Crisis in Housing Market: Renters Under Siege, and the Minimum Wage

The economy continues to show signs of improvement, but not all are able to benefit from some of the positives. One area that shows the real problems that many Americans are having is in the area of housing, where stagnant wages and rising housing costs are spiking homelessness or causing people to go without food, medicine, and other vital supplies in order to pay rents that are eating up a large part of their base incomes.

The Harvard Joint Center for Housing Studies has just released a study that highlights how severe this problem has become. The Providence Journal (via the Eagle Tribune) wrote about the study, pointing to both local and national problems.

The squeeze has forced more people into homelessness. Both Rhode Island and Massachusetts have been feeling the effects, with greater numbers flocking to homeless shelters rather than face rents of $1,000 or more.

In Massachusetts, one of the few states to offer emergency shelter to anyone who qualifies, spending on motels has soared, costing taxpayers more than $46 million over the past five years, The Boston Globe reports. The number of homeless people in the state shot up by nearly 14 percent between 2010 and last January, to 20,000.

The financial squeeze shows up nationally in pretty stark terms as well.

Nationally, more than one in four renters spend more than half their income on housing. To be considered affordable, housing should typically consume no more than 30 percent of a household’s pretax income.

The causes of the problem are not hard to figure out. More homeowners have entered the rental market with the rising tide of foreclosures joining the traditional “rental demographic”, while supply has not come close to keeping up with the increased demand. That has helped to keep rental prices high, while wages are stagnant. From the Harvard study:

Since renting is more financially feasible for households of modest means, renters’ incomes are disproportionately low. Nearly a quarter of renters have annual incomes under $15,000 (roughly equivalent to earnings from full-time work at the minimum wage),while only 13 percent of all households fall into this income category. A similar share of renters takes home between $15,000 and $30,000 a year,again much higher than this group’s share of all households. Still, people at all income levels rent. More than a third of renters have moderate incomes (between $30,000 and $75,000), roughly matching their share of all households. The most underrepresented income group, earning $75,000 or more a year,still accounts for 17 percent of renters.

And so we arrive at a large number of people paying a very hefty percentage of their income to remain housed.

Against the backdrop of the rental market recovery, declining renter incomes continue to add to longstanding affordability pressures. Already up sharply before the recession began, the share of cost-burdened renters took a turn for the worse after 2007. As a result, the share of renters paying more than 30 percent of income for housing, the traditional measure of affordability, rose 12 percentage points over the decade,reaching 50 percent in 2010. Much of the increase was among renters facing severe burdens (paying more than half of income for rent)boosting their share nearly 8 percentage points to 27 percent. These levels were unimaginable just a decade ago,when the fact that the severely cost burdened share was nearly 20 percent was already cause for serious concern.

The Harvard study talks about changes that could bring increased inventory of affordable rentals, and offer a lifeline to those being forced to choose between rent and food or medicine. One thing not mentioned was the potential benefit to many who rent from an increase in the minimum wage. The study makes it clear that today’s housing market cannot provide the most basic of accommodations for those on the minimum wage. We all know wages have stagnated, but the extent of the problem for so many working people is shown clearly through this study. They just cannot keep pace with the acceleration in costs of housing at the current minimum wage, and the results are a big spike in the numbers of homeless, as well as those who are “severely burdened” by the percentage of income going to rent. The purpose of the study was not to push an increase in the minimum wage, but to talk about reforms in the housing market that would increase supply and affordability. But the wage issue sort of slaps you right in the face, and shows the real need for an increase in the minimum wage.

I am not looking to get into the weeds of housing policy here, but for those interested the report is well worth reading. For another good look at housing policy the Housing Partnership’s “Towards a Housing Policy Reform Agenda” is worth a look as well.

Cocoon Politics

I am back, and with plenty happening to write about. Congratulations to the newly elected Mayor of Lawrence, Dan Rivera, who worked as hard as a candidate could to win that race.

