How did we create a society where we can’t afford to live in our own country?

“America’s affordable-housing stock dropped by 60 percent from 2010 to 2016” (Washington Post) is kind of interesting on its face:

The number of apartments deemed affordable for very low-income families across the United States fell by more than 60 percent between 2010 and 2016, according to a new report by Freddie Mac.

At first financing, 11 percent of nearly 100,000 rental units nationwide were deemed affordable for very low-income households. By the second financing, when the units were refinanced or sold, rents had increased so much that just 4 percent of the same units were categorized as affordable.

… affordable housing without a government subsidy is becoming extinct.

The study defined “very low income” as households making less than 50 percent of the area median income, and “affordable” rent as costing less than 30 percent of household income.

During the period in which the U.S. was a market economy this never happened, did it? People who were poor found crummy places to live. If poor Americans couldn’t could afford the rent on a crummy place then the landlord would have to reduce the rent.

Can we blame income inequality? Supposedly it was higher 100 years ago and poor people were able to afford crummy houses back then.

Can we blame rich people stealing all of society’s wealth? Again, wealth inequality was very high 100 years ago. In any case, a rich person may cause us to become sick with envy but he or she doesn’t usually occupy 50 apartments at a time. So it doesn’t make sense to blame rich people for reducing the housing supply, does it?

How about population growth? We’re stuffed with 325 million people now, with planeloads of immigrants arriving every day, and immigrants choosing to have lots of children once they’re settled here. (“Foreign-born Americans and their descendants have been the main driver of U.S. population growth, as well as of national racial and ethnic change, since passage of the 1965 law that rewrote national immigration policy. They also will be the central force in U.S. population growth and change over the next 50 years.” (Pew)) But we still have land on which we can build apartment buildings and, in a lot of cities, we can also build higher.

Finally there is government, which promises to pay for housing if a low-income resident of the U.S. can’t afford it (“means-tested public housing”). That’s a change compared to 100 years ago. Landlords can insist on rents higher than poor people can pay because they know that the government will pay. (“As a former affordable housing underwriter, I’d say that affordable housing is 1% altruism, 99% profit..” (Wall Street Oasis))

I’m wondering if the most likely answer is a change in the definition of “housing.” Americans live in roughly twice as many square feet per person compared to the 1950s. So the standard low-income unit today might be larger than the standard high-income unit circa 1950.

Could it be selective click-bait journalism? They picked 2010 as the base year because the economy was still sluggish after the Collapse of 2008 and therefore cheap housing was unusually cheap? 2016 is therefore less affordable than 2010, but not that different in affordability compared to 20 or 30 years ago?

Could it be that low-income Americans circa 1900 could afford housing, but it was so cramped that it didn’t meet our modern definition of “housing”?

What about blaming/crediting Malthus? On a planet populated by nearly 8 billion people, not everyone can expect to have his or her own room? (world population was roughly 1.6 billion in 1900) Evidence for a housing “shortage” being inherent given current population levels sharing only a single Earth is that newspapers in England are running the same stories, e.g., “Housing crisis threatens a million families with eviction by 2020” (Guardian): “Shelter says that in 83% of areas of England, people in the private rented sector now face a substantial monthly shortfall between the housing benefit they receive and the cheapest rents, and that this will rise as austerity bites and the lack of properties tilts the balance more in favour of landlords.” The situation seems to be similar throughout Europe, unless someone wants to live in a barn on a farm that is 50 miles from the nearest job: “Wild Rent Hikes Are Leaving Europe’s Cities Totally Unaffordable” (Vice)

32 thoughts on “How did we create a society where we can’t afford to live in our own country?

  1. You missed NIMBY dominated urban planning processes in many of the areas where it makes the most sense to expand housing stock.

  2. So it is not defense and moon exploration programs that are bankrupting US, it is housing. Interesting that housing in Switzerland seems to be old and very expensive, but population only about twice as big than in 1900th.
    The problem in US is centralization and the fact that there are now fewer industrial centers than in 1900 in the USA, when entire US populaton was well under 80,000,000.

