This article is part one of a three-part series.

The Idaho Business Review has created a cost-of-living model for Idaho that looks at who can afford a house in Idaho after two years of steeply-increasing home prices. What we found was discouraging for Idaho’s two hottest housing markets, Boise and Coeur d’Alene. Housing affordability was a little more forgiving in other urbanized cities, like Idaho Falls, Lewiston and Twin Falls.

Conventional affordability

We picked five communities around the state: Boise, Coeur d’Alene, Idaho Falls, Lewiston and Twin Falls. We started by calculating how much mortgage we could afford using a rule that the mortgage payment should not be greater than 33% of a household’s gross income. We drew our average median income (AMI) numbers from the current Fannie Mae AMI tool, whose data is good through March 2022, and from the 2020 U.S. Census Small Area Income and Poverty Estimates (SAIPE), which uses the most recent data available. SAIPE data for 2021 has not been released yet. The Fannie Mae data is reported on a county basis and the SAIPE data is reported on the smaller census tract basis.

Using these two different AMI estimates, we calculated the maximum affordable home price using the 33% rule and a 30-year fixed conventional mortgage, 20% down payment, and 3.5% interest — which was a rate quoted on Jan. 14 based on a credit rating of 760+.

To compare these affordable home prices based on AMIs, we then took the most recent median home prices in our five locations and ran them in the other direction to determine how much household income was needed to afford those homes. The tabulated results show that there isn’t much difference between the 33%-rule affordable home prices and the median home prices for the two top markets of Boise and Coeur d’Alene.

The other three markets show some noticeable variation. The results suggest that both the Fannie Mae and SAIPE median incomes can afford higher home prices compared to the median-priced homes in Idaho Falls, Twin Falls and Lewiston.

The percentage rule for determining an affordable home has crept upward over the years. Prior to the onset of recent runaway home prices, the percentage rule was once 25%. In comparison, a review of currently-available online mortgage calculators shows that the rule varies between 0.3% and 0.36%. This is important because the percentage used in the affordability rule makes a huge difference.

For example, we calculated the minimum income to buy a $546,000 home using different percentages for the affordability guideline. This figure is the Ada County median home price for December 2021, which is the most recent data available from the Boise Regional Realtors. Assuming our default conditions of 20% down and a 3.5% mortgage for 30 years, the required income for 25% is $94,176; 30% requires $78,480; 33% requires $71,345 and 36% requires just $65,400.

Less-than-scrupulous realtors and mortgage originators might encourage a new home buyer to use a higher percentage in the affordability rule, leading to buying a higher-priced home than his or her income can support. For a Boise median-priced home, the income difference is a very large $28,776, which is well beyond a typical yearly raise at work.

Using other affordability metrics

We developed our own cost-of-living calculator described in detail in the section below titled “Looking at costs in Idaho.” We determined annual spending for food, childcare, medical costs, rent or mortgage payments, home and car insurance costs, federal and state income taxes, FICA taxes, property taxes and utility costs in our five locations in Idaho. We used three different households for an older single professional with a modest new car, a single parent and child with a used car and a family of four with a used car.

We feel the expenses we used in several categories were conservative. Some truly important budgetary items were left out, like saving for retirement or vehicles more expensive than the entry-level new car and old used car we used in our model.

For each household, we calculated total living expenses at multiple levels of income, from poverty levels up to incomes where there was a comfortable net income leftover after expenses. At every gross income level, we calculated the net income after expenses and plotted that, even when it was negative. We used this to identify the gross household income where the net transitioned from a negative unaffordability swamp to a positive terrain where buying a median-priced home would not lead to Chapter 11 or 13 bankruptcy.

The single professional

Our first graphic shows the net for each gross income level for a single professional living in one of our five Idaho locations. It is immediately apparent that the minimum income from the 33% affordability rule is too low to meet all expenses in every market, assuming that our model is accurate. Using a 30% or 25% rule would keep this home buyer out of trouble when buying the median-priced home.

The graph shows that our single professional needs to make $10,000 a year more in Boise than what they need to make in Coeur d’Alene in order to own the median-priced home, and near $20,000 more than in Idaho Falls, Lewiston and Twin Falls.

The net incomes for those living in Idaho Falls, Lewiston and Twin Falls clumped together as a group with similar costs of living. The analysis for this household of one was not plotted below a gross income of $40,000, since the single professional does not incur any other interesting lower-income permutations introduced by the expense of children and the effects of government benefit programs for larger households.

