Henderson County Building Permits

This analysis of Henderson homebuilding seeks to answer four questions: (1) why aren’t more new houses being built in Henderson? (2) what about the existing home market? (3) why is home ownership declining? and (4) what can Henderson do about it?

Why aren’t more new houses being built in Henderson?

The short answer is lack of effective demand. Demand for a product is not enough- that demand must be backed up with the purchasing power to afford and purchase that product and that purchasing power is lacking in Henderson.

A new 1,600 square foot average quality home with a garage, porches, patio, etc. will cost roughly $110 per square foot or $176,000 to build. Add in the lot and you are talking about say $200,000 to purchase a new house. If one takes out a 95% loan-to-value loan the mortgage payment would be $1,302.89. (25 year loan at 4% with $300 per month for insurance and property taxes collected each month as a part of the payment). Prudent lending practices dictate that the borrower should not spend more than 25% of his/her pre-tax income on a mortgage payment. Dividing $1,302.89 by 40 hours gives a needed wage of $32.57 per hour to qualify for a mortgage on this hypothetical new house.

Realistically the bulk of jobs that Kyndle is bringing to our community do not pay $32.57 per hour. So now we know why builders and developers are not in a rush to build new homes – they have sensed the lack of effective demand.

In fact, the average weekly wage in Henderson County in 2015 was $737.65 (Department of Employment Insurance, Year End 2015 Unemployment Insurance Report) or $18.41 per hour. The average worker would either have to buy a less expensive home or the household would have to have 2 full time incomes to afford a new house. Do both spouses want to work that hard, especially a younger couple, starting a family? Do both want be away from their younger children and have them raised in day care? I am guessing not for many young couples.

Hence if we are not attracting industries that pay enough for workers to buy a new home, the bulk of demand for new homes has to come from those in our community moving up from their existing home. However when wage rate growth is flat, there is little “moving up” going on. The market for new homes then is basically dependent upon those people being promoted to better, higher paying jobs who are wanting to move up into a bigger and newer home. However those “move up” people must be able to sell their existing homes at a price they think reasonable or they will stay where they are. This leads us to the second part of the analysis.

What about the existing home market?

Two factors are at work here – the wage factor and the declining ownership rate factor. The same wage realities mentioned earlier, apply in this market. The average sold price house in Henderson was $134,000. Purchased using a 95% loan-to-value mortgage, the buyer would be left with a monthly payment of $889.49. (4%, 25 year mortgage with $200 per month also collected for property taxes and insurance). Dividing that debt service by a 40 hour work week means that to afford a median sold house in the Henderson market, a person would have to be in a job paying at least $22.24 per hour, which is 20% higher than the average weekly wage in Henderson county.

So again we are facing the same reality – for the average worker to afford the average sold home in Henderson, both spouses must work. But there is another factor that is strongly influencing this market.

Why is home ownership declining?

Twenty years ago home ownership rates were much higher than they are now as shown in the following graph. The overall rate of home ownership has declined over the last 15 years for all groups. For those under 44 it had dropped some 10 percentage points. Some 38.3% of the Henderson county population or 17,900 people are between the ages of 25-44, meaning this declining percentage of 10 percentage points of home ownership has decreased the homeownership market in Henderson by some 900 people. (Based upon Esri demographic report showing a 52.9% marriage rates.)

Home Ownership Rates

The 18-34 age group is in a double whammy – poor income prospects and student debt. As reported in The Washington Post , when compared to prior generations the 18-34 age group is making less money, more likely to be underemployed, and their wage growth prospects are poorer. Additionally in 2014, 64% of the students graduating from Kentucky colleges and universities had an average student debt of $25,939 according to the The Institute for College Access and Success.

In fact nationwide some one third of the population the 18-34 age group lives with their parents. They took the advice of their elders and those with degrees in many areas, yet graduated to find diminished income prospects and a debt burden, both of which keep them from buying a house. According to that same Washington Post article, “Among people ages 25 to 34 who rent, 93 percent say they are likely to buy a home someday, according to Fannie Mae’s National Housing Survey. That compares with just 81 percent of renters overall.” They do want their own place; they just cannot afford it.

What can Henderson do about the problem?

It all boils down to purchasing power. The demand for housing will pick up and new houses will begin to be developed only when developers sense that the working population of Henderson has increased purchasing power to purchase those houses. Henderson can certainly focus our economic development efforts on attracting higher wage industries and we can refrain from promoting policies that will only attract lower paying industries. Focused training and education in fields where the demand for higher paying jobs is known (and not just for the sake of increasing enrollment numbers) is an obvious strategy.

There are good high paying jobs in the trades that are going unfilled due to a lack of skilled trade workers. Trade unions are advertising apprenticeship slots with apprentice jobs starting at $17.50 per hour. Unions have much to bring to the table and offer a community and its workers; we need to recognize that and make them a part of the package. In this area, our own history of trades training labor for good jobs and the German apprenticeship model have much to teach us about the creation and sustainment of good paying jobs that offer a good lifestyle and homeownership.

So targeted industrial recruitment, focused educational offerings, and apprenticeship programs, that lead to higher paying jobs, that lead to a higher level of effective demand and purchasing power, that then lead to a stronger existing and new housing market, that then lead to a new, better landscape is the answer.