The spring 2017 issue of Shelterforce features a series of articles that examine the standard measure of housing affordability that a household should spend no more than 30% of its income on housing costs. Several articles in the publication explore the 30% standard’s strength and weaknesses, and illustrate the use of an alternative, residual income approach to measuring affordability. In this approach, what a household can afford to pay for housing is whatever is left over after paying for basic non-housing necessities, like food, health care and transportation. Because housing is often the first expense paid by struggling households, a household is considered to be “shelter poor” if it cannot afford other basic necessities after paying for housing.
Daniel K. Hertz summarizes the limitations of the 30% standard, which does not account for the fact that households without children or with higher incomes may be able to spend more than 30% of their income on housing and still have sufficient resources for other needs, that cheaper housing may be in locations with higher transportation expenses not considered housing costs, and that cheaper housing may be of low physical quality. Hertz advocates for the adoption of the residual income approach to address the first two problems.
Christopher Herbert, Alexander Hermann, and Daniel McCue of Harvard’s Joint Center for Housing Studies compare the 30% standard and residual income approach across three metropolitan areas: Los Angeles (high cost), Phoenix (moderate cost), and Cleveland (low cost). They base the cost of non-housing necessities on budget data from the Center for Women’s Welfare Self-Sufficiency Standard. They find that the 30% standard and the residual income approach produce similar overall estimates of households suffering from unaffordable rents. Their analysis reveals, however, that the 30% standard somewhat underestimates affordability problems of the lowest income households, and in high-cost metro areas it overstates the affordability problems faced by moderate income households. They conclude that the 30% measure of affordability will remain the standard because of its simplicity, availability over time and across most geographic areas, and accuracy.
Richard Heitler of the Urban Homesteading Assistance Board in New York City compares the 30% standard to a residential income approach in New York City. He bases the cost of non-housing necessities on the Economic Policy Institute’s (EPI) Family Budget Calculator. Mr. Heitler concludes that the 30% standard underestimates affordability challenges for moderate income households (except for single-person households) in the high-cost market of New York City. Heitler points out that requiring families with housing assistance to contribute 30% of their income towards housing does not leave enough income for other necessities.
Andrew Aurand, NLIHC’s vice president for research, compares the 30% standard with a somewhat different residential income approach. Using national data, he determined that households who do not have enough income to cover two-thirds of the poverty threshold are living in “housing poverty.” The poverty threshold is the most conservative cost estimate of non-housing necessities among the articles. Dr. Aurand’s analysis shows that the 30% standard underestimates housing affordability problems for the lowest income renters and overstates affordability problems for moderate income renters. The primary difference among the three residual income approaches is what constitutes basic non-housing necessities. A more generous definition will show more households higher up the income ladder experiencing a housing affordability problem.
The spring 2017 issue of Shelterforce is available at: http://bit.ly/2uj0B6K.