Why Housing Affordability Needs To Be Reevaluated

Traditionally, academics and policymakers have determined whether an individual or family can afford to live somewhere by simply dividing their housing costs by their income. If at least 30 percent of a person’s or family’s income goes to housing and related expenses like utilities, then their household is said to be “cost burdened.” The ratio is not determined by economic or social analysis; rather, it is simply the number Congress chose in 1981, which has not been changed nor updated since. Although this approach is easy to understand, it falls short of accurately reflecting the financial burdens people actually experience. This is a problem because many federal housing programs rely on this 30 percent measure to determine rent.

Measuring Housing Affordability

This ratio-based approach breaks down for Americans with extremely low incomes. If wages decline, a middle-class family could potentially downsize its home or related expenses. When people live below the poverty line, however, they must spend above a minimum just to reside in a home that meets the local building codes and meets basic human needs.

“Shelter poverty” analysis provides an alternative to the traditional approach. Shelter poverty is a concept that was first developed by Michael Stone, a professor of community planning, in the 1970s. In this analysis, instead of comparing housing costs to income, housing costs are evaluated in the broader context of the household’s other basic needs, including food, clothing, and transportation. If housing costs are high enough that household’s residents cannot cover these basics from their income, then they are said to be experiencing shelter poverty. The challenge for this method lies in determining how much money must be spent to meet other needs, especially because the federal government no longer publishes such estimates for non-housing necessities.

The Self-Sufficiency Standard, created by University of Washington senior lecturer Diana Pearce in the 1990s, addresses this issue by compiling estimates of basic expenditures from various public and private sources, based on the county of residence, the number of persons in the household, and the age(s) of any children present. This information can be combined with anonymized responses to the American Community Survey, a nationally representative survey conducted annually by the U.S. Census Bureau. The combined data make it possible to determine whether each household in the sample is experiencing shelter poverty. This method also helps determine if, and by how much, households fall short in covering their expenses. That is called the “affordability gap.” Using estimates developed in this way, analysts can extrapolate out to the general U.S. population.

Housing Affordability in Ohio and South Carolina

A shelter poverty analysis was conducted for Ohio renters who responded to the American Community Survey, and for sampled South Carolina renters and homeowners (including both mortgage holders and those who own a home free and clear). In both states, the shelter poverty method generates substantially different results than a basic cost burden analysis. Although overall rates of economic distress are generally similar using the two different measures, the total affordability gap using the shelter poverty measure is substantially larger. Among Ohio renters, it would take over $3 billion annually to address cost burdens using the 30 percent metric, but nearly $15 billion per year to mitigate shelter poverty entirely. The disparity is somewhat narrower in South Carolina, but a similar gap exists.

There are differences in the areas of need as well. In both Ohio and South Carolina, the prevalence of a cost burden measured by the ratio system is higher than the burden of shelter poverty in suburban areas with the highest median household incomes. In economically distressed urban and rural areas in both states, far more households experience shelter poverty than excessive ratio cost burdens. In other words, it appears that current standards of housing affordability overstate the needs of families who are most able to pay and understate burdens for those least able to do so.

Improving Housing Affordability

Overall, experts may not be accurately describing the magnitude and nature of housing affordability challenges in the United States. Those experiencing shelter poverty are found in nearly every community nationwide. In South Carolina, which is not by national standards a particularly expensive state to live in, households experiencing shelter poverty (nearly one-third of all individuals and families statewide) have an average affordability gap of $14,330 per year, or about $275 per week.

Meanwhile, the geographic distribution of shelter poverty suggests that the 30 percent measure distorts the landscape of housing affordability. That distortion happens because there are households that choose to spend more than 30 percent of their income voluntarily and are thus inappropriately categorized as cost burdened. Meanwhile, others spend less than 30 percent on housing costs but still find they do not have enough to make ends meet. Taken together, failure to consider these issues leads decision-makers to understate the level of economic inequality among U.S. households.

It is worth noting that affordability gaps are not only measures of deprivation experienced by less fortunate Americans. These gaps also reflect economic activity that is lost due to the inability of many households to meet basic needs. Ohio renters have about $15 billion less to spend each year as consumers in the state’s economy because they lack access to affordable housing.

Although housing costs have become more politically salient in recent years, the scope and scale of the problem have not been fully articulated. Housing is the single largest expense for most individuals and families, and it is typically regulated at the county and municipal level through zoning codes and related ordinances. Local policymakers must consider whether their policies are harming the welfare of residents and businesses alike by artificially restricting housing supply or preventing construction of subsidized housing.

All Americans have a stake in better measurements of housing affordability – and better solutions to the shortfalls many people face in this vital area. A shortage of affordable homes can have numerous downstream effects. Employers may face high rates of labor turnover if employees cannot find places to live in the vicinity. Longer commuting distances increase the amount of traffic and contribute to urban sprawl, which has a variety of negative environmental, social, and economic consequences.

To find solutions, local officials must engage with homeowners, renters, business owners, and nonprofit groups, as well as housing policy experts in the public and private sectors. To ensure communities across the country have a path toward a prosperous and sustainable future, everyone must be able to find a suitably located and affordable place to call home.

