Guide to Amending a Pastor’s Housing Allowance

i thought parsonages were all but dead.

In our city, the average price for an average three bedroom family home is over 1.2 million dollars. I've considered leading our church to buy a house to use as a parsonage someday (renting it out in the meantime) since the cost of housing here is so very high.

How would a new younger pastor have a hope of purchasing his own home if they were to start out in our city? I think the church would have to consider some way of helping him build some equity as part of his compensation as well as providing a parsonage.

Nevertheless, it might be time to resurrect the idea of the parsonage, especially in places like ours.

My brother lives in Mountain View, CA, and carefully hides the real estate ads so his landlord never sees them--he's in 1400 square feet built in the 1960s that would go for well north of three million bucks. I'm guessing that's a picture that Don recognizes well. It's a church budget issue that is quite profound--and writing as someone working in tech, I know for a fact that wages are not 5-10x what they are here in MN. So it's not like likely tithes in the Bay Area or Vancouver are that much higher.

Regarding parsonages, you've got something of an issue where in days of yore, you had young men who would likely have a lot of kids--and these days, you very often have empty nesters. So you might have an occasional/often mismatch between the pastor's family size and the parsonage size. Flip side of doing housing allowance is that you've got a disadvantage as the pastor pays rent, or suffers transaction costs when he sells. No easy choices.

Don,

A couple of points. First, buying a home may not be in the cards for a young pastor. I didn't buy a home for the first 6 years of our marriage. Second, the church should provide enough salary to be able to afford what the average person makes/lives in their area. If all of the church members are in $1.2M homes, the church should be able to afford paying their pastor to purchase a $1.2M house. If not, than buying a parsonage won't help, as it is doubtful the church could afford to buy the parsonage. Third, in my experience, churches get into problems in parsonages. Someone comes and ministers for 20 years at the church and then decides to retire. Either the church kicks them out of the parsonage to make way for the new pastor, or they gift the parsonage to the retiring pastor and are now stuck trying to purchase another property for the next pastor. You can easily get into a scenario where a church is trying to manage 3 parsonages for two retired pastors and a new pastor.

Most homeowners in our area bought pre covid when prices were much more manageable. During Covid, construction waned a bit and at the same time our government was insanely (preCovid and postCovid) bringing in huge amounts of immigrants so that demand increased. And governments put huge restrictions and fees on construction, exacerbating an already tight marketplace.

Wages have not kept up with the increase in costs. Not only are prices much higher, but for a typical house rents are astronomical. There is no easy solution to the real estate crisis, but a church has to have some way of managing things for pastors for the future.

I have never seen a scenario about parsonages such as you describe, but I suppose it could happen. I'd think it is highly unusual, though.

I should add that there are ways for a church to afford a parsonage that might not seem obvious. If the down payment could be raised, I would advise the church to buy a building with two suites to offset the cost of the mortgage to start with, leaving one suite as a revenue generator to help with the cost of the mortgage once a new pastor was installed. It's not as insurmountable as you might think.

Brothers,

If a church can't afford to pay their pastor a livable wage--meaning, he can't afford a home in the community--the congregation either needs to be content with a bi-vocational pastor or they need to prioritize their spending / giving.

A parsonage is not a blessing to a pastor and his family.

I sometimes wonder, Tom, if you really take into consideration what others say in the thread. There are situations vastly different from your own and there is no one size fits all solution.

I will grant that a parsonage is not an ideal situation, but in a community like mine, it might be the better part of wisdom. Housing costs are astronomical here, and unless someone can come here without significant personal resources, they will simply be unable to buy a home. If they have to rent, they will find significant resources tied up in rent.

Even a bi-vocational pastor would be hard pressed to survive here.

Consequently, a small local church in my community would have to think resourcefully to provide for a pastor and continue to minister in the community. A parsonage could be one solution, despite its drawbacks.

Don,

I agree, the rapid increase in house prices after COVID has made things out of reach for younger home buyers. Quick question, how do you see a parsonage addressing this issue today? I would assume that if we take your example, that homes are $1.2M CAD in your area. The church has the option of paying the new pastor around $8,500 a month to afford an appropriate mortgage. The other option is that they would need to put 5% down ($60,000) and pay a mortgage company about $8,500 to afford an appropriate mortgage on a parsonage. Am I looking at that correctly. If so, I see little benefit today. If they are looking at this as a hedge for future increases, by locking into the payment and cost for todays environment, I could see some value.

If you are cycling through younger pastors every 10 to 15 years, than yes the parsonage can be leveraged. The problem I have seen time an again (my grandfather experienced this as well), is that if you come in at 40 and serve the church for 25 years and decide to retire at 65, that pastor is really stuck. If he retires and leaves the church he has no equity to roll into a new house that his wife and he can retire in. So they are really stuck. Churches also feel guilty "kicking out" the pastor who faithfully served the church for 25 years, and so they gift the parsonage to the faithful pastor emeritus. Again, if you are cycling through younger pastors who are not retiring the church is probably not seeing this problem. I mean for cycling to be derrogatory. Our church just celebrated its 173rd birthday, so as you can imagine we have had quite a few pastors :)

From Stewardship Services Foundation:

For years I have advised churches to get out of the parsonage business. I think it is very important to get a pastor into his own home as soon as possible for many reasons.