  3. The CW in the Bay Area is that over here it’s 100% regulatory — zoning rules and, moreover, NIMBY-friendly and unpredictable processes. I have several horror stories about friends of friends in Berkeley running into tons of roadblocks when trying to build or improve anything.

  4. Phil, I am an expert on this subject. The answer of course is high taxation and excessive regulation. All of the truly unaffordable areas in our country have draconian rent control regulation. Interestingly you live in one of the few areas in America where rent control has been repealed and superseded by a state law. Perhaps you can report back on how the housing market has changed. I am considering a book. Real World Rents: Price Control, Zoning and Taxes in the 50 states. What do you think?

  5. Where I live, there are tons of vacant housing options. The reason is, of course, regulatory. When a tenant can just decide to not pay you any rent and get at least six months of time to live there and then strip the place, people let their huge 3 bedroom basement apartments sit unused. Or their two bedroom with full bath mother in law standalone. Why sign on for hassle and expense and property damage? Or even possibly jail time because someone was involved with drugs on the property?

    It used to be possible to rent your nice basement out, but now that’s not feasible for an individual family without corporate finances as a backstop. But there is an investment among many commentators in ignoring the regulatory elephants in the room.

  6. Everything the government dumps credit and tax breaks into becomes un-affordable: housing, education, health care.

  7. The Granola Shotgun site has some good posts about this, also the Strong Towns site. This is one.

    If you buy a cheap place in a cheap part of town and then try to add a second story or something, you will face months/years of legal hassle, even though the neighborhood is basically blighted. Or if you build a small house in your back yard, you will have to tear it down. Or rent out your basement. Anything that isn’t single family house detached housing with a yard, setbacks, sprinklers, etc is forbidden by code or insurance or HOA etc etc.

  8. > Anything that isn’t single family house detached housing with a yard, setbacks, sprinklers, etc is forbidden by code or insurance or HOA etc etc.

    This is largely about circumventing various anti-discrimination laws. People can’t legal redline or establish restrictive covenants that screen out undesirables, so the only way to maintain a neighborhood is through price discrimination. Keep it unaffordable to undesirables. Mandate large lots and set the whole area up so as to require ownership of two cars.

    If it were legally possible for residents to collectively control who moves into a neighborhood, then there would be much less interest in all these measures that restrict housing supply and inflate costs. Of course people would rather pay less for housing. The only reason they pay as much as they do is to escape certain people. That’s the main point.

  9. There is plenty of cheap housing in Trump Territory, but you would have to put up with the Deplorables. So just stay on the coasts and buy your house and one for the poor.

  10. “During the period in which the U.S. was a market economy this never happened, did it?”

    I don’t think you can claim this from just first principles. I found some numbers suggesting that even workers earning the median wage had to spend about 30% of the income on rent in the 1890’s.

  11. That’s part of it but not even close to the whole story. Part of it is a development ponzi scheme where development doesn’t pay for itself, it doesn’t generate a decent ROI, but developers make money. The developer says, I’ll build this development on the edge of town, I’ll hand the keys over to the town, and all the town has to do is maintain the sewage and roads. That’s fine, for the first twenty years, taxes more than cover costs. But every year the deferred maintenance costs build up. And because the development is so spread out and mostly residential, the costs are immense. Meanwhile, the old town core is being hollowed out by the Walmart on the edge of town. And then Walmart closes up after 20 years and opens a supercenter 20 miles away. The only part of this whole scheme that pays for itself is the old town core, the historic development pattern, which has a taco shop, a nail salon, a tax preparer, etc. Meanwhile, a new developer promises to build a new development on the other side of the town, and the ponzi continues as the old neighborhoods slowly decline and taxes are hiked to cover the deferred maintenance, further accelerating the decline. The only development pattern that pays for itself is dense, traditional towns and cities, but that’s not how we build any longer. And the reason for that probably has a lot to do with cars, not racism.