Single parent and child

The second graphic shows the net income for each gross income level for a single parent with one child living in one of our five Idaho locations. Again, the incomes derived from using the 33% affordability rule are too low to afford the median-priced home and all other expenses, regardless of community.

Taking Lewiston and Twin Falls as our most affordable communities, the graph shows that our household of a single parent and child needs to make $10,000 a year more to own the the median priced home in Idaho Falls, around $20,000 more to own it in Coeur d’Alene and around $30,000 more to own it in Boise.

The net incomes trends for living in Lewiston and Twin Falls clumped together, while Idaho Falls pulled ahead in terms of higher costs. The notable jog on the lower income end of the graph is due to the loss of child care subsidies at $25,260. The changes in slope at the lower income end is due to the effect of qualifying for food stamps and Affordable Care Act medical insurance tax credits and other medical insurance programs.

Family of four

Every pattern already seen for the smaller households is now writ much larger for a family of four. The 33% affordability rule once again leads to buying a home that is more costly than is prudent according to our model. Taking lower-cost Lewiston and Twin Falls as our most affordable communities, the graph shows once again that this household needs to make $10,000 a year more to own the median priced home in Idaho Falls, around $20,000 more to own it in Coeur d’Alene and around $25,000 more to own it in Boise.

The large jog at the lower income end of the graph is due to the loss of child care subsidies at $38,000 for a family of four. The subject of how child care affects housing affordability will be discussed in more detail in the second part of this three-part series.

Affordability based on living costs

Admittedly, using our cost-of-living calculations to investigate home affordability is a brute-force method. Regardless, the results identify the income level where buying the median-priced home will not create an unbearable burden. In every case, the inflection point where net income became positive was greater than the income determined using a 33% rule.

Another item that falls out of this analysis is the screamingly huge difference that household size makes on affordability. The growing gap between median incomes and median home prices will be the subject of the third installment of the three-part series.

We calculated the inflection points where net shifted from negative to positive values using the linear portion of the net income curve above a gross income of $50,000. Below the inflection points, our calculated expenses exceed gross income after buying the median priced home in each market. We used net income was the independent variable in a linear regression. In all but one case, the square of the regression coefficient was greater than 0.99. The sole exemption was a value of 0.98, for the family of four in Twin Falls.

Looking at costs in Idaho

To examine the relationship between income and current median home prices, we looked at five locations and three types of households. Our original intent was to use the information from the Massachusetts Institute of Technology (MIT) Living Wage Calculator (LWC) to drive our cost estimates. In evaluating this widely-used and respected tool, we noted that the medical costs for Idaho in the LWC were too low for lower incomes and too high for higher incomes. Child care costs followed the same pattern.

The LWC also used just one uniform set of child care and tax costs for the entire state, while these can vary substantially for different Idaho communities. As a result, we built our own cost-of-living models with variable child care and property taxes. We found that costs can be broken into constant costs like transportation, costs that vary by income like income taxes and costs that vary by location like child care.

How we estimated costs is described in detail below.

Three household scenarios

We created cost-of-living estimates for three scenarios:

• A single professional, age 52, who needs high-speed internet and who has just purchased a new Ford Maverick. Note that the new car has a very low sticker price, starting at $19,999 for the bare-bones model. The model we used was bought for $21,5000 with a loan at 4.5% for 60 months.
• A single working parent, age 30, with an 8-year-old who goes to child care. This household uses a used car that was bought with a $10,000 loan at 4.5% for 60 months.
• A family of four with two working parents aged 32 and 30, and two children aged 4 and 8. The transportation for this family is the same as for the single-parent scenario.

Locations

We used five locations around Idaho:

• Boise, the North End neighborhood, zip code 83702
• Coeur d’Alene, zip code 83814
• Idaho Falls, in the residential neighborhoods within city limits served by School District 99, zip 83402.
• Lewiston, zip code 83501
• Twin Falls, zip code 83301 within city limits

Median home prices

The median single-family home price for Boise was $546,000, which was the price for Ada County in December 2021 — the most recent data available from the Boise Regional Realtors. The price for Coeur d’Alene was from the December 2021 market snapshot for Kootenai County published by the Coeur d’Alene Association of Realtors. The median home prices for Idaho Falls, Lewiston and Twin Falls were from realtor.com.

Medical costs

We noted that the MIT LWC underestimated health care costs in Idaho. As a result, we used the tax credit and monthly cost estimation webpage at Your Health Idaho instead to determine health care costs. It is certainly an underestimate since it estimates the cost of a silver-grade medical insurance policy as defined by the Affordable Care Act. It neither accounts for any prescriptions nor for any visits to the doctor or dentist.

