Housing Policy

A New Report Exaggerates the Problem of Housing Affordability To Push Expensive Federal Interventions

The 2018 "Out of Reach" report ignores the many options available to workers about how they live, work, and spend



The average American needs to earn $22.10 an hour in order to afford a place to live. Minimum wage earners would have to work three full time jobs in some states just to afford housing.

These are some of the audacious claims made in the 2018 "Out of Reach" report from the National Low Income Housing Coalition (NLIHC), which proports to show that millions of Americans can't afford a place to lay their head, a problem that will only be fixed with a massive infusion of federal cash.

"In the richest country in history, no family should have to make the awful choice between putting food on the table and keeping a roof over their heads," writes Sen. Bernie Sanders (I –Vt.) in the report's preface. "This is America. We have the resources to solve the affordable housing crisis. We have the solutions that work. What we need is the will to do what is right."

The media were quick to jump on these findings.

"Bleak New Figures Show Just How Unaffordable Rent Is In Every U.S. State," reads the headline over at HuffPo. "Where is all the affordable housing? Nowhere," declares The Outline. "A minimum-wage worker can't afford a 2-bedroom apartment anywhere in the U.S.," says The Washington Post.

From Oregon to Indiana, local papers fretted that rental housing was out of reach for even median wage earners.

Yet in order to reach its conclusion about American's housing woes, NLIHC's report constructs a deceptive and arbitrary standard of housing affordability that ignores the options available to even low-income workers for how they live, work, and spend.

The "Out of Reach" report assumes that housing affordability looks like a person spending no more than 30 percent of their income renting out a two-bedroom home or apartment—which costs in the 40th percentile of area rent—all to themselves.

When the report's authors claim that you need to earn $22.10 an hour to afford housing—what it dubs a "renter's wage"—that's what they envision you renting. When they say that a minimum wage worker in California has to work 116 hours out of a 168 hour week to afford a place to live, this is how they envision that worker spending his or her money.

All of these assumptions are problematic, beginning with the idea that you should only spend 30 percent of your income on housing.

This 30 percent rule has its roots in income eligibility standards for public housing assistance established by the Department of Housing and Urban Development back in the late 1960's. It can be useful in a pinch to compare rents between cities or states. It should not be treated as some eleventh commandment dictating how much people can or even should spend on housing.

For starters, almost no one actually spends 30 percent of their income on rent. Indeed, there is a good reason why people might choose to spend more.

The University of Virginia's David Bieri has argued that focusing on housing affordability as some arbitrary percent of income ignores the non-housing benefits folks receive from living in higher-cost cities. Writes Bieri, "local differences in the quality of life compensate households for below-average housing affordability, as approximated by the housing cost-to-income ratio."

In other words, people are willing to pay more to live in cities like New York, Seattle, or even Washington, D.C., because of the amenities, people, and opportunities they can access living in those cities. You can see this within metro areas, too, with some people choosing to pay more expensive city rents in order to be closer to the office, the train station, or the bar, while others might opt for less convenient—but cheaper—housing out in the suburbs.

Equally as arbitrary as how much income people should be putting toward housing is the report's focus on renting out a two-bedroom apartment all to oneself.

Renters have way more options, and way cheaper options than that. For starters, people are not stuck living alone. They can instead split the rent with a partner or roommates. That's not going to work for everyone, but for a lot of low-wage workers, who are disproportionately single and young, that is perfectly practical, maybe even desirable.

The addition of just one roommate drops that renter's wage from $22.10 to $10.05 an hour, a figure that looks a lot more affordable for a lot more people.

Low-income workers can economize on quality too. The "Out of Reach" report measures the price of units by looking at units priced in 40th percentile of rents. A lot of minimum wage earners might be in a bind trying to find something in that price range. They mercifully have the option of shopping for the 40 percent of units that costs less than that however.

In short, the report zeros in on the lowest paid workers in the country, artificially caps the amount of income they should be spending on rent, and then posits that they should be trying to rent some relatively expensive options. This is not a realistic portrayal of housing affordability. It's a numbers game.

NLIHC's solutions involve more games: increasing the minimum wage and dolling out more federal dollars to build below-market housing units. If people don't earn enough to afford housing, why not just use legislation to increase their wage and lower their rent?

What is so maddening about these policy prescriptions—aside from the normal complaints one has about the minimum wage—is that it totally ignores why housing is so expensive in the first place: zoning laws that constrain the supply of housing.

In Los Angeles, some 57 percent of residential areas are zoned exclusively for single-family homes. In growing Seattle, it's 69 percent. In San Jose, three-quarters of residential land is restricted to just single-family homes. Preventing the construction of cheaper, multi-family units predictably raises prices.

