Flipped Homes and Their Impact on the Affordable Housing Market
As a lot of us know from HGTV shows like “Flip or Flop” and “Property Brothers”, buying and selling homes to either make a profit, or to live in as your primary residence has become a new trend that is sweeping the nation. In Delaware for example, there was a 19% increase in the number of flipped homes between the second quarter of 2015, and the second quarter of 2016. These shows give us the inside look on what it is like to remodel an entire home, and what kind of profit you can make from doing so. What these television shows do not illustrate, however, are the effects that flipping houses have on the affordable housing market. What happens to the supply of affordable housing when buyers sell flipped homes for a substantially higher price than they purchased it for? According to an article featured in the Chicago Tribune titled “Return of House Flipping Eases Affordable Housing Crunch in Some States”, the answer to that question depends on your location.
In states like Florida, where there is a surge of foreclosed homes and a flipping rate of 7.9%, flipping houses has helped get affordable housing back on the market. When you increase the supply of homes available for purchase in the neighborhood, the prices of those homes cannot be too high because they have to be competitive and comparable to each other. Theses homes are selling below the rest of the market and are contributing to affordability for low income families. Not only are the homes affordable, but the renovated homes are bringing the once blighted and abandoned neighborhoods back to life.
On the flip side, there’s New York - housing advocates have stated that flipping houses reduce the supply of affordable housing and drives out low-income residents. In Brooklyn for instance, homes bought by flippers were affordable for families making $75,000 a year, but by the time that same house was sold, only families making $150,000 could afford it. The higher the price point, the lower the chance of affordability for low income families. Once these houses are flipped, the quantity of affordable homeownership opportunities decreases.
I don’t think the intent behind flipping homes is to reduce the number of homeownership opportunities for low-income families. I think the intent for most people is to make a profit. No one buys a home, puts their own money into renovating it, only to sell it for the exact same price they purchased it for. If this were the case, there would be little incentive for most people to continue flipping homes, an action that has definitely contributed to the resurgence of many neighborhoods across the United States. The way the housing market works, it is almost inevitable that once you rehab a house, the value of the home increases. In the District of Columbia for example, the median flipped purchase price of a home is $280,250. Once this home is flipped and sold, the sales price increases to a median of $490,000. This type of profit margin is great for the flipper, but not so good for the low-income families who are still looking to become homeowners. The conflict between flipping homes and the availability of affordable housing that some communities face is one that I think will always exist as long as you have homes in foreclosure, and people willing to flip those homes.