Opinions expressed in this brief are those of the author alone, not the State of South Carolina or any other entity.

Read more in Bryan P. Grady, “Shelter Poverty in Ohio: An Alternative Analysis of Rental Housing Affordability,” Housing Policy Debate 29, no. 6 (November 2019): 977-989.

Women Have Fundamentally Different Journeys to Financial Wellness, Merrill Lynch Study Reveals

A new Merrill Lynch study conducted in partnership with Age Wave, “Women and Financial Wellness: Beyond the Bottom Line,” celebrates the progress made by women while examining the financial challenges women still face throughout their lives, and offers potential solutions. The study finds that 70 percent of women believe that men and women have a fundamentally different life journey, reinforcing the need to better understand women’s financial concerns and opportunities. The study is based on a nationally representative sample of 3,707 respondents, including 2,638 women and 1,069 men.

“Women’s life journeys are not only different than men’s, they’re different than the life journeys of our mothers and grandmothers.”

“Women have come a long way both personally and professionally, but when it comes to their finances, there is still a trail left to blaze,” said Lorna Sabbia, head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch. “As women are at a tipping point to achieve greater financial empowerment and independence, it is even more essential that we support women in helping them pursue financial security for life. This includes encouraging women to invest more of their assets, save earlier for retirement, and pursue financial solutions that closely align to their personal values and life paths.”

Findings include:

Women look beyond the bottom line
While they definitely care about the performance of investments, women view money as a way to finance the lives they want. Seventy-seven percent say they see money in terms of what it can do for themselves and their families. Eighty-four percent say that understanding their finances is key to greater career flexibility. When it comes to investing, about two-thirds of women look to invest in causes that matter to them.1

Superior longevity
Longevity needs to be a factor in everyone’s financial strategy, but more so for women, who on average, live five years longer than men. Eighty-one percent of centenarians are women.2 While 64 percent of women say they would like to live to 100, few feel financially prepared, with 44 percent of women stating they worry they will run out of money by age 80.

Confidence in all but investing
The study finds that women are confident in most financial tasks, such as paying bills (90 percent) and budgeting (84 percent). However, when it comes to managing investments, their confidence drops significantly; only 52 percent of women say they are confident in managing investments, versus 68 percent of men. Millennial women were the least confident at 46 percent. Of women who do invest, their financial confidence soars; 77 percent of women who invest feel they will be able to accumulate enough money to support themselves for life.

A trail left to blaze
The study also finds how important understanding the gender wealth gap (as opposed to the wage gap) and wealth escalators are to women’s financial wellness. Women experience a gender wealth gap – the difference between men’s and women’s financial resources across their lifetimes, including earnings, investments, retirement savings and additional assets. This wealth gap can translate to a woman at retirement age having accumulated as much as $1,055,000 less than her male counterparts.3Contributing factors include:

  • Temporary interruption, permanent impact: Many women experience lasting effects when they take time away from the workforce to provide care, including for aging parents, their own spouses, and their own children. One in three mothers who returned to the workforce after caring for children says she took on less demanding work, which resulted in lower pay. Twenty-one percent say they were paid less for the same work they did previously.
  • Greater lifetime health and care costs: The average woman is likely to have higher health costs than the average man in retirement – paying an additional $195,000 on average4 – due to living longer and having to rely on formal long-term care in later years.

“Women’s life journeys are not only different than men’s, they’re different than the life journeys of our mothers and grandmothers,” said Maddy Dychtwald, co-founder and senior vice president of Age Wave. “We have more opportunities and choices when it comes to family, education and careers, but we’re so busy taking care of other people and other priorities, we often don’t take the time to invest in ourselves and our future financial wellness. If more women can actively take control of their financial future all along the way, it would not only benefit them, but also their families and our society overall.”

Doing more to promote financial wellness
Bank of America’s Global Wealth and Investment Management business serves affluent and wealthy clients through two leading brands in wealth management: Merrill Lynch and U.S. Trust. Advisors specialize in goals-based wealth management, including planning for retirement, education, legacy, and other life goals through investment, cash and credit management.

“In a period of remarkable advances for women in society, a remaining frontier is financial well-being,” said Andy Sieg, head of Merrill Lynch Wealth Management. “It’s a basic component in the quality of life. This report lays out a blueprint for helping to achieve it – and we at Merrill Lynch relish the opportunity to provide women everywhere with advice and support that can make a meaningful difference at every stage of their lives.”

Through its advisors, educational offerings and other resources, Bank of America is positioned to help clients overcome the common challenges presented in the study by:

  • Addressing women’s top financial regret: not investing more. Forty-one percent of women say not investing more is their biggest regret. Women cite lack of knowledge (60 percent) and confidence (34 percent) as top barriers.
  • Focusing on disparities in wealth, not just income. Women’s financial security is about more than closing today’s pay gap. It’s about accumulating assets or wealth at all income levels, and increasing women’s access to wealth escalators (e.g., employee benefits such as paid time off and pretax savings opportunities).
  • Breaking the silence about money. Sixty-one percent of women say they would rather discuss details about their own death than talk about their money. Forty-five percent of women report they don’t have a financial role model.

