The US housing crisis is really about low-wage jobs
Affordability has two elements: price and income. The latter needs more attention than it gets
Kathryn Anne Edwards
AMERICA’S housing crisis is often portrayed as a matter of supply. Depending on whom you ask, the shortfall is anywhere from 1.5 million to seven million homes. Much of the policy debate focuses on how to close that gap.
Yet there’s a deeper and less tractable problem: Even if housing gets built, it won’t do much good if people can’t afford to live there. And far too many can’t.
There’s an abundance of viable solutions to the housing shortage. If so inclined, Congress could boost supply by expanding the low income housing tax credit, supporting public housing and encouraging religious institutions to build on their property (yes in God’s backyard!). State and local governments can reform zoning rules, building codes and property taxes to encourage more construction and productive use of space. Given the heterogeneity of the housing market – with myriad unit sizes, types and ownerships – a scattershot approach is just what’s needed.
Suppose America manages to add seven million homes. Will housing become affordable for everyone? I doubt it. Certainly the added supply will lower prices, but not nearly far enough for the country’s millions of extremely low-income families.
Consider the standard affordability rule: Housing should occupy no more than 30 per cent of income. By that measure, the lowest-income tenth of US workers can afford no more than US$733 a month. Nearly 900,000 workers earning at or below the minimum wage can afford no more than US$377 – and that’s assuming they toil 40 hours a week every week of the year.
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Meanwhile, the median rent for a studio apartment exceeds US$1500. Added supply might get that down enough for the median worker, who can afford US$1480 a month. But it’ll be a lot harder to make even the cheapest places affordable to the poorest workers, especially given a ten-year decline in the number of low-cost rentals.
To be sure, public housing and housing vouchers can help. But the root problem is federal labour policy, which aggressively and systematically aims to keep wages low. The minimum wage hasn’t increased in 15 years, leaving it lower than Turkey’s. Weak laws and lax enforcement allow wage theft and child exploitation to flourish. A much higher proportion of workers are relegated to low-wage jobs than in other developed nations.
Housing affordability has two elements: The cost of a home, and the income of the occupants. Increasing supply can help address the first. But the housing crisis won’t go away unless the US radically changes its approach to the second. BLOOMBERG
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Kathryn Anne Edwards is a labour economist and independent policy consultant.
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