  12. I’m a former planning commissioner in the Bay Area. The reason housing is so expensive is because we have added so many more jobs than housing units in the last 40 years. And the reason for that is because each city in the Bay Area has zoned the vast majority of its housing-designated land for only single family homes. It is illegal to build apartment buildings and condos in the vast majority of the Bay Area. Just pull out a zoning map of, say, Sunnyvale or Mountain View and you’ll see it for yourself. And when they are built, they’re subject to deep regulations that limit the height of the development, limit how much space it can take up on the lot, and very crucially, require a very high amount of parking for each housing unit. The latter prevents urban-style development of the variety seen in nice urban areas because large parking requirements limit the number of housing units built, and make the site less walkable and pedestrian friendly- you want to walk by shops and cafes, not large parking lots.

  13. Also, with respect to headlines in London, Paris, Sydney, with respect to housing – the story is the same there. They also have extensive regulations with regard to housing. And all major cities have a huge contingent of people that don’t want to see more people on their streets, don’t want to share their parks with more people, don’t want new kids in their schools, don’t want more neighbors (especially those they perceive as poorer), and don’t actually benefit from housing getting cheaper- they benefit from it getting more expensive. Those people are existing homeowners. So they put in all sorts of restrictions which make building housing rare and extremely expensive.

    Why do homeowners have so much power? Because they are richer and have more time on their hands than renters and the people that are struggling with housing affordability. They are also generally older and therefore more politically connected. Which means they go to city council meetings which take hours on weekdays, they show up to complain about individual housing projects, and they funnel a ton of money into local elections. Because they’re the only people who show up to local city council meetings, politicians believe they represent the “will of the people.” And certainly, it’s homeowners where local politicians get the vast majority of their campaign funding from.

  14. David Harvey studied urbanisation of capitalism extensively and is a go-to reference on its many ills. Malthusian pseudoscience is as shobby as it was 200 years ago when posited. Also, there is no crisis in China, Korea or Japan.

  15. No crisis in China? suggests that buying and renting in Shanghai are both out of reach based on median incomes. Of course that is the Chinese equivalent of New York City. puts Tokyo right on the edge of “unaffordable”.

    I can’t find anything about Korea (so maybe there is no affordable housing crisis there? Otherwise people would be writing about it?).

  16. I moved into a two story house built about a hundred years ago with narrow walkways between houses. Totally in violation of current bylaws. Interestingly the rebuild cost is higher than for newer houses. Solid plaster and solid wood stairs, doors and trim – not fancy, but not plastic or MDF.

    The problem is that you have to apply for development waivers for anything structural or additional. You have to get your neighbors on board first so they won’t object.

    There’s talk about loosening restrictions on improving heritage properties.

    The city puts serviced lots up for sale – $300K + for view lots, less for multi unit housing next to arterials.

  17. Blame it on idiots. 99% of the country are idiots. The leadership are idiots.

    Every year we spend $100 billion dollars of public money on educating a population of $300 million people.

    By contrast, every year we spend $600 billion dollars or more murdering people in other countries for various reasons, or preparing to murder them.

    We’re really good at murdering people. That’s all anyone knows how to do. So everyone is murdering their neighbors using various methods such as money, and nobody is smart enough to fix it or realize that it’s a problem in the first place.

    I mean look at this fact, it’s 2017 and a huge number of people still believe in God. You might as well say it’s 2017 and a large number of adults think Santa Clause is real.

    The only explanation is they are idiots.

  18. Shanghai housing prices are rising for good reason, but there’s still plenty of affordable rental units throughout the city.

  19. Tokyo is ‘affordable’ if you are willing to lessen your living space or sit longer on a train from the suburbs. That’s why the greater Tokyo Metro area includes cities like Yokohama or Chiba where many Tokyo workers live and commute a long ways into Tokyo.

  20. I am most familiar with the UK. I think that one of the issues is that housing is being used as a store of value, particularly in the current low interest rate environment. It also makes good business sense to buy property to rent out – the rent covering mortgage and other expenses and additional benefit coming to the owner from rising house values. The government has tried to address some of these issues with changes to taxation of rental income and stamp duty but I think a more radical change would be beneficial: a property tax, based on value and progressive (based on total holdings). Some of this might be offset against rates, part of inheritance tax and stamp duty.

