than to rent an apartment. In a market economy, a good is worth whatever a potential buyer or renter is willing to pay for that good. That is especially true for real estate which is a distinctly local market. My friends and I have often remarked that if our houses were magically relocated to Chicago or Minneapolis they would instantly be worth three or four times what they are worth in Galesburg. Housing prices remain low in Galesburg partially because most citizens of Galesburg simply can’t afford to pay more for them.  

A story published in the Register-Mail on April 8 reported that local restate agents felt the current housing market in town was hot and house prices have been increasing. One realtor felt the sweet spot for home sales in Galesburg is below $150,000 and another thought the sweet spot is between $50,000 and $100,000. The low cost of housing works against people wanting to build new houses or apartments in town.

I did a quick search for average home construction costs in Illinois. The average cost for building a typical two story house is about $125 to $130 per square foot, with a ranch house costing considerably more per square foot. I’ll assume that construction costs in Galesburg are on the low end, in which case building a 1,000 square foot two-story house should cost about $125,000. But most people want larger houses than that — a 1500 square foot house would cost $187,500 and a 2,000 square foot house would cost $250,000. Ranch houses, which the realtors said are more desirable in Galesburg, would have higher costs. Given the construction costs and the sweet spot for sales, it is easy to see why there isn’t much new home construction in Galesburg — there isn’t a market for it. Thus a lot of our housing stock is older and often in need of updating, which people include in their calculations of what they are willing to pay for a house. 

While the initial low cost of housing is good for local home buyers, in the long run that low cost is not an unalloyed good. My wife and I bought our house 25 years ago for a price in that “sweet spot” between $50,000 and 100,000. We have made many improvements to the house over the years — finishing the attic to create an additional bedroom/play room, updating the kitchen and bathrooms, putting on a new roof, installing new windows and insulation, replacing the furnace and central air conditioning. Those improvements add up to about a third of our initial investment in the house. Based on the local market we can probably sell the house for about one-third more than our purchase price. Thus we would just about break even on our investment in the house — although I have not included the interest payments on our mortgage in my calculations. 

My friends who live in other parts of the country who bought houses at about the same time, have seen their homes triple, quadruple, or even quintuple in value in that same time period. For most Americans the most valuable investment they own is their house and in many parts of the country investments in a home result in considerable increases in a family’s net worth. That isn’t true in Galesburg. This prevents us from enjoying the kinds of financial rewards home ownership provides elsewhere. It is also a problem if you move somewhere where housing prices are much higher. It is hard to get into those markets. 

Yes, it is nice that housing is mostly affordable in Galesburg. But in other areas our costs are the same as the rest of the country — taxes, health care, automobiles, utilities and phone service. More employment in town would create more demand for housing which would probably lead to an increase in the value of houses. How to add more people to Galesburg without making it too expensive for many residents is a huge problem that I don’t know how to answer. 

Stuart Allison is the Watson Bartlett Professor of Biology and Conservation at Knox College.

via Galesburg Register Mail

May 9, 2022 at 07:54PM

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