To learn more about women’s financial wellness, read “Women and Financial Wellness: Beyond the Bottom Line.”

Social Work and the Welfare State

As a social worker on the Hill, I have had a front row seat during battles over the welfare state. Usually, the main combatants are Republican conservatives who continue their relentless quest to reduce government’s involvement in providing for indigent Americans and Democratic progressives who believe government must be involved to ensure an adequate safety net. Conservatives want relief for the poor and disabled left to private charity. They believe citizens should not be taxed to provide welfare and other social services and should be allowed to willfully give a portion of their earnings and resources to private caregiving entities. They view the welfare state as an unlawful transfer of wealth—taking from those who worked hard to be successful and giving to people who lack the motivation and drive to do for themselves. They believe providing unemployment insurance to laid-off workers reduces their incentive to go out and find another job. They believe individual effort—personal responsibility—should be the driving force of a healthy economy.

Progressives on the other hand believe society is strongest when people work together to achieve common purposes. Jared Bernstein characterizes this debate as YOYO vs. WITT—“you’re on your own” vs. “we’re in this together”. Somehow, I believe there is more to that phrase in the Constitution’s preamble—promote the general welfare—than just providing security and an orderly society. I believe the founders had to believe in a “we’re in this together” philosophy because they knew cooperation was needed as much as competition to ensure progress. You only need to look at Congress today to understand how dysfunctional competition is without compromise.

After centuries of leaving poverty to private charity, we got the English Poor Laws. The economic crash of 1929 and the Great Depression forced the federal government to intervene in order to keep many Americans from starving. Since then we have been in this endless battle to define the parameters of the welfare state. Conservatives have been working nonstop to rollback New Deal policies. They would like to see the privatization of Social Security and the elimination of unions and other collective bargaining efforts. Progressives have been hard at work protecting safety net programs—preventing the block granting of social welfare programs, fighting against cuts in Medicare, Medicaid and food stamps. All the while the economy is spiraling out of control in the favor of the wealthiest Americans. The top 0.1 percent of American families now own as much as the bottom 90 percent.

 

Inequality-Chart

Economic inequality is the mother of the modern day welfare state. Even conservatives are beginning to understand this. Arthur Brooks, president of the free enterprise promoting think tank the American Enterprise Institute, recently declared that it was time for conservatives to make peace with the welfare state—a startling comment from a hard line conservative. My guess is that he understands it is the price that must be paid for such a high level of economic inequality. In a society where income is distributed more equally, there would be a larger middle class which existed in the middle of the last century. There would be more people working because we would have more consumers with more disposable income. We would have less people needing food stamps and less people would be eligible for the Earned Income Tax Credit.

So, where should social workers stand on the welfare state? We should of course fight to ensure there is an adequate social safety net, but at the same time we should be looking for ways to reduce the number of people who depend on a social safety net which requires a more fair and equitable society—concepts that are foreign to conservatives. Those of us—social workers—who take seriously the profession’s commitment to social justice are the best hope for the poor and middle class. However, if we are not able to present a compelling vision about how we become a more just society then we will spend all of our energy trying to protect a burgeoning social welfare safety net.

Democrats lost big time in the midterm elections not because of the low voter turnout. They should not expect better results in 2016 because the composition of the electorate will be more in their favor. Democrats lost because they failed to present ideas to the American people about how progressive policies would make their lives and their children’s lives better. Had they been able to articulate a path to a more just and equitable society, voter turnout would not have been a problem.

Wealth Inequality: Is the Government Controlled By The Elite?

wealth_inequality

Public policy is simply an attempt by the government to address a public issue, and how issues become public policy issues are up for debate.  Many people feel that the political world is made up of Private Corporations buying politicians in order for them to promote corporate interest above the interest of the American people. Many believe this power imbalance towards the elite has skewed wealth inequality further than what most Americans actually believe it is. How is this possible?

According to Leighninger and Popple in Social Work, Social Welfare, and American Society, the public choice model represents the vast majority of political participants such as voters, candidates, legislators, interest groups, parties, campaigners, and bureaucracies all are seeking their own goals of interest.

They further explain that the interests of politicians and bureaucrats are to win elections. However, the interests of voters and interest groups are to know what policies affect them and their lives. This seems to create an intricate dance for the politician balancing his/her interest against the voters and other groups who put them in elected office for the protection of their respective interests.

Leighninger and Popple also explain the existence of an elitist model that influences the political process. Proponents of this view assert that public policy and social issues are being crafted at the hands of a small group of people, also known as, the one percent. This model is comprised of the wealthiest one percent of citizens, and it suggests the pyramid of power where policies are made at the top will have a trickle down effect rather than competing groups debating policy requiring mutual compromise and gains.

The attached video is about a study conducted by a Harvard Economist on what the public’s perception of wealth distribution in America looks like. The study also asked over 5,000 participants what wealth distribution in America should look like, but what Americans were not prepared for was what wealth distribution in America actually is.

References:
Popple, P. R., & Leighninger, L. (2008). The Policy Based Profession (4th ed., pp. 122-123). Boston: Person Education Inc.

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