Affordable Housing Out Of Reach For Most Renters

  • 06/14/2012
  • Terelle Jerricks

New Report Shows Persistent Problem Worsening

By Paul Rosenberg, Senior Editor

If you’re working a minimum wage job in America, where can you afford to live? Other than your parents’ basement, the answer is simple: Nowhere. That’s according to “Out of Reach 2012,” the National Low Income Housing Coalition’s most recent version of its annual report.

“In no state can a minimum wage worker afford a two-bedroom unit at Fair Market Rent, working a standard 40-hour work week,” the report states, above a map showing the number of hours of minimum wage work required in each state.
The map shows how deep and widespread the problem is. For minimum wage workers, the most affordable states are Arkansas and West Virginia at 63 hours—though the territory of Puerto Rico is a steal at 54 hours. It takes at least two minimum wage jobs to afford a two-bedroom apartment in 23 states. And in six states—including California—it takes at least three minimum wage jobs.

Beyond that, the report notes, there are “very few places in the U.S. where even a one-bedroom unit … is affordable to someone working full-time at the minimum wage.”

“So what?” You might think. “Minimum wage jobs are just for teenagers.” Not true.

The report notes, “According to analysis from the Economic Policy Institute, 78% of minimum wage workers work at least 20 hours per week and 80% are at least 20 years old, dispelling the myth that the majority of minimum wage workers are teenagers working part-time afterschool.”

What’s more, there are millions of workers making more than the minimum wage, but not by much. There are 9.8 million workers categorized as “extremely low income,” who make less than 30% of area median income—a regional income figure adjusted to family size. From 2007 to 2009, another 900,000 workers fell into the  “extremely low income” category.

But the problem even extends to the category of renters as a whole. “[O]ver half of all renters (53%) are cost burdened, paying over 30% of their income for housing,” the report notes. This is a far cry from how things used to be. “Only 25% of renters faced such a burden in 1960,” it adds.

Thus, minimum wage workers are canaries in the coal mine—the most sensitive indicators of an affordability problem impacting the majority of renters in America, squeezed by low wages on the one hand, and scarce, expensive housing on the other.

Which is the real problem?

“You really have to say it’s both,” said Megan Bolton, the Coalition’s Senior Research Analyst, a co-author of the report.

And while both factors have been significant over the years, both have intensified significantly with the housing bubble collapse, the financial crisis, and the ensuing Great Recession.

“With the housing crisis, we’ve seen as people have become more wary of home-ownership, renting has become more appealing,” Bolton said, focusing first on the demand side. “The demand for rents have gone up, and vacancy rates have gone down.”

As a result, “It’s become more and more difficult for those with lower incomes to find affordable rent.”

On the other hand, “There’s been massive income loss due to layoffs. You often need to work multiple jobs to afford the rent, as the report says.”

According to free market ideology, none of this should be happening. But it is. For one thing, both labor and housing markets deviate from free market ideology in various ways—not least in the phenomena of “sticky prices” that don’t respond instantaneously to changes in supply and demand. But the two markets are increasingly at odds with one another as globalization intensifies, with world-wide labor markets driving down wages for many workers, while worldwide financial markets attract real-estate investments that help drive up high-end housing costs and shrink supplies of affordable housing.

The problem has been intensified by the Great Recession, but goes back much further in time, Coalition President Sheila Crowley told Random Lengths.

“The founding of coalition was in response to a major policy shift,” Crowley explained.

President Richard Nixon declared a moratorium on building public housing, and “consolidated all the ‘War on Poverty’ programs into block grants.”

For a brief period, “in 1970s, there was a small surplus of rental housing the poorest people could afford,” Crowley said. “It was crummy housing, but there was a sufficient supply.”

Serious problems emerged under the Reagan Administration, with the beginning of wage stagnation (“Wages at lowest levels have grown down, not up,” Crowley noted), the explosion of homelessness, and “an exodus of government from funding programs.”

The 1986 tax code revision was particularly devastating, “They did away with tax breaks that landlords used to get for depreciation” which supported low-income housing, Crowley said.

At the same time, gentrification significantly reduced older affordable units, particularly in urban centers.

While homeless programs—resulting from the Homeless Assistance Act of 1987—were primarily short-term, the new programs that did emerge from that time were primarily structured to provide housing for those making around 60 percent of median income—leaving a big gap for extremely low-income renters. “You end up with very little to offer the people who are not homeless but are too poor to afford a tax credit unit,” Crowley explained.

Back in 2000, the policy solution was supposed to be the National Housing Trust Fund, which in turn would fund state-level efforts. The federal budget was in surplus, and hopes were high that it would be fully funded, Crowley noted. Now, more than a decade later, the working poor are still waiting.

“We can safely say that the housing crisis and Great Recession exacerbated the existing crisis,” Bolton added. “We produced a report in 2004 called ‘Losing Ground in the Best of Times: Low Income Renters in the 1990s. This report compared the housing situations of low income renters in 1990 and 2000 and shows that during that time of strong economic growth there were some declines in the percentages of low income households with unaffordable cost burden, indicating that increased incomes did contribute to a slight improvement in the conditions of low income households.

“However, the housing problems that remained became more concentrated among the extremely low income, and furthermore, the shortage of affordable units increased over that same time period.”

This was precisely the situation that the National Housing Trust Fund was intended to address.

“Conversely,” Bolton continued, “since the beginning of the Great Recession, we’ve seen a significant increase in the percentage all households with unaffordable and severely unaffordable cost burden and a continuing decline in the supply of affordable housing.

“One thing that has held true for the past few decades is the disinvestment in federal programs that create affordable housing affordable to the lowest income households. This indicates that in good economic times and bad, if there aren’t real efforts to build new affordable housing, these longstanding problems will not go away.”

Two final slices of data analysis help define the problem more clearly. First is the geographic diversion away from free market expectations. Whatever the full range of reasons, the geographic variation in housing costs is striking. While it takes 3.3 minimum wage jobs to afford a two-bedroom apartment in California on average, this figure varies tremendously between counties or even metro areas. It’s 1.9 in Bakersfield, for example, compared to 2.8 in Riverside, 3.5 in Los Angeles or Long Beach, 4.0 in Orange County and 4.6 in San Francisco.

Second is the impact of policy on the wage side. Bolton provided Random Lengths with data from the first Out Of Reach report in 1989. Back then, it took more than three full-time jobs at minimum wage to afford a two-bedroom apartment in 18 states plus the District of Columbia. But that was after eight years under Reagan with no increase to keep up with inflation. Using wage rates from the next increase. In 1991, the number of states requiring more than three full time jobs would have been just five—a jarring indication of how much a higher minimum wage matters.

In short, the message is clear: Policy matters. It can shape markets to meet human needs—or to neglect them.

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