The picture is particularly bad in a number of California cities—the third most unaffordable state according to the "Out of Reach" report—where the effects of tight zoning laws are compounded by a lengthy approval process and onerous development fees.

The average fees on development in the state clocked in at $23,455 for a single-family home and $19,558 for a multifamily unit—which the U.C. Berkeley's Terner Center found was three times the national average. In the ultra-expensive city of San Francisco for example, less than four percent of housing projects over 10 units are completed within a year. A plurality (roughly 15 percent) take four years to finish. Over half of projects take six years or more, according to a study from U.C. Berkeley's Terner Center. Other cities are not much better.

Reason has covered a number of individual examples of this, from a San Francisco man spending four years and almost $1 million trying to turn a laundromat he owns into an apartment building, to the ten years and counting it's taken a government agency in Los Angeles to get permission to build an affordable housing complex on a vacant lot.

The Cato Institute's Vanessa Brown Calder summarizes the academic findings on the effects of all this zoning and regulation in an October 2017 white paper:

"A study by John Quigley and Steven Raphael estimated that each regulation in Californian cities is associated with a 4.5 percent increase in the cost of owner-occupied housing and a 2.3 percent increase in the cost of rental housing… Edward Glaeser and coauthors estimated that zoning rules pushed up the cost of apartments in Manhattan, New York; San Francisco, California; and San Jose, California, by about 50 percent. A study by Salim Furth found that residents of high-cost coastal cities would pay 20 percent less in homeownership costs and 9 percent less in rent if cities adopted zoning regulations typical of the rest of the country."

It is true that many people pay far more for housing than they otherwise would in the absences of taxes, fees, and regulation.

The response to this however should not be to fiddle with policy dials until some arbitrarily chosen housing option eats up an arbitrary percentage of one's earnings. Rather, policy makers should focus on deregulating land use as much as possible so that a wide variety of housing options can be built as quickly and inexpensively as possible.

NEXT: Tearing Babies from Their Mother's Breasts Is Now Your Government at Work

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  1. congrats Reason.

    you’ve ignored interest rate subsidies and prop tax distortions for a decade. Are STILL pretending that the housing issue doesn’t exist.

    And now guess who owns the issue because they are paying attention to actual daily concerns – the left.

    1. Didn’t read even a little bit of the article, huh.

      1. I read it. It’s the same old shit that ignores the actual world in favor of the ideological ‘I have hammer therefore everything is a nail’.

        Zoning nonsense doesn’t fly in from Mars on Bureaucrat AirnSpace. Whatever it is wherever it is is exactly what local propertyowners WANT govt to do in their neighborhood. And guess what – they don’t give a shit that it’s causing a problem for someone else – because they are benefiting. It is the propertyowners who are the source of the problem – even if they don’t know it or intend it.

        1. Let’s get rid of property, that’ll solve the problem.

          Apparently you can’t see the biggest hammer in the box — collective government. Almost all problems are caused by government, but your solution is more government.

          1. your solution is more government

            Oh really?

            Stop distorting interest rates and giving reverse Robin Hood subsidies and propping up bank balance sheets. That ain’t more government. That is YOU who is scared of what an actual free market would do in response. Even so, that multi-trillion distortion is a smaller part of the problem now.

            Outside TX and NH and maybe a couple more, the bigger problem for most of the others is the reverse Robin Hood of prop tax distortions and how their state govt is funded and spends. The actual problem in each state being radically different because the distortions are different. But in every case, my solution is nothing more than eliminate those distortions and let the chips fall where they may. It is YOU who is scared of that because you want gummint protection/goodies while someone else pays.

            Only then – when those two are fixed, CAN the free market actually function without distortion and thus without the demand for gummint to fix the shit that goes wrong – like housing, like transport sprawl – because of those distortions.

        2. Yes, and the solution is still to remove zoning powers from local governments. Wealthy property owners can’t go seeking privileges from their friends on city council if those friends have no privileges to hand out.

          1. remove zoning powers from local governments

            we don’t do much and we sure don’t do anything you want us to do seems like a really weird sort of nightwatchman. Maybe Uber can program it into a robo nightwatchman so we can eliminate the problems that humans create re self-governance.

            The two states I mentioned above are both very free economically, quite undistorted – and almost opposite ends of the spectrum re zoning. In CA – zoning ain’t the main problem either, land prices are and zoning ain’t the cause of that. So yeesh. Why the focus on the not particularly relevant?

  2. “This is America. We have the resources to solve the affordable housing crisis. We have the solutions that work. What we need is the will to do what is right.”

    1.) Find out where is cheapest in America to build.

    2.) Build giant soviet style apartment blocks there.

