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.

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