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The Other Housing Crisis, What To Do About It, And What It Can Do For You
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:
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:
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.
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.
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Thanks, UPW, for bringing up this important issue.
One reason I'm so determined that taxpayers ought to help as many people as possible to avoid foreclosure is that, by hook or by crook, some pretty low-income people ended up in houses over the past few years. (Something like 30% of home purchases in Baltimore were by single mothers.)
Ironically, even though it turns out those people couldn't afford either the bubble price of their houses or the shady terms of the mortgages, they could afford their house at today's lower prices and interest rates. (Although they might not qualify for financing in today's credit environment.)
The point is that some low income people are now in houses that they own. Figuring out a way for them to stay would provide a measure of stability to a group of people who have had chronic trouble finding stability.
I realize this concept doesn't address the need to make inroads on affordable housing for the very poor, but I think it would help out the people at the top rungs of the bottom of the economic ladder.
Your thoughts?
November 23, 2008 1:25 PM | Reply | Permalink
Thanks for the comment erica. I agree that it's important to keep as many people in their homes as possible, for all the usual reasons. But there actually is an affordable housing angle to this too.
The credit crunch has made it harder for developers to get financing for new affordable housing projects, and foreclosures have hit not only homeowners but also owners of rental housing, which often results in tenants having to move out. So there's two ways that low-income renters have been affected by the current crisis.
Now consider where all those foreclosed homeowners typically end up living: rental housing. Granted, they may not be competing directly with low-income renters for housing. But the overall increase in demand for rental housing, at a time when it's difficult to increase supply, makes things even less favorable for the latter with respect to cost and/or availability.
November 23, 2008 7:58 PM | Reply | Permalink
...foreclosures have hit not only homeowners but also owners of rental housing, which often results in tenants having to move out.
Very true. I'm amazed that the current bailout program doesn't even consider rental property owners in hard-hit neighborhoods. To my way of thinking, this would be a perfect time to offer small-time property owners help with their mortgages in return for the owners' commitment to a behavior covenant with their renters and neighbors. (It would involve things like providing landlord contact info for all neighbors, participating in neighborhood events, making sure tenants don't cause trouble, etc.)
I gotta say if we turn our "ownership society" into a "rentership society" I hope we're ready for the drop in urban (and probably rural) stability that we're going to face.
I find that most people still think of this as an economic crisis and haven't yet grasped the impact beyond the financial/employment arenas. Is that your experience as well?
November 23, 2008 8:23 PM | Reply | Permalink
I'm not sure what you mean. Are you referring to the housing aspect? If so, I think people are very much aware of it, just that the responses have been a lot more piecemeal and less headline-grabbing.
November 23, 2008 10:13 PM | Reply | Permalink
Well, yes. I think most people believe that there's some kind of collateral damage we have to endure as a result of the "housing correction" and when that's done, we can get going on the rest of it. But I think that by making housing a toxic investment, we've created, if not a bottomless pit, a really deep one. Jobs don't last any more, marriage doesn't necessarily last. How will ordinary people achieve stability/prosperity if not through home ownership?
Seems like a myth we've messed with a bit too much.
November 24, 2008 8:24 AM | Reply | Permalink
Well, homeownership is going to remain out of reach for a lot of people even in the best of times. That's why I think affordable rental housing is such an important issue.
I think it's certainly possible to rent and achieve financial stability, and I think one's inability to buy a home shouldn't be an obstacle to achieving that to some reasonable degree.
November 24, 2008 7:05 PM | Reply | Permalink