Source: Indianapolis Private Industry Council from data at www.forbes.com

Indianapolis appears to be the most affordable large city in the Midwest. It definitely is the most affordable housing market. And other local costs, such as utilities, are lower here, too.

The Housing Affordability Index, prepared by the National Association of Realtors, shows the percentage of all households in a city or region earning enough to afford a house that costs the median house price for the area. It considers three factors: the median house cost, the median income and the fairness of the income distribution. (It matters less that incomes are high than that a large share of the households in the city earn enough to buy the house without paying too much.) When you look at it that way, Indianapolis is tops.

Eighty-nine percent of Indianapolis area households could afford to buy a median-priced house. And that’s not just a fixer-upper, either. That’s the median for all houses across the metropolitan area. By contrast, most of California’s large cities have an affordability index of 10 percent or less; only 3 percent of Los Angeles area residents can afford to buy a house there today.3

Differences in affordability may not be fully appreciated when people compare regions. Income seems to matter more in people’s minds than costs do. Most people would rather get it – even if they have to spend it – than not get it at all. Also, in the words of one national expert, “There has never been anything like the difference in housing affordability that exists today.”4 If we expect the difference to be marginal, we don’t even look at it. But the gap is substantial and Indianapolis is, fortunately, on the right side of it.

Looking again at just the Midwestern cities, the Indianapolis advantage becomes evident. The annual median wage for Minneapolis residents is more than $16,000 higher than that in Indianapolis. But the cost of a house – and we’re talking about the area’s median price – is more than twice the cost of a similar Indianapolis house. The extra $16,000 that a person may earn in Minneapolis would go to housing, and utility bills (which also are higher in Minneapolis) would eat up even more.

3 http://cgi.money.cnn.com/tools/costofliving/costofliving.html 
4 Wendell Cox, Demographia, quoted by author Matt Woolsey in “Most Affordable U.S. Real Estate Markets,” at www.forbes.com, retrieved Aug. 8, 2007.
  
 


   
     
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