    3.) Command all the poor people to live there.

    4.) Success!

    1. Make sure to tear down all their old houses that they’re moved out of as well.

      We need a Cash For Clunkers for a new generation.

      1. Enh. Cash for Clunkers was notionally about protecting the environment, not about the unavailability of cars. (I can’t believe I’m about to say this, but…) I don’t think even the Democrats are stupid enough to think that reducing the supply of something will lower it’s price. Bernie advocating for massive soviet apartment buildings doesn’t seem beyond belief, but I don’t think even he would suggest tearing down the existing housing.

        For this purpose anyway. If he could get away with building the apartments in the middle of a big city, and tearing down a suburb, I would totally believe that.

        1. Cash for Clunkers was to get people to buy new cars for stimulus purposes. They tacked on some enviro stuff too, but that’s garbage.

  3. Two bedroom apartments? Is this Lake Woebegone where everyone lives better than average?

    1. Yeah, that’s a very weird criteria. As if when I was a poor, stupid child I had some moral right to not live with roommates.

      1. When I was young and poor I lived in quite a few houses and apartments with lots of different people. I don’t remember feeling desperate and oppressed. Seems like l was having the time of my life.

  4. It’s worth noting that the 30% rule is in regards to gross income. Since the report is proposing solutions to this “crisis” without regard to tradeoffs, I propose that we abolish payroll and income taxes so that renters have an extra 20-30% of their gross income freed up for housing costs.

    1. Government seems to never come up a solution other than subsidize the costs.

      1. No other solution grows the bureaucracy.
        Even more so than war, bureaucracy is the health of the state.

      2. Too true. I guess it would be irresponsible and cruel to allow people to squander their own money how they see fit anyhow.

    2. Nope. Going to up the income tax to 50% of your gross – then we’ll give you the 30% back.

  5. The only federal intervention that would work is “Well, your zoning laws are bullshit and we are going to nullify all of them”

  6. “What we need is the will to do what is right.” Sure, Bernie. You mean like “Triumph of the Will?”

    1. That’s exactly what he means. He just fools himself into believing that he’s better than that.
      He’s not.

      1. Did you see his tweet about the ATT/TimeWarner merger? He said it was good because having 14 different choices of deodorant telecommunications companies is ridiculous while children are starving. Just kidding, he was against it and said there needs to be more competition. No shit.

  7. You need $45,000 a year to have a place to live? And yet almost all of the people making less than that manage to live somewhere.

    1. I wish I had known during my late teens and early twenties that I was actually homeless. Would have made me appreciate the house I was living in so much more.

    2. When I got to DC, I was working with grad students who were living on stipends. I was baffled at how they could afford to live in or around DC for basically a notch above minimum wage. They managed to do it somehow.

      1. In the late 90s and early 00s, I was a graduate student in the Bay Area living on a $16-18k per year stipend. The way you make it work is called roommates. We all had them, more than one if necessary. For dinner, you mostly cook at home or you grab a cheap burger, burrito or Asian food. The first three years I didn’t have a car, and during the last few, one of my roommates had a clunker that we all shared. I don’t remember myself or anyone else feeling impoverished; actually it was a good time. I sometimes think back to those days and wonder how I was content with so little money, given the baseline amount I spend today, but I guess up to that point I didn’t know anything else. In fact, I was so gratified by the fact that I was getting paid to learn cool shit and get a degree.

  8. A minimum-wage worker can’t afford a 2-bedroom apartment anywhere in the U.S.

    Never in the history of the minimum wage was it ever designed for such a thing. The mendacity of these folks is breathtaking.

    1. That is rich:
      ‘A burger-flipper can’t afford to to rent a really nice apartment!!!!!’
      OK, then…

  9. The average American needs to earn $22.10 an hour in order to afford a place to live.

    Just for reference, assuming no downpayment, mediocre APR, and 36% of your gross going into payments over 30 years – that’s a $300,000 house.

    Where I live that’s going to be a pretty darn nice house on a multi-acre parcel. If you can’t afford a shitty shoebox for 300k where you live – move.

    1. Stop trying to bring your rational “math” into it. The only math that’s allowed is that which supports the feels.

  10. “A minimum-wage worker can’t afford a 2-bedroom apartment anywhere in the U.S.,”

    2 bedroom apartments go for $750-1,000 here. If you’re on minimum wage, why are you looking at a 2 bedroom? If you’re alone, get a studio. If you have a family, there’s going to be 2 incomes – that’s almost 3k take-home every month.

  11. You know what would make housing more affordable? Get rid of annual property taxes.

    I just found out recently that in the UK, they don’t pay annual property taxes. They pay a transfer tax, just like in the US. They pay capital gains taxes when they sell for a profit, just like in the US. But, they don’t pay annual property taxes.