  21. In urban northeast cities like Philadelphia and Baltimore, when the city asks for proposals to develop affordable housing, what they get back are plans with many less than the potential total number of units, and development prices _ten times higher_ than a private development in the same space.

    So the city pushes back (after some minor public outcry) and asks them to redesign, and…. nothing happens. Nothing gets developed. Eventually it falls back into private developers’ hands. No new affordable housing develops.

    And of course, when affordable housing is developed, it is done in places which are nowhere near a grocery store, school, or jobs, and the residents are effectively “fenced in” to poverty.

  22. Joe: I don’t see how low interest rates or people wanting to buy property and then rent it out can, in an Econ 101 environment (which of course we know to be a fiction!), result in high rents. The low interest rates should encourage construction of new housing. If ownership changes but an apartment or house remains on the rental market, the overall supply of rentals hasn’t changed.

  23. former planner demonstrated classical example of fascist and socilalist mindsets: people participating in democratic process and customers (in this case owners) are the problem! I bet owners did not vote for high taxes on themselves.

  24. The main culprit, of course, is the global trend towards printing more and more money (aka ridiculously low interest rates).
    The average Joe doesn’t get to touch the faucet of newly printed money, and the fat cats that do know better than to keep their money under the mattress, so they buy real state around the world.
    Fiat money + central banks is guaranteed to provoke booms and busts, only problem is that most of the rewards of the booms are concentrated on the well connected, and the downside is shared between all through bail-outs.

    There is also the regulatory, rent control etc. But I guess they only explain about 10% of it.

  25. Philg,

    You have to understand that it’s not only low interest rates: it’s inflation. That’s part of how the magic fairy dust know as USD works. More money in circulation that forces all prices up, only not all prices are affected the same way. People may say that inflation is under control, but housing prices going up is inflation too! If rent doubles and your wage keeps the same you are actually making less money every year.

  26. Two other factors for the rent and home price increase are:

    1) More young folks are moving out to live on there own today then in the past.
    They are looking for a nice place to live and are paying for it even when they are living paycheck-to-paycheck.

    2) More young folks attending collage which means more housing need. Schools are now demanding students live on campus or rent near the campus.

    Both of those create a market to invest in: if you have the cash to buy and rent-out, that’s an investment opportunity. Even better, you can pass on your investment to your kids and not pay taxes.

  27. All I can say is that Social Entitlements are the opium of modern society. The more of it you provide, the more of it is needed and the worse the societal ills they are supposed to address gets.

    If you cannot afford to live in a particular neighborhood, don’t live there! If you can’t afford a home, you shouldn’t buy it. Move to the country side or a different city or a different state. Buy a cheaper home or rent a crummy room. When you subsidize rent, give out mortgages or force developers to dedicate a certain percentage of developments to low income housing, you are inflating the prices of housing for everyone else who is not getting the subsidy and you often times create a bubble market.

    If people — who cannot afford to live in a given area — are forced to relocate, a few things will happen naturally. (1) Demand for housing falls and, in time, prices fall. (2) Labor supply falls locally and, in time, wages go up as scarcity compel employers to offer more to hire the persons they need. (3) The areas which people relocate to gets a new supply of labor and demand for goods and services, creating alternate centers of economic activity. It’ll all even out in time.

  28. Yes: In my humble opinion – this is simply “Human Overpopulation meets Capitalism.”

    Supply vs. demand.

    Spaceship Earth’s population increasing at the rate of about 10,000 each hour, or, 237,000 each day.

    End of story.

  29. dwight (lower case): Evidence in support of your simple supply v. demand theory: the existence of at least one next to a lot of cities worldwide, invariant across a lot of styles of economic policy. But that also plays into my point about the definition of “housing”. In countries that offer no welfare, by definition people can afford the house that they live in but it may be an extremely crummy house.

  30. it was Dwight Looi # 29 says. In US there is plenty of empty land and abandoned rust belt cities and some of them are being re-invigorated with NY and CA refugees and such.
    Are there shanty towns in the most densly populated Singapore? Or densly populated Japan? Or western Europe? Or Israel?
    A lot of it depends on civic society, culture, individual responcibility and societal organization.

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