In Lawrence one term Mayor William Lantigua had built up a mystique of electoral invincibility after years of success in winning Lawrence elections, for himself, and for others. But since taking over as Mayor four years ago Mayor Lantigua has been buffeted by a relentless stream of bad media, with early political enemies joined on the front lines by the Eagle Tribune, which produced exceedingly negative coverage of the Lantigua Administration. No need to rehash all of the controversies, but suffice to say that much of the negative coverage was warranted, and for all of his political acumen the Lantigua response to the ongoing media issues was to retreat into the safety of his strong cocoon of support among a hard core of loyalists. This retreat was evidenced by his embargo of “traditional” media, where he allowed the negativity to pile up unanswered. That is always an error in politics, but Mayor Lantigua made the political determination that he could ride out the storm by withdrawing to comfortable terrain. The primary results appeared to validate his strategy, with Lantigua simply crushing the field. (Lantigua 5725 to Rivera 2799). In advance of that primary, when asked my view on WCAP, I said Lantigua could finish first, or last. Without question the public battering he had taken would have meant defeat for any standard candidate. But Lantigua is no standard candidate, and his primary victory fueled the aura of invincibility, and really took the air out of the tires of the anti-Lantigua forces.

When I looked at the numbers I failed to see a plausible road to victory for Dan Rivera. But Dan Rivera, from day one, saw what I and others could not see. He took the primary numbers, and pointed to the fact that all opponents combined had gotten more votes than Lantigua. (6234 combined to 5725 Lantigua) I looked at those numbers as well, but thought that Lantigua would grow sufficiently in the general election to hold off Rivera. Rivera, despite the big primary deficit, began to seal Lantigua into a corner, picking up the endorsement of every one of the unsuccessful primary candidates, including State Rep. Marcos Devers. Lantigua, looking at the numbers in the same way I did, made a fatal error in not trying to divide his opposition. Instead of concentrating 100% on the election Lantigua, in my opinion, began to think about mopping up the opposition after the victory that never came. In particular he truly gave Rep. Devers some strong incentive to not only endorse Rivera, but to work hard for him as well. Could Lantigua have secured Devers neutrality? The Willie Lantigua of four years ago would have made every effort. Mayor Lantigua made none.

Mayor Lantigua also had the misfortune of running against a candidate who is schooled in the science of politics, and willing to work just as hard as he does on campaigns. Candidate Rivera also has great relationships that he used to give his campaign status and credibility. Having the endorsements of Elizabeth Warren and Niki Tsongas brought, in my view, a very strong sense of campaign momentum when Dan needed it most. In the end a candidates success or failure usually rests with the candidate, and Dan Rivera deserves the credit for winning a tough campaign. But it is always nice to get a little help from your friends.

Mayor Lantigua squandered what was a unique opportunity. Was everything he did wrong? Absolutely not. Was some of the opposition rooted in reflexive negativity to anything he was going to do? No doubt. But he brought a perceived arrogance, and simply thought that he could survive inside a cocoon, and ignore ALL of the basic rules of politics. His skill set almost pulled it off, but Mayor Dan Rivera is now poised to bring good government principles to a City that so badly needs them. Mayor Dan Rivera has an entire State pulling for his success.

Delusional Cynical Politics

It has been a busy time , and harder to do blog posts. But with the federal government shutdown and the threat of default, it is time to return.

More than enough has been written about the logjam that has shuttered the federal government, but it seems to me that some important points have simply been ignored by the media. So the Republicans make what is a demand for a fundamental policy change (defund Obama Care) or they will refuse to open government or pass a debt ceiling increase. The President refuses to negotiate “with a gun to his head” and demands the passage of “clean” bills to re-open government and increase the debt limit. So here we are, with the federal government shutdown and the potential for a U.S. Government default right around the corner. With the President holding firm Republicans appear to now have shifted their demands to some sort of fiscal deal as they search for a way out of their political quandary. The new approach was signaled by Paul Ryan in a Wall Street Journal piece:

If Mr. Obama decides to talk, he’ll find that we actually agree on some things. For example, most of us agree that gradual, structural reforms are better than sudden, arbitrary cuts. For my Democratic colleagues, the discretionary spending levels in the Budget Control Act are a major concern. And the truth is, there’s a better way to cut spending. We could provide relief from the discretionary spending levels in the Budget Control Act in exchange for structural reforms to entitlement programs.

Not a word about ObamaCare in that piece. So the Republicans have already moved the goalpost, realizing that their initial demands were not going to happen. So what has the media missed? Some pretty important points. Since we have moved the discussion to the budget there has been some talk about where we are today, and how we got there. Republicans, with long faces, have showed up before the cameras and pleaded for the President to simply “negotiate”. It actually sounds reasonable until you lift the hood up and look at those pesky details.

