There is a fundamental disconnect between the rate at which the incomes of low-income households are growing and the rate at which rents are escalating. For millions of renters, there is little hope of escape from shouldering heavy housing cost burdens (near record levels), living in crowded conditions (at record levels) or renting severely inadequate housing – for the simple reason that the economy mints millions of low-wage full- and part-time jobs that provide incomes too meager to cover the cost of modest rental housing.
Add to this the fact that government transfer payments are too low to permit those on welfare or the millions who rely on Social Security income to afford housing, and the difficult path ahead for nonprofits dedicated to making rental housing affordable becomes clear: The nation’s housing problems are both structural and chronic. Thus, although efforts to ease regulatory constraints on development may ease the cost burdens of moderate-income Americans, it will take steep subsidies to allow those trying to make ends meet with low-wage jobs, or those dependent on Social Security incomes to afford decent rental housing in decent neighborhoods.
Policy makers may choose to avoid this simple fact, but advocates cannot. Providers of low-cost rental housing know only too well the incredible struggles and sacrifices their tenants must make – even many of those who work full time – to afford their housing. With little relief on the horizon, property owners and managers must develop programs that help tenants who fall on hard times – a job lost, hours cut back, transfer payments reduced, exceptional medical care expenditures that overwhelm budgets – to stay in their homes until skies brighten.
The Growing Mismatch
Despite record economic growth over the 1990s, the incomes of the nation’s disadvantaged households have remained flat. Indeed, with an average annual income of only $10,530 (in 2003 dollars), most households in the bottom income quintile have seen almost no gains since 1975. Though incomes stagnated for many households over the 1990s, home prices soared. Nationally, inflation-adjusted home prices grew by 14 percent from 1990 to 2000, and rose by almost 6 percent between 2002 and 2003 alone. Many metropolitan areas, particularly on the coasts, have experienced even larger gains. Rents too have climbed in recent years, worsening the affordability situation for many renter households. The median national contract rent, for example, increased nearly 5 percent in real terms between 2000 and 2003, while renter incomes decreased by more than 4 percent over the same period. As a result, the median amount renters spend on their housing reached 29 percent in 2003, up from 26.5 percent just 3 years earlier.
As the National Low Income Housing Coalition has pointed out, households with one full-time minimum-wage earner cannot afford (at 30 percent of their income) a fair market rent on a one-bedroom rental unit anywhere in the country. When households secure housing at rental costs below this cutoff, they often sacrifice housing and/or neighborhood quality.
The Demand for Low-Wage Workers
A quick look at the numbers illustrates how voracious the appetite of the economy is for low-wage jobs. The 2000 Census reported that about 128 million workers earned at least the equivalent of the federal minimum wage of $5.15 an hour. Of these, about 32 percent earned merely $5.15 to $10.30 an hour (one to two times the minimum wage, or $9,012 to $18,024 annually); another 26 percent earned between $10.30 and $15.45 an hour (two to three times the minimum wage, or $18,024 to $27,036 annually). Moreover, 18 percent of workers earning minimum wage or above were employed part-time and were thus less likely to receive the same level of benefits sometimes afforded to full-time employees.
Despite the difficulty of making ends meet on such meager wages, a significant fraction of American households has no additional income sources and relies on the income of a sole low-wage earner. In 2000 almost 4 million households, renter and owner-occupied combined, depended entirely on the earnings of one full-time worker being paid the equivalent of one to two times the minimum wage. Of these, 27 percent reported spending half or more of their incomes on housing. Another 570,000 households depended on the earnings of one part-time worker with equally low wages. Within this group, a dismal 70 percent spent half or more of their incomes on housing. Yes, work pays, but for too many it does not pay enough.
When impoverished households must spend disproportionately on housing, little remains to meet other basic needs and difficult trade-offs must be made. For example, among households in the bottom expenditure quintile (whose average monthly non-housing expenditures were $601), those with housing costs exceeding 50 percent of total expenditures spent a meager $161 a month on food and $34 on health care on average. By contrast, those able to hold their housing expenses to less than 20 percent spent an average of $80 more each month on food and $49 more on health care. Although these figures are still modest, this second group spent 50 percent more than the first group on food and 144 percent more on health care.
Not surprisingly, savings levels are exceptionally low among low-income households. According to the Federal Reserve’s Survey of Consumer Finances, the median value of banking and financial accounts among those in the lowest income quintile (incomes at or below $16,000) was only $900 in 2001. Such low balances make it difficult to weather budget shocks due to a layoff or unplanned expense, let alone put money aside for college or retirement.
Sadly, the housing affordability problem is unlikely to improve because there is strong and growing demand for low-wage workers. Using data from the Bureau of Labor Statistics (BLS), the Economic Policy Institute found that the median wages in the industries adding the most jobs since the recession ended through November 2003 are 21 percent lower than those in the industries losing the most jobs. And over the next 10 years, the BLS expects 11 of the 20 fastest-growing occupations to be service jobs that pay less than $20,000 per year.
