Housing and Wealth

Homelessness as a symptom

The economic underpinnings of homelessness and the uncertainties of living in rental housing can seem distant. Having a place to live, to have shelter, is one of those essentials of existence that many of us only rarely consider. After all, many in my age cohort have a secure, low interest, 30-year mortgage contract that offers long term cost stability (and, by the way, an incentive to stay put). Some of us even own our dwelling free and clear. Many of us got to this point via a “starter home” in a time when places to live were far more affordable than they are today. Low interest, low downpayment, FHA (Federal Housing Administration) or VA (Veterans Administration) loans gave us a boost toward the lowest rung of the ladder of home ownership and equity building. Some (many?) of us benefited from parents who could offer some financial help or, ultimately, an inheritance that got us started. 

Participating in the rental market is a different experience. I remember the subtle sense of insecurity my parents projected during my teen years when we lived in a rental apartment in a duplex owned by the grandfather of one of my high school classmates. Fortunately, we felt relatively sure that if the monthly rent were increased it would be gradual and incremental—livable—but the uncertainty was still felt. I never have, but I can imagine that living in a rental unit owned and managed by faceless companies bent solely on making a profit for their investors would feel even more uncertain.

Last Friday, January 26th, an article appeared in the Spokesman (from the Washington Post) titled, “Rent has never been less affordable, especially for the middle class.” The article presents statistics from a new report from the Harvard Joint Center for Housing Studies. The take-home is that more than half of American households who live in rentals now spend 30% or more of their income on housing costs. Spending more than 30% of household income on housing is the definition of housing “cost-burdened”. Even more remarkable, half of those households, i.e. 25% of all renting households, spend more than 50% of their income on housing costs. (= “severely cost-burdened”). This is a new high—and it goes hand-in-hand with rising numbers of evictions and rising levels of homelessness. (See P.S. for more data)

Those 30% and 50% statistics have two components: the rising levels of rents and the not-so-rising levels of income. The Spokesman article notes that rent growth for professionally managed apartments was 15.3% in early 2022. That rate of growth has now leveled off—but, like inflation in general, while the rate has stabilized, the high prices remain, so the rental housing affordability squeeze on incomes persists even as pandemic-related protections are being withdrawn. 

How do we re-balance this? Builders and developers would, of course, like you to believe that we just need to build our way out of the problem, i.e. satisfy the demand side of the supply and demand equation—but it’s not that simple [the bold is mine]:

A big reason is that there just aren’t enough units available. There’s been progress, with tens of thousands of newly constructed homes expected to become available this year. But the Harvard study notes that the benefits won’t be felt equally – and that the fresh supply won’t tame housing costs for renters across the spectrum.

For starters, new construction often targets the higher end of the market, and those prices can stay high because there’s still plenty of demand among wealthier tenants. At the same time, there’s been a culling of lower-cost units as landlords chase higher rents or sell properties or as more affordable units fall into disrepair. In 2022, only 7.2 million units posted rents under $600 – a loss of 2.1 million units compared with a decade before, when adjusted for inflation.

“Supply is very important. I will certainty underline that,” Airgood-Obrycki [one of the authors of the Harvard Study] said. “But the people who are most cost-burdened are not going to see the immediate benefits of that supply.”

In the simplified and idealized free market economy prices go up until supply satisfies demand. If supply overshoots demand, then prices will fall. But that formulation fails when you’re not talking about some sort of uniform “widget”. The biggest profits in the building of dwellings come from satisfying high end demand, not from providing housing for folks living on the economic margins.

An extreme example of this phenomenon are wealthy individuals who buy, decorate, and maintain several homes in one area in what appears to be a hobby rather than profit-seeking in re-sale or rental. (Yes, there are or have been several anecdotal examples of such individuals in Spokane.) Rare as this behavior among the wealthy might be, it still serves as an illustration of demand soaking up supply—and thereby driving prices—on the high end. There is also the phenomenon of people of means continually seeking more square feet per person than most of humanity is perfectly happy to live in. 

There are other forces at work that are harder to recognize and quantify. Consider, for example, the rise of internet-facilitated, profit-making short term rental platforms like Airbnb and VRBO over the last couple decades. The ripple effects both from the renters and the landlords of this new market are many and hard to quantify, but one effect must certainly be to remove a quantity of what would have been long term rental units from the market. 

Governments at the municipal, county, state, and federal levels can all make adjustments to the economic and regulatory landscape attempting to help more people find housing they can afford. These include changes in zoning, permitting, regulation, and taxation that concern building and short-term rental requirements. Other changes open to government include legislation that would set limits on the allowed rate of rise of rental charges. Every one of these changes will be loudly contested by various interest groups. Folks embedded in the developer/real estate industry like Spokane County Commissioner Al French will, of course, will claim the only solution lies in cheapening the cost of building homes and apartments by nixing code requirements to fit new construction with climate-friendly features. (After all, if you deny the reality of human-caused global heating or imagine you can insulate yourself from its effects why would you argue otherwise, since nixing these features would increase builders profits?) 

Many of the possible tweaks mentioned above are worthwhile, particularly in the relatively short run, but I submit that the main problem we face is that of overwhelmingly lopsided demand at the top end of the market driven by lopsided distribution of wealth in the economy. The best long term solutions to this problem start with fully funding the IRS so it is capable of enforcing existing tax regulation. Then reverse the tax cuts on high income levels that Republicans and their think-tank-mouthpieces have passed over the last four decades while pretending that the effects will “trickle down” to the rest of us. 

Keep to the high ground,


P.S. There are currently around 332 million people in the U.S. contained in 129 million households. About 44.8 million of those household, or 38% of those households, live in rental dwellings. (A side note: household is a group of people, not necessarily related occupying the same dwelling. A “family household” is a subset of households in which the householders are related.) If you are interested in delving into numbers and trends, check out this webpage from which I retrieved a lot of this data: