How a transitioning economy, government regulation and tax policy have contributed to stagnating wages, rising housing costs, and homelessness.
In this episode you’ll learn:
- How many people are homeless in the U.S.
- What is moral hazard.
- To what extent has household income stagnated while home prices have risen.
- What contributes to rising home prices.
- What low income housing programs are available and how much is spent on them versus tax breaks for homeowners.
Why Are Housing Costs So High?
The woman stood at the exit of the store parking lot holding a sign asking for help. An empty gas can rested by her feet. I put my groceries in my car and walked toward her.
Earlier that week, I read a paper by my son Bret about the marginalization of the homeless. His paper referenced a study by E. Krajewska-Kulak that when people thought of the homeless, the two most common words that came to mind were dirty and poor. Other words included lazy, unhappy and lonely.
The study also showed that 67% of working adults viewed the homeless as avoiding work.
In his paper, my son wrote, “The homeless…seek to have normal interactions with community members. It helps them [to] keep….going and feel more human. It is not difficult to strike up a conversation with a homeless person, or even to ask their name. The simple action of attributing a name to a person drastically diminishes the dehumanization toward that individual.”
Encouraged by my son, who regularly visits with the homeless, I got up my nerve and spoke to the woman. She had short brown hair and wore glasses. I didn’t ask her name, though. It seemed out of place. Instead, I asked where she was from.
“Mississippi,” she said.
“Jackson?” I asked.
“You’re a long way from there. What brings you to Idaho?” I asked.
“We were visiting my sister but she screwed us over,” she said.
“You heading back to Mississippi then?”
“Not in that piece of junk,” she pointed to an old grey minivan in a parking spot next to where we were standing. Inside on the driver’s seat, a bundled up infant looked at me from her car seat. On the passenger’s side, a man sat smoking a cigarette.
“Where are you living?” I asked.
She pointed to the van. “The homeless shelter said they had a three month waiting list.”
We conversed for another minute then I gave her some money and wished her well. As I turned to my car, I noticed tucked away in a bush there were several other cardboard signs that others had used when asking for help on that corner.
The New Face Homeless
Emily Tumpson Molina writes in her book “Housing America: Issues and Debates” that “the popular images of homelessness—older men, often with mental illnesses, sleeping on urban streets—is increasingly challenged by the reality of homelessness in America. Families make up nearly 40% of the homeless population on any given night in the U.S., and the states with the largest increases in homelessness in recent years are rural.”
As of 2015, more than 560,000 people in the U.S. are homeless on any given night, although it is difficult to get an accurate count because many of the homeless are doubled up living with friends or family members or are hidden away where volunteers can’t find them.
According to the U.S. Department of Housing and Urban Development, the states with the largest increases in homeless population between 2007 and 2015 were mostly rural: North Dakota, South Dakota, Montana, Wyoming, Vermont and Mississippi.
I don’t know what decisions the woman from Mississippi made that resulted in her being homeless and living in a van. I do know her baby girl had nothing to do with it, yet she is facing the consequences of choices made or unfortunate circumstances.
Michael B. Katz in the preface of the second edition of his book “The Undeserving Poor,” quotes from Charles Darwin who wrote in 1839 in “The Voyage of the Beagle,” “if the misery of our poor be caused not by the laws of nature, but by our institutions, great is our sin…”
In his book, Katz addresses the “great questions that run through debates about poverty since the late eighteenth century.”
“How to draw the boundaries between who does and who does not merit help? How can we provide help without increasing dependence or creating what economists called moral hazard?”
“What are the limits of social responsibility? What do we owe the poor and to each other?”
It is not easy to make those distinctions, particularly if poverty and homelessness are a result of both personal decisions and structural issues in the economy.
Stagnating Incomes and Rising Housing Costs
Research shows that homelessness increases when the economy suffers and homelessness is greater in places with higher rents and fewer vacancies.
In other words, over the past few decades there have been fundamental changes to the economy and the housing market that contribute to homelessness among families even as choices by individual family members can help determine who is homeless.
First, the transition to a service based economy and the loss of manufacturing jobs both from offshoring to other countries and through automation has led to stagnating wages.
While U.S. median household income increased last year, it remains close to the same level it was in 1998 on an inflation-adjusted basis according to the U.S Census Bureau. Household income for the poorest 10% of households is 6% lower than it was in 2006.
While household income has stagnated, the prices of houses and rents have increased, making it more difficult for lower income families to secure housing.
The accepted standard for housing affordability is for households to pay no more than 30% of income toward housing.
According to the U.S. Census Bureau’s American Housing Survey, in 2015, 34% of American households paid more than 30% of their monthly income on housing-related costs.
The National Low Income Housing Coalition found that 71% of extremely low income households spend more than half of their income on rent and utilities.
Extremely low income is defined as households with income at or below the poverty level or 30% of an area’s median household income, whichever is higher.
Households that pay such a high percentage of their income toward housing costs are vulnerable to economic shocks, such as job losses, that can leave them homeless. There is little margin of safety.
It also leaves them less money to cover food, transportation and other costs.
For example, according to the National Low Income Housing Coalition, a family of four earning 30% of the national weighted average median household income would have monthly take-home pay of $1,690. They would spend on average $846 on rent, leaving $844 for other expenses.
The U.S. Department of Agriculture estimates a thrifty food budget for a family of four (two adults and two children) is $655. That leaves $189 a month for transportation, childcare, medical costs and other necessities.
A Lack of Affordable Housing
Why aren’t there more homes available at affordable rents?
First, the cost to develop new apartments is significantly higher per apartment than the $507 per month extremely low income households can afford.
The median rent for an apartment in a multifamily structure built in 2015 was $1,381 per month according to the Joint Center for Housing Studies.
The National Low Income Housing Coalition reports that a full-time minimum wage worker cannot afford a one-bedroom apartment at fair market rent in a single U.S. state.
In theory, as new construction comes on line, higher income families move into the pricier structures, allowing lower income households to move into the newly available older homes and apartments.
Unfortunately, this filtering effect doesn’t seem to help extremely low income households as lower priced apartments often get redeveloped in order to charge higher rents, or they are abandoned as the low rents are not able to cover operating costs and maintenance.
An additional force that influences the diminished supply of affordable housing is restrictive zoning laws that prevent infill housing and greater densities.
Finally, property developers earn higher profit margins on larger homes, which provides an incentive for them to build bigger houses.
Housing Vouchers and Tax Breaks
In 2014, the U.S. government spent $18 billion on its Housing Choice Voucher program in which low income families pay 30% of their income toward rent and the government pays the remainder. The program’s funding falls well short of what is required to help provide affordable housing to those most in need.
That same year, the federal government provided $140 billion in preferential tax treatment by allowing homeowners to take a tax deduction for mortgage interest and property taxes. The Congressional Budget Office reports this subsidy accrues mostly to households in the highest income quintile.
Perhaps it is time to cap the mortgage interest deduction and provide additional housing help to those in need.