Food costs

Our food budget used a flat $3,800/year for one adult and $1,800/year for one child, based on the minimum amounts listed by the MIT LWC for all locations in Idaho. These numbers are on the low side and certainly do no include any leeway for going out to eat. For comparison, the yearly costs of the graduate student desperation diets are $2,920 for one inexpensive pizza per day and $3,650 for one foot-long sandwich per day.

Child care costs

Child care costs were based on a review of each location’s child care rates quoted online and on recent child care cost research done within the last year for published Idaho Business Review articles on this subject. We assumed that the yearly cost was for full-day care. In comparison, the MIT LWC used a base estimate of $5,574/year regardless of location in Idaho, which does not account for regional differences and also underestimates this cost by around $500 to $2,500, depending on location.

Apartment costs

Average apartment costs for one- and two-bedroom apartments were from apartmentlist.com for Boise and Coeur d’Alene. Rents for the other locations were estimated from the range of costs available from apartments.com and from local apartment listings for the other three locations.

Mortgage

The cost of a mortgage was based on financing a single-family home at the median home price for each location. The amount financed was the median home price minus a 20% down payment. The monthly payment was calculated for the remainder assuming a 30-year fixed rate loan based on a 3.5% interest rate using the amortization equation: P [ {i(1+i)ⁿ } / {(1+i)ⁿ – 1} ] where P is 80% of the median home price, i is the periodic interest rate of (0.0035/12) = 0.002917, and n is the number of payments.

Home owner’s insurance

Home owner’s insurance rates were estimated for each location using the average home insurance rate calculator at insurance.com assuming $300,000 liability coverage and a $1,000 deductible.

Taxes

Property taxes were estimated using the property tax calculator at smartasset.com. Federal, FICA and state income taxes were estimated using the income tax tool at smartasset.com.

Transportation

We calculated three different transportation scenarios. The first was a new Ford Maverick with a 60-month loan at 4.5% interest and a principal of $21,500 for a monthly payment of $400, or $4800 annually. We used the car insurance tool at insurance.com to estimate insurance at $200/month, or $2400 annually, for a 52- year-old male with a good driving record. We assumed that our drivers had a very local commute for an annual mileage estimate of 10,000 miles. The Ford Maverick hybrid has a mileage rating of 40 miles/gallon. Using an estimate of $3.20/gallon, the gas cost was $800/year. We added $400/year for routine maintenance. Adding these costs together, the yearly transportation cost came to $8,400.

The second scenario was based on a used car of unknown pedigree with a 60-month loan at 4.5% for a principal of $10,000, resulting in a annual cost of $2,208. We made the same short commute assumption, but used 20 miles/gallon for the used care, for a gas cost of $1,600/year. The liability-only insurance estimate from Geico was a very inexpensive $30/month, or $360/year, for a 30-year-old primary driver. The yearly maintenance cost stayed the same. The yearly transportation cost came to $4568.

Both car insurance quotes used a Boise zip code of 83702. The differences between insurance rates for different Idaho locations was small compared to the more substantial difference between liability-only coverage for an old clunker car versus full comprehensive and collision coverage for a new car. Because of this trend, we used these transportation costs for all locations.

The last transportation scenario was for no car at all, which works only in Boise. For this scenario, the total transportation cost was $288/person for a ValleyRide bus pass. This represented a yearly savings of $8,112 for the single professional, $4,280 for the single parent with child, and $7,824 for the family of four.

Utilities

We estimated utilities using a well-heeled budget for a single professional who needs high-speed business-class internet for working at home and a frugal budget for single parents and families. Gas, electric and municipal utility fees do not vary greatly by location since Idaho’s inexpensive electricity dominates utility costs. The well-heeled budget used a figure of $4,600/year and the frugal budget used $3,000/year.

Miscellaneous costs

Given that several of the above cost estimates were known to be on the conservative side, we added the “other costs” from the MIT LWC, which were uniform for all locations at $2,800 for a single person, $4,500 for a single parent with one child and $6,000 for a family of four.

SNAP and child care subsidies

Where applicable, we incorporated the child care subsidies available through the Idaho Department of Health and Welfare (IDHW) from the October 2021 Idaho Child Care Copay Chart. We also incorporated food stamp allowances available through the Supplemental Nutrition Assistance Program (SNAP). We used the income limits published by IDHW and estimated the amount of aid using the calculation guidelines at the U.S. Department of Agriculture.