Housing affordability affects more than just shelter—it also determines how much income is left over to meet other needs, how stable a household’s living situation is, what community they live in, what school and employment options are available and what must be sacrificed in order to obtain better options. Yet the reality is that affordability problems are large and growing. Policy responses to affordable housing scarcity are lacking at all levels of government—in resources and urgency, leaving advocates to fight a multifaceted battle to put housing at the forefront of domestic issues.
The affordability gap in this country is considerable. There are simply not enough affordable units available for the millions of low-income households with the greatest need. One-third of all households currently spend more than 30 percent of their income on housing, and one in eight spend upwards of half their income on housing. Even as the national economy grows and employment is on the increase, the situation appears only to be getting worse.
The number of households with housing cost burdens increased by nearly 5 million in just three years, despite stagnant rents and falling interest rates offsetting rising house prices. These figures do not include the 2.6 million households that live affordably but endure crowded or severely inadequate conditions, or the many more households that trade housing affordability for long and costly commutes. Indeed, there are at least 95 million people nationally with at least one identifiable housing problem. As the late Cushing Dolbeare was fond of pointing out, more people have housing problems than lack health insurance, and with at least as serious consequences.
Despite these statistics, housing affordability is not high on the national agenda. Because most people are stably housed, it is easy to overlook the one-third of households with affordability problems. Making the argument that affordability matters is further hampered by the lack of a clear definition of what constitutes a problem, especially among more moderate-income households. Furthermore, the secondary effects of living unaffordably, and the consequences for business, health, and the environment, are not yet fully understood.
The affordability crisis leaves advocates with the challenge of addressing the needs of the lowest-income households, even as affordability problems among moderate-income households increase, and limited resources are diverted to households with less dire housing problems. At the same time, property owners and managers must be challenged to preserve affordable housing in order to stop units from permanently falling out of the housing stock.
Bearing the Brunt of the Problem
Sixty percent of cost-burdened households (spending at least 30 percent of their income on housing) are in the bottom fourth of the income distribution, earning up to two times the full-time equivalent of the federal minimum wage, or around $22,000. And 84 percent of all severely cost-burdened households—those spending at least 50 percent of income on housing—are in this income group. One reason housing affordability is not receiving the policy attention it warrants is that the concentration of these problems is among the lowest-income households.
Working is not a cure for housing affordability problems, as more than half of non-elderly households with severe cost burdens include at least one worker earning half the household income. Many of these workers are in service occupations that are vital to their communities, yet in some places their housing costs far exceed their incomes. As long as the economy continues to demand low-wage jobs that provide little opportunity for advancement, the plight of the working poor will continue.
While the number of low-income households continues to grow, the housing stock that is affordable to them is shrinking at an alarming rate. Median house prices increased by over 10 percent in nominal terms last year, the fastest growth rate since 1979, but without the offsetting effect of falling interest rates as in previous years. And while nationally real rents have been flat, the number of rental units affordable to low-income households has been shrinking. Between 1993 and 2003, for example, the number of units renting for under $600 decreased by 1.3 million. The only significant additions to the stock were among units renting for over $800, well out of the price range of households in the bottom income quartile.
The remaining units in the lower rent ranges may also be at risk of falling out of the stock in the near future. Long-term vacancy rates among these units have been climbing, and more than 10 percent of vacant units under $400 have been unoccupied for over two years, largely because they are uninhabitable. Without significant efforts to increase production of low-end stock and improve preservation of existing units, these losses will continue and further worsen affordability problems among the lowest-income households
Creeping Up the Income Ladder
While affordability problems remain concentrated among the lowest-income households, the incidence among moderate- and middle-income households is dramatically on the rise. The number of cost-burdened households in the lower-middle fourth of the income distribution, those earning between $22,000 and $43,000, increased by 2 million from 2000 to 2003. Households making between $43,000 and $73,000 with cost burdens increased by another million.
