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June 20, 2006 > Average, Median or Mode?

Average, Median or Mode?

Many political dilemmas are introduced to the public using statistics as ammunition for a particular position or proof of need. Previously, I have pointed out the malleable nature of numbers and, at the risk of being overly repetitious, will endeavor to make the point again. Last week, my comments were aimed at condominium conversions and the dangers of using raw statistics to measure the full impact of this trend on renters and the overall health of a community. While vacancy percentages may be used as a trigger to allow conversions, a comprehensive look at the economics of the rental population makes more sense. In other words, how many renters pay - and can afford - particular levels of monthly payments to keep a roof over their head?

"Average" rents can be misleading. In a hypothetical example, a small, older apartment complex of 8 units rent as follows: 4 studio apartments at $900, 2 one-bedroom at $1,500 and 2 two-bedroom at $2,000.  By adding all the rent collected in a month and dividing by the number of units, the average rent is $1,325. However, looking at the "median" rate is a different story. This statistic looks for the number that represents a midpoint between those paying rent, where half of the renters are above the line and half are below; in this case, $1,200. If we use the "mode" of a set of numbers, it will represent the group that occurs most often, in this case, $900 (four times). Which number best represents these renters as a group?

In the mythical city of Metropolis (without Superman), there are 60,000 homes and 40,000 apartments. For the sake of this illustration, home rentals will not be considered in condominium conversion calculations. Apartments vary in size and monthly rent. In our imaginary city and for ease of calculation, rents for all like units will be identical. The apartment rental picture looks like this:

Studio 8,000 units $900/month
1 bedroom 16,000 units $1,500/month
2 bedroom 14,000 units $2,000/month
3 bedroom 2,000 units $2,400/month

If the apartment vacancy rate reaches ten percent (4,000 units) and city officials decide that anything above seven percent (2,800 units) is excess, 1,200 apartments may be subject to the conversion axe. Using raw numbers, the amount of available apartments for rent appears more than adequate since in theory, 2,800 units remain for rent.  This, however, is where things get interesting.

Let's look at the rental population of Metropolis. The average monthly rent paid is $1,600. However, the median and mode rent is $1,500. Some might argue that $100 per month is meaningless, but ask those scraping together an extra $1,200 each year about its significance. What happens when the conversions are of older, lower cost apartments and people are evicted from studio rentals forced to much higher rental rates? The difference could be several hundred dollars each month. In my example, the apartments all rent for the same amount, but this is for ease of calculation, not reality. Which apartments will be lost to conversion? Will condominiums sell for outrageous amounts including "homeowner" fees that are unrealistic for most renters? Will those who now own homes that they could not afford to buy today care about their kids and others without the means to enter the present housing market?

What is a city to do when faced with owners who are anxious to convert older apartment complexes to condominiums? Zoning and variances will be the key controls and city staff, especially those who have little stake in the community they manage, need to examine a broad picture of the affected population. Complete information will be necessary to understand the dynamics of this type of change.

Those directly affected should be included in the process and while property owner rights should be protected and honored, those who contribute to their well-being - renters - need to be consulted as well. A group of renters, business people, property owners, homeowners and staff should be appointed to investigate the impact of condominium conversion actions and return within a set period of time with recommendations for the planning commission and city council. Irrevocable decisions such as this demand careful consideration by local experts - those who live and work here. For once, let's forgo the expensive out-of-town "experts" and look at this problem as a community working together to solve a major concern.

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