After the collapse of the last budget negotiations Speaker Boehner announced quite loudly that he would no longer negotiate on the budget with the President, saying quite clearly that he would rely on “regular order” to deal with budgetary issues.

Speaker John Boehner (R-Ohio) is signaling that at least one thing will change about his leadership during the 113th Congress: he’s telling Republicans he is done with private, one-on-one negotiations with President Obama.
During both 2011 and 2012, the Speaker spent weeks shuttling between the Capitol and the White House for meetings with the president in hope of striking a grand bargain on the deficit.

So the Speaker, who now demands “negotiations”, ruled out negotiations just a few short months ago. How about that “regular order”? Well let us look at that issue as well. Many will recollect that the democratic Senate had been the subject of much Republican criticism for the failure to pass a budget for several years. I thought that criticism had some validity. But the Senate has passed their version of the budget, and after doing so attempted to utilize “regular order” to seek a budgetary “conference committee” with the Republican House. Senate Republicans fought against the naming of the conference committee, using procedural tools to block the naming of Senate conferees. The Republican House, fearful that a conference committee would produce a budgetary compromise, actually simply refused to go to conference on the budget. Yes you read that right. The Republicans refused to negotiate on the budget. That position has lasted for months, with Republicans, who now call for negotiation, refusing to negotiate on the budget. Where is that coverage in the media? Well the Huffington Post covered it in detail, offering a timeline. The hypocrisy is staggering, even by political standards.

Finally let us get to what the Republicans seem to want for these “negotiations.” Speaker Boehner said on “This Week” that budget negotiations with the President would not really be negotiations, but rather would require the President to simply adopt Republican positions in order to get government open, or the debt limit increased.

STEPHANOPOULOS: So you’re saying you want a conversation now about changes in Social Security, changes in Medicare, changes in entitlements? Would you be willing to accept what the president has demanded for that kind of a negotiation, having new revenues as part of the discussion?

BOEHNER: The president got $850 billion — $650 billion of new revenues on January the 1st. He got his revenues. Now, it’s time to talk about the spending problem.

STEPHANOPOULOS: So that’s a no?

BOEHNER: Very simple. We’re not raising taxes.

Yup, that is the “negotiation” that the Speaker envisions. In a reality based world, no matter what your position is on ObamaCare or taxes, people would realize how insane that type of politics really is. Yes there may be many areas where Democrats deserve criticism. But this is not one of them.

Ideological Prisons: Detroit

I am back, after a brief respite. The unfolding story in Detroit has been of great interest to me, and although there is far to go before the final resolution the chorus of those on both sides of the political divide are filling the airwaves up with ideological drivel. It should be clear to anyone that is not trying to make a political point that Detroit, in light of its crushing debt, needed a Chapter 9 filing. It was not realistic, in light of the limitations of the Emergency Manager’s power, to expect a successful negotiation to be completed with the “creditors” of Detroit.

There is plenty to talk about in this filing, with issues of pensions, bond holder haircuts, potential asset sales, and the future of the City itself mixed into a volatile stew. Some of my prior posts have dealt with the financial conditions of the City, with Emergency Manager Kevyn Orr finding even more of a financial calamity than most thought existed. There are plenty of Chapter 9 experts out there that can get us into the weeds, and those weeds will be highly interesting for those who like such things. I want to take a look at the political reaction that the Chapter 9 filing has brought, and see how even a Chapter 9 filing brings out the usual political divide.

Republicans have pointed to the City as an example of the failure of liberalism, and launched a series of political attacks designed to show that the long Democratic stewardship of the City and its finances led to calamity. Democrats have not been very eager to participate in this debate, but have downplayed such a narrative, and pointed to the failure to provide adequate funding to the City, and to the severe demographic and globalization challenges that have hurt the City so much. Paul Krugman put forward this view in his Times column:

The important thing is not to let the discussion get hijacked, Greek-style. There are influential people out there who would like you to believe that Detroit’s demise is fundamentally a tale of fiscal irresponsibility and/or greedy public employees. It isn’t. For the most part, it’s just one of those things that happens now and then in an ever-changing economy.

The left/right argument has (of course) slipped into the cultural/racial, with George Will arguing with Steve Rattner and Katrina Vanden Heuvel on “This Week” that Detroit’s problems are due to “cultural collapse”. That clip is below. And Politico has weighed in on how Detroit has become the “pinata” of the right. Despite Krugman’s admonition not to compare Detroit to Greece Charles Krauthammer does exactly that in the Politico story:

Charles Krauthammer in his column: “It doesn’t take a genius to see what happens when the entitlement state outgrows the economy upon which it rests. The time of Greece, Cyprus, Portugal, Spain, the rest of insolvent social-democratic Europe — and now Detroit — is the time for conservatives to raise the banner of Stein’s Law and yell, ‘Stop.’ You can kick the can down the road, but at some point it disappears over a cliff.”

Republicans, for once, have the advantage. Although they are driving the argument so that conclusions are reached that are not all correct it is not a matter of dispute that Detroit governance has been a continual disaster for decades. The weight of the incompetence is staggering without even a mention of the corruption that has brought us to this point. Plenty of examples of both, but let us look at some that are relatively easy to understand. The first is the financial concept that if you cannot balance a budget you should borrow hundreds of millions of dollars to pay for everyday operating expenses. Nope, no matter what excuses are given I am here to tell you that it is really not a matter of opinion, but rather is established fact, that such financial policies lead to ruin. The second example is just as silly, and unfortunately lends some credence to the Republican case against Detroit. Between 1985-2008 the Detroit Pension system gave out over $1 billion in pension “bonuses” by way of 13th checks to Detroit pensioners. From the Detroit Free Press:

One of Detroit’s two pension funds handed out nearly $1 billion in bonus cash payments over two decades to retirees and active employees’ retirement accounts instead of reinvesting the extra earnings for the future, according to a Free Press review of city records.

The payments, often referred to as a “13th check,” contributed to Detroit’s financial crisis and its historic Chapter 9 bankruptcy filing by increasing the amount the city needed to contribute each year to keep the pension fund solvent.

Had the city’s General Retirement System held on to the excess cash, the city might not have felt the need to borrow $1.44 billion in 2005 to plug the city’s unfunded pension liabilities gap, the Free Press found. That debt has ballooned to nearly one-fifth of the city’s total debt today and played a role in pushing the city into filing the largest municipal bankruptcy in the nation’s history in July.

So these folks gave out $1 billion in extra payments, but then borrowed almost $1.5 billion to plug a “gap” in pension funding???? For those wondering these financial geniuses are actually defending the practice:

Sandra Studzinski, who served on the General Retirement System board from 1996 to 2004, said the payments were appropriate to help employees and retirees pay their bills.

“Things were always bad for employees,” she said. “It was a way to make up for lots of the years that there were no pension increases.”

Guess what Sandra? Give out all the extra payments you want, but pay for them as you give them out.

So where does the ideological prison come in? Nobody can just seem to say that the locals, by virtue of their own actions, do not deserve home rule at this point. Democrats want to ignore it, or just have us all move along without comment, and Republicans feel the need to score broader ideological points. Just go in and manage, and stop financial practices that a fourth grader would understand must lead to disaster. Mayor Menino got in trouble for saying Detroit should be blown up, and his words were indeed less than diplomatic. But his outrage is spurred by understanding that we are in this to serve the public, and Detroit’s dysfunction means that first and foremost the citizens of Detroit are the ones being shortchanged. Public officials who have shown incompetence and or corruption? Cashier them for outside help. Wall Street bankers who lent to Detroit under these circumstances? Haircut them at pennies on the dollar. And never be afraid to tell the truth, even if you are a Democrat talking about Detroit.

Finally I do believe that federal “help” should be provided, but not to prop up the existing system. Any help should be to give the City working systems (information technology for starters) so that professional managers can execute a cogent plan to at least get some of the fundamentals right. It is not possible to address the big issues facing the City if you cannot do the “little” things properly.

Manzi in the Morning Interview-Michael Condon

Methuen City Councilor at Large Michael Condon shocks the Methuen political world by announcing that he will not be a candidate for re-election in November. Congratulations to Michael, and we all wish him and Lee-Ann the very best!

Listen Music Files – Listen Audio Files – MITM 07-30-13Condon