Retirement – owning a home at retirement is a key ingredient to retirement planning.

Security – for his family, particularly his wife.

Privacy – they can decorate how they want ... it’s their home.

Longevity – the family feels more attached to the community because there’s a stronger sense of belonging.

Tax purposes – income tax law provides for generous benefits to the pastor who is buying his own home. Federal and state income taxes are greatly reduced and sometimes eliminated due to the housing allowance and double deduction for mortgage interest and real estate taxes. [this may be different in a Canadian context]

If a small church can't afford to pay a pastor a livable wage, the church needs to evaluate whether bringing in a new pastor from outside of the community is realistic. Instead of incurring and servicing a lot of debt by purchasing a parsonage and still not being able to pay a f/t pastor a livable wage, the small church would be better off relying on the spiritually mature men of the congregation to lead and feed the congregation. Perhaps look for a retired pastor to fill the pulpit. Not ideal. But better than expecting a man and his family to move into your community and serve your congregation with no hope of ever having a home, a retirement account, health care, etc. in the future.

The large debt incurred with a parsonage will also hinder the present and future ministry of the small church, and if one or two families decide to leave the small church, the large debt may result in foreclosure and/or bankruptcy as well as the loss of the pastor.

So, brother, I read what you wrote. I am just encouraging the small church to be realistic about its prospects and options.

A couple of things for Dave, on down payments and such.

In Canada, no one could buy a 1.2 million home for 5% down. They would need 95,000, plus closing costs at a minimum. See here: How much you need for a down payment - Canada.ca

Let's assume a minimum DP of a 1.2 million property, that means a mortgage of 1,105,000 - currently rates are just under 4%, but at 4% the payment would be $5,812 per month.

Like I say, prohibitive. The only way to manage it is either have a bigger down payment somehow or have a suite in the basement (current rents over $2500 / mo for a two bedroom).

Can even a bi-vocational pastor manage that? What kind of income would you have to have to even qualify for the mortgage? Without a rental suite, you would need an income of 18000 plus per month to squeeze in to qualifying, and that doesn't count other debts, energy costs, etc, which are usually added into the mix.

What I am saying is that there is an incredible crisis here in housing and a parsonage might be a solution.

Now, as for Tom's points:

• Retirement

Yeah, I agree, traditionally one's home has been the biggest part of planning for retirement. I'm all for it. But ...See above where I think this is an unlikely scenario at the moment in my community.

• Security

Not sure how a $5800/mo mortgage payment is going to make anyone feel secure. We need to get our security from the Lord, not from a house.

• Privacy

If a church doesn't allow a pastor to decorate his own home to his own taste, there is a huge problem with the church. The pastor would have less rights than a tenant.

• Longevity

Bunk

• Tax purposes

Not in Canada. We don't get to deduct mortgage interest. A pastor would get the housing allowance renting or buying, so a non-issue.

My point is not that churches must have parsonages, but in some circumstances it may be the better part of wisdom for a church to make it available as an option.

It is possible that a church could purchase a property on a different basis than an individual, likely with a much higher DP and using rent of two suites to qualify for the loan. When the time comes, the property could become a solution or not, depending on the situation.

All I am saying is we need to exercise wisdom and think these things through. There is no one size fits all, and no pat answers.

The large debt incurred with a parsonage will also hinder the present and future ministry of the small church, and if one or two families decide to leave the small church, the large debt may result in foreclosure and/or bankruptcy as well as the loss of the pastor.

No, I don't see it that way. If such a downturn occurred, yes, you could lose the pastor. Wouldn't necessarily lose the house. Could rent it out and weather the storm. Not ideal.

However, we have to plan for what is, and use wisdom. "What ifs" are not part of the equation. What if the whole world goes into another depression? A whole lot of hurting is going to go around. Should we be paralyzed in fear because of "what if"?

I have lived in both a church-owned house and my own house (twice). Both have advantages and disadvantages.

In general, if a church owns a house, do not sell it under any circumstances. Real estate is too valuable to let go in almost all cases. There are many urban areas (such as Don is talking about) where the church cannot afford to pay a pastor to live there, but a house purchased in the 1920s or 1950s is long since paid for, is probably tax free, and can be used for pastoral housing, or an assistant pastor.

It sounds good for a pastor to buy a house, but when the church kicks him out or he leaves the church, does he really want to stay where he lives? And now he has a house to sell and that might be hard depending on the market. And he can’t move because he can’t afford a second house. So it is not as easy as “Just buy your own house.”

I think it is usually short-sighted for churches to sell property. After all, they are not making any more real estate so hang on to all you can.

One possible warning based on the above comments. A church needs to be very careful about renting a property as this puts them in a situation where they could lose their tax free status. Rental income is income in the eyes of the tax man, church or not. Or at least that’s my understanding.

I think anyone doing this should get some professional advice on this point. I can think of arguments that could be made that non-profits hold rental property all the time and don't lose their status, but you would want to be sure before you took such a step.

Laws would be different in different jurisdictions, so an answer for, say, Texas, wouldn't apply to some other state.

Yes, if you rent to a non church staff member you will likely be liable for unrelated business income (UBI) and all city rental codes and inspections. Plus you might have to evict someone. In general, I wouldn’t encourage that. Use for staff or interns or missionaries.