The repercussions of housing affordability problems for middle-income households differ from those of low-income households. While high housing costs require much greater sacrifices for low-income households, who may have to choose between housing and food, they can also require middle-income households to limit their expenditures on more discretionary items that are nonetheless important to their financial security and progress. Households in the lower-middle expenditure quartile with housing costs that are more than half their monthly budgets spend an average of $73 less per month on pensions and savings than households with similar expenses but smaller outlays for housing.
Within income groups, housing affordability concerns also vary across different types of households. Most troubling, families with children tend to have higher shares of cost-burdened households than same-income families without children. The disparity is most pronounced among the lowest-income households, of which 61 percent of those without children and 83 percent of those with children are cost burdened. Since families with children generally have higher non-housing expenses than other households, they feel the effects of high housing costs even more strongly.
Traditionally renters have greater affordability problems than owners, but between 2000 and 2003 an additional 2.2 million middle-income homeowners were cost burdened, compared with an increase of only 825,000 middle-income renters. Rapidly increasing numbers of cost-burdened, middle-income owners may have especially negative repercussions if many of these owners end up defaulting on their mortgages.
Trading off Housing and Transportation Burdens
While the numbers on housing affordability problems are striking, they may actually understate the true magnitude of the crisis by failing to count households that trade off other costs in order to live affordably. Chief among these tradeoffs is living great distances from employment centers and incurring long and costly commutes in exchange for less expensive housing prices.
More low-income households are leaving cities and moving to far-flung suburban and non-metro areas. Between 1993 and 2003, the number of low-income households living outside of cities increased by 3 million, while central city low-income households grew by less than half a million. A lack of public transportation in the suburbs means most of these low-income households rely on cars to travel to work, enduring long commutes and traffic congestion.
Spending less on housing often means spending more on transportation. For example, in the lowest expenditure quartile, households with low housing costs spend on average $100 more a month in transportation costs than households with high housing costs. That amounts to 10 percent of their average monthly budgets.
Policy Responses Are Lacking
The affordability gap between what lowest-income households can afford and the cost to produce affordable housing is large. Funding for current programs cannot adequately close this gap when only one-third of eligible low-income renters receive housing assistance. The amount of funding must be multiplied sevenfold to make a more meaningful dent in the problem, and regulations must allow for smaller units and higher densities that reduce the costs of supplying housing.
Yet neither solution appears likely in the current policy environment. At the federal level, funding for most domestic programs is being cut, leaving housing subsidies to compete with health care, education, and public safety for a decreasing pool of dollars. Now that state and local authorities oversee federal subsidy allocations, they have an increased responsibility to expand the low- and moderate-cost housing stock in their markets.
Little is being done to change local regulations that restrict development size and density or that drive up housing costs, because loosening the regulations means sacrificing other public interests, including some environmental, health and safety goals. And communities are resistant to new residential development, especially of affordable rental housing, out of concern that it will place even more demands on already tight local budgets. As a result, there is no political will to open up communities to affordable housing, even as affordability problems continue to escalate.
State and local housing trust funds provided only $750 million for development and preservation of affordable housing in 2002, compared to over $30 billion in federal funding. The number of states with preservation priorities increased from six four years ago to over 40 today, but the number of units preserved annually increased only from 20,000 to 45,000 over the same period, according to the National Housing Trust. So, instead of increasing efforts to combat the growing affordability problems, governments, in reality, are retreating from their commitments to provide affordable housing for all.
There are some glimmers of hope on the horizon that housing affordability may be gaining traction as a public policy issue. As affordability problems move up the income ladder, more middle-income Americans are likely to support housing programs. And as more businesses discover how the lack of affordable housing directly affects workforce development, the pressure on political leaders to act will build.
In the meantime, increasing affordability problems and waning public support create a challenge for advocates. The barriers to affordable housing need to be addressed at the federal, state and local levels. This is obviously not an easy assignment. But to give up the fight is to cede the field to those who would obstruct efforts to attract additional resources for housing, without which we cannot seriously hope to put a larger dent in housing affordability problems.
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