    Some British property show was talking about fixing up your home instead of buying a new one and paying the dreaded “Stamp Duty” which is just a transfer tax of roughly 2-3%. And if it’s your first home purchase the first ?300k are exempt. And I was like “well, it’ll still increase the assessment and you’ll pay higher property tax” so I went looking for what the Brits pay in annual property taxes and couldn’t find anything. Then I realized that they don’t pay them at all. Lucky fucks.

    Anyway, I don’t want a VAT or anything like that, but property taxes on people’s homes is complete bullshit and eliminating them would go a long long way to making housing more affordable for everyone.

    1. They do pay property taxes in the UK – they just call them ‘council taxes’. Same purpose – funding ‘services’ from your local government (though in this case you pay the state and the state apportions back to the councils instead of property tax going directly to the council) – and same mechanism (taxes are based on property value).

  12. A large percentage of people earning min wage are young people (ie students) living at home. In what world do they have to afford an apartment? The job is to get some spending money and something for their cv. In other cases, you have a couple where both are working, and even if they are each making only $10/hr together they are making $40,000/yr. Not great but not poverty either. Some of the low wage people are between jobs and the min wage job is better than nothing.
    Also in what world does a single person need a 2 bedroom apt?
    In college we always split a house 3 or 4 ways, which makes it really cheap.
    argh the dishonesty

  13. Reading that report, it really makes me mad to learn that I was supposed to have the whole place to myself during the years that I spent in a two-bedroom apartment with three roommates. No wonder I hated those guys so much – they were in space that I was entitled to.

  14. Looking at the comments here, I can see why ‘libertarians’ are always reduced to complete irrelevance. It’s a shame but that is what happens when one side ignores what is happening so long that only the other side produces a solution that pretends to comport with reality. And the first side is then reduced to sniping at details of the second side’s stupidity because they are too fucking lazy to pay attention to the actual problem.

    The facts (on the renter side) are that rents as a % of income are by far the highest they have ever been. A bloomberg/zillow chart of it that’s on a lot of websites. Going back before 1979 – the % of rent paid was 14-20% or so going back to the 19th century. The ramp up to 23% by 1979 was considered a squeeze effect of 70’s inflation at the time – and it has never even been 23% since. Now it is over 30%.

    Young people have always had roommates. Renters have always made tradeoffs moving to high-rent high-income places for awhile. etcetc. It was always done with the idea that renting was temporary. That they would be able to save up a down payment and buy the white picket fence someday. THAT idea is what disappears when rent itself squeezes income – so the dynamic becomes paying more in rent or risking homelessness and forget EVER owning. The field itself tilts from American dream to serfdom.

    That ‘libertarians’ don’t even PRETEND to speak to that anymore speaks volumes.

    1. A VERY large percentage of this is that so many people have, dumbly IMO, decided to cram themselves into fewer and more expensive cities.

      The fact is that if you’re not an educated professional, you’re probably better off staying in Des Moines working your low end job than moving to San Francisco.

      The prices have become so ridiculous that people are finally starting to say “Fuck this!” and moving away. Including professionals. I’m taking my 6 figure income and bailing out of Seattle soon so I can live like a baller somewhere less ridiculous. Unless you work in tech and arguably “need” to be here, you’re an idiot to live here. A nurse, accountant, etc could have double or more the standard of living living somewhere more reasonable because the wages aren’t higher enough here to compensate.

      Even for somebody in IT you’d be materially better off making $100K a year in Dayton working for a non tech company in their IT department versus $150K a year here. So unless you think you have what it takes to become a $500K a year management tech guy, assuming that kind of advancement may only be possible in a tech hot spot (which really isn’t true, but let’s pretend), you’re going to do a lot better elsewhere.

      Hence SF lost population last year. This is a good trend as the current track was not sustainable.

  15. It certainly doesn’t seem like half the country is homeless or starving…but if ~a study~ says so it must be true

  16. As mentioned in my post above this is mostly because of people moving into over priced coastal cities. This trend seems to finally be reaching breaking point, which will likely mean things cool off over the coming years. Frankly big tech companies need to hire more people in other cities. This would help A LOT. Same could be said for other high wage/high skill jobs, which have also largely decided to concentrate campuses in just a few coastal cities in recent years.

    Whatever one thinks of current pricing, 10% a year increases can’t go on for much longer in hot coastal markets. It is already driving people out. Hopefully businesses will pull their heads out of their asses and realize many employees actually enjoy being able to buy big, nice, houses on their $150K a year salaries versus renting 1 bedroom studios on the coast.

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