Low interest rates and a public policy environment favoring homeownership have encouraged millions of higher-income renters to purchase homes over the past decade, reducing the number of these renters by 10 percent. Consequently the already large gap between the median incomes of owners and renters widened from $18,700 in 1991 to $22,100 in 2001. Given this fact, it is hardly surprising that the remaining renter households are particularly challenged to make ends meet and have an even higher incidence of housing problems than owners. The American Housing Survey reported that 20 percent of all renters in 2001 were severely cost burdened (paying 50 percent or more of income towards housing), compared to 10 percent of all owners. And while 28 percent of owner households in 2001 reported having cost-related housing problems, crowding or unit inadequacy, almost half (49 percent) of renter households reported such problems.
Because renters have no home equity, their median net wealth is lower than owners in every income quintile. For example, according to the Survey of Consumer Finances, in 2001 renters in the bottom income quintile had median net wealth of only $500 compared to $68,000 for owners in the same quintile. Low savings levels combined with low incomes make it difficult for households to weather disruptions to income or household budgets, and make it nearly impossible to save for the future. Many tenants are only a paycheck away from a missed rent payment, and many will have an incredibly tough time coming up with the required security deposit.
In 2000, 2.6 million renter households depended on the earnings of one full-time worker who was being paid the equivalent of one to two times the minimum wage, out of the 4 million total households that did. Of the 400,000 renter households that depended on the earnings of one part-time worker with equally low wages, three-quarters of them were severely cost burdened.
Lacking a safety net, tenants may miss rent payments if their incomes dip even slightly. Housing providers therefore need to consider ways that they can help tenants stay in their homes during periods of temporary economic hardship. In doing so, property owners and/or managers must decide under what circumstances, and for how long, they will provide forbearance to tenants whose intentions to pay overdue rents are sincere. Working with other property owners and managers to create pooled programs to help diversify risk is worthy of consideration.
Alamo Area Mutual Housing Association in San Antonio, TX, operates a resident assistance fund from which residents can borrow if they need rental assistance. The fund is managed by a board committee and is available only to residents in good standing. Community Builders, headquartered in Boston, MA, has a focused Early Intervention/Watch List Protocol that allows staff to identify indicators of tenancy problems. Households that are flagged are asked to work with the Community Initiatives staff who help to work out solutions to the problems.
Seniors Fail to Keep Pace
The nation’s seniors face special challenges. More than a third of the 21.8 million senior-headed households are in the bottom income quintile (incomes at or below $17,500 as reported by the 2001 American Housing Survey), and of these about 30 percent are renters. Renters who rely on Social Security income and Medicaid to make ends meet will find it increasingly difficult to keep up with rent increases. Medical costs are rising at double-digit rates. Social Security incomes rise at the rate of general price inflation while rents often escalate faster. Hence, the share of senior renters in the bottom income quintile spending half or more of their income on housing is likely to exceed its present level of nearly four in ten.
Low-income senior homeowners face similar dilemmas. In 2001, nearly two in ten low-income senior homeowners spent half or more of their incomes on housing. Even though many of these owners have long ago paid off their mortgages, they are not protected from escalating utility and property tax payments. A recent article in The New York Times reported that seniors are experiencing severe increases in mortgage debt because of low-interest rate refinancing; and for those age 65 and over, credit card debt and bankruptcy filings have skyrocketed, with debt burdens of borrowers between the ages of 65 and 74 having doubled between 1992 and 2001. The newspaper reported that one in seven households headed by someone 65 or older was considered heavily indebted in 2001 — devoting at least 40 percent of household income to debt payments.
Like renters overall, low-income senior renters typically have very little wealth they can tap into to close the widening gap created by the mismatch between housing costs and income gains. According to the 2001 Survey of Consumer Finances, 46 percent of senior renters in the bottom income quintile had net wealth less than $1,000, and 35 percent had less than $250. Even among the 10 percent of low-income senior households that do hold retirement accounts, the median value is only $20,000. More susceptible to health-related budget shocks, these seniors need help from housing providers in accessing medical, personal and other care-related services that may be available from other types of providers in their communities.
Unfortunately, there is little hope of relief on any of these fronts. Attempts to raise the minimum wage have met with stiff resistance, and the talk in Washington has shifted from strengthening the safety net to curbing benefits. Along with the looming shortfall in the Social Security fund, Medicare and Medicaid expenses are set to soar when the baby boomers start to retire at the end of this decade.
Even at the peak of the full employment economy in the late 1990s, housing problems in the nation failed to improve, and some even worsened. Without fundamental changes these challenges will continue to escalate, further dividing the two-thirds of Americans who are well-housed from the remaining third who are not — including a substantial minority who must struggle simply to keep a roof over their heads and meet other basic needs.
What does all this bad news mean? It means that there is no meaningful substitute for subsidies to aid not only those who rely on government transfer payments but also a striking number of working families and individuals as well. It means that low-wage workers are in a trap that not only creates continuing financial pressure and high housing cost burdens, but also leaves many with too little to keep their problems from worsening at retirement. It means that these Americans need help with a security deposit, just as homebuyers need help with down payments. And it means that rental housing providers must work together and with providers of health care, child care and other services (which are also badly under-funded) to do what they can to ease the potentially devastating consequences of stagnant incomes insufficient to cover housing costs. Too many low-wage workers are a paycheck away from the streets and sacrifice other basic needs to keep a roof over their heads. But keep a roof over their heads they must, and those on the frontlines of providing low-cost housing have a tough battle ahead to help these workers do so.