By now we are all quite familiar with the mortgage crisis that followed hot on the heels of the burst housing bubble. However, you probably have not heard much about the other housing crisis. It has been as quiet as it has been persistent, year in, year out. This crisis, I would argue, is the central obstacle to upward mobility in America today. It is the crisis of affordable housing.

The National Low Income Housing Coalition published a report earlier this year, entitled Housing at the Half: A Mid-Decade Progress Report from the 2005 American Community Survey (PDF), and its findings are telling:

• There are 9 million extremely low income (ELI) renter households earning less than 30% of the median income for the state in which they live. ELI households comprise one in four renters, an increase of 15% from 2001 to 2005.
• The ratio of housing costs to income for ELI renters was 83% in 2005, compared to 75% in 2001.
• 6.4 million ELI renters spend more than half of their income on rent.
• There are only 38 affordable and available (some higher income renters live in housing that would be considered affordable to ELI renters) for every 100 ELI renters.
  

Debilitating housing cost burdens aren't limited to ELI renters. Renters and homeowners alike, higher up the income ladder, contend with excessive housing cost burdens as well. But the scale and scope of ELI renter burdens alone suggest that something should be done to address the silent crisis of affordable housing.

Adequate shelter is a basic need, and people will pay what they must to keep a roof over their head, or else join the ranks of the homeless. All too often, this means cutting back on many other necessary expenditures (e.g. food, health care) and foregoing altogether long-term investments (e.g. childrens' college education, retirement). Housing costs also, of course, cut into the average household's ability to sustain aggregate demand.

But when a crisis comes a knocking, so too does opportunity. The two-fer logic of short-term employment and long-term productivity that investments in rebuilding infrastructure and developing alternative energy technologies applies equally here. Details await sorting out, perhaps in another post here, but in a nutshell, an investment in affordable housing on the order of a few tens of billions of dollars accomplishes the following:

• it helps reinvigorate the moribund construction industry by giving developers and builders something to build.
  
• it creates jobs refurbishing existing affordable housing and building new affordable housing.
• it increases the supply of affordable housing, thereby making housing more affordable to more households.
• it lowers the cost of housing for more households, leaving a larger share of income to boost aggregate demand, which is good for everyone.
  

In short, addressing the longstanding affordable housing crisis would go a long way toward addressing a lot more than the longstanding affordable housing crisis.


 

Today's New York Times takes a look at the state of the social safety net as the economy enters what is certain to be a serious recession. Unsurprisingly, unemployment insurance, welfare, Medicaid, and other forms of public assistance are harder to come by these days than during past recessions. For example:

According to the report [by the Center for American Progress and the National Employment Law Project], tighter rules mean that just 37 percent of unemployed Americans are receiving jobless benefits today, down from 42 percent during the 1981-82 recession and 50 percent during the 1974-75 downturn. Americans today receive a maximum of 39 weeks of unemployment benefits, down from 65 weeks in the 1970s. The average weekly benefit is $293. And low-income workers -- a category that tends to include women and those in part-time employment -- are one-third as likely to receive unemployment insurance as higher-income workers.

Another liberal group, the Center for Budget Policy and Priorities, said that as states have imposed tougher restrictions on welfare, just 40 percent of very poor families who qualify for public assistance today actually end up receiving it, compared with 80 percent in the recessions of 1981-82 and 1990-91.

Downturns like this one are a good reason to have a sturdy and adequately funded social safety net. Unfortunately, apart from extending unemployment insurance, it's not likely that any meaningful spending increases for public assistance programs will come until the the FY 2010 budget passes, many months (or even a year) from now. It could happen sooner--the FY 2009 budget is still on ice thanks to a continuing resolution that expires in March--but Obama and Congress will have bigger things to worry about in their first 100 days than, say, expanding low-income housing assistance.

One other thing about the NYT piece, incidentally. Toward the end, there is some rather curious phrasing of the relationship between social programs and the economy:

Economists say that it is sometimes hard to determine whether certain social programs fuel recessions or fight them. As 1.2 million workers have lost their job this year, for instance, many have turned to Medicaid, causing some states to spend more on health care, boosting the economy in the process. At the same time, some cash-strapped states have cut Medicaid, losing federal matching funds and slowing down the economy.

Some see a similar effect with the Earned Income Tax Credit. "The E.I.T.C. is a fantastic wage subsidy program that's been hugely effective in reducing poverty, but when jobs disappear, the E.I.T.C. doesn't help you," said Jared Bernstein of the Economic Policy Institute, a liberal research group. He was one of the economists invited to a meeting of President-elect Barack Obama's top economic advisers on Nov. 7. "When people lose their jobs, they often stop receiving E.I.T.C., and I fear that the program becomes less countercyclical and more pro-cyclical, meaning it reinforces recessionary forces," he said.

Perhaps I'm misunderstanding here, but this doesn't make sense. It's not that Medicaid or the E.I.T.C. themselves run the risk of fueling a recession. In Medicaid's case, the problem is that states are "cash-strapped", and in the E.I.T.C.'s case, the problem is higher unemployment. Medicaid cuts and reduced E.I.T.C. benefits are symptomatic of a recession, but just because they're less available doesn't